1. Introduction

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1.1 Introduction to the Study

The ultimate objective of any organization is to maximize its profits. This objective can be achieved through various means like increasing sales, reducing costs, reducing overheads, reducing prices, increasing sales promotion and so on. All these factors have an influence on the working capital and how effectively are being managed. Profits will increase considerably if organization manages its working capital optimally. Thus, efficient working capital is one of the perquisites for success of an enterprise.

These days, management experts’ device new techniques like JIT, TQM, six sigma and so on. Since the resource being scarce, its utilization should be optimum. Many times through the company may be operating well; the profitability level will be low. One of the reasons for this could be lack of proper management of working capital. For every business concern, irrespective of its size nature and age working capital is the life blood of the firm. No business can be successfully run without adequate amount of working capital. In ordinary parlance, working capital is taken to be the funds available for meeting day- to-day requirements of an enterprise. Thus working capital management is very significant facet of financial management.

Working capital management is mainly concerned with two factors, namely, the level of current assets to be held and types of assets and methods by which these assets are financed. Modern financial management aims at reducing the level of current assets without ignoring the risk of stock outs. This occupies much of the finance managers time in taking decisions. The performance of the economic activities of a company is best judged by the value of what is credited by such performance, which is beneficiary of the value. The company can reach these goals through different financial activities. One of the important activities is the proper maintenance and use of working capital. Therefore, management of working capital requires more attention and care.

1.2 Significance of the Study

TRACO CABLE COMPANY, a Premier Kerala Government Company, commenced operations in the year 1964, manufacturing high quality Electric Cables and Wires in Technical Collaboration with M/s. Kelsey Engineering Co. Ltd., Canada. Since then TRACO has been in the forefront in meeting the needs of Public Sector Undertakings in India like Railways, Electricity Boards of various states in the country and others for AAC/ACSR, Power and Signaling Cables.

The study is very important because of the scale of the company. The study is very helpful to know the working capital management. It also helps in ascertaining how the company performs in future. This study will help the firm to male projections of

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working capital requirements for the next two years. This study also helps to understand the liquidity and profitability of the company.

1.3 Statement of the Problem

Presently many of the government owned public sector companies are not performing well. The major reasons for this are under utilization of capacity and inefficient financial management. Effective and sound financial management tools are essential at all levels of operation for the efficient operations of any enterprises. The problem of under utilization of capacities is more acute and this can be solved by management of working capital.

The present study is an attempt to diagnose the working capital management of TRACO CABLE COMPANY. The problem under study is stated as “Working Capital Requirement of Eastern Treads Ltd for the Next Two Years Based on the Current Growth Trend”.

1.4 Objective Of The Study

Primary Objectives

To project the working capital requirement of TRACO CABLE COMPANY for the next two years.

To examine the solvency and liquidity positions of TRACO CABLE COMPANY.

Secondary Objectives

To study the activities in each department.

To understand the production procedure.

To study the financial performance of TRACO CABLE COMPANY.

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1.5 Scope Of The Study

The present study is designed to cover the analysis of working capital, liquidity and solvency of TRACO CABLE COMPANY by establishing ratios on the basis of financial statements. The analysis is mainly done on the basis of annual reports of TRACO CABLE COMPANY for the period of 5 years from 2008-2012.

1.6 Methodology

i) Data Collection Methods

Primary Data: Primary data was collected through direct interaction with various officials of the company.

Secondary Data: Secondary data was collected from sources comprising of; websites, annual reports of TRACO CABLE COMPANY

ii) Tools of Analysis

Ratio Analysis to know the performance and financial position of the company.

Trend Analysis to project the working capital requirement for the next two years.

1.7 Limitations Of The Study

Time is the most important constraint. The study s mainly based on secondary data. Findings and conclusions of its study are based on the information given in the annual reports of the company and are valued only with respect, to figures given there in. Through adequate measures have been taken to verify the reliability of the secondary data, possibility of normal errors inherent to research, cannot be completely avoided.

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2. REVIEW OF LITRATURE

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2.1 Review of Literature

Sagan in his paper (1955), perhaps the first theoretical paper on the theory of

working capital management, emphasized the need for management of working capital

accounts and warned that it could vitally affect the health of the company. He realized the

need to build up a theory of working capital management. He discussed mainly the role

and functions of money manager inefficient working capital management. Sagan pointed

out the money manager’s operations were primarily in the area of cash flows generated in

the course of business transactions. However, money manager must be familiar with what

is being done with the control of inventories, receivables and payables because all these

accounts affect cash position. Thus, Sagan concentrated mainly on cash component of

working capital

Realizing the dearth of pertinent literature on working capital management,

Walker in his study (1964) made a pioneering effort to develop a theory of working

capital management by empirically testing, though partially, three propositions based on

risk-return trade-off of working capital management. Walker studied the effect of the

change in the level of working capital on the rate of return in nine industries for the year

1961 and found the relationship between the level of working capital and the rate of

return to be negative.

Welter, in his study (1970), stated that working capital originated because of the

global delay between the moment expenditure for purchase of raw material was made and

the moment when payment were received for the sale of finished product. Delay centres

are located throughout the production and marketing functions. The study requires

specifying the delay centres and working capital tied up in each delay centre with the

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help of information regarding average delay and added value. He recognized that by more

rapid and precise information through computers and improved professional ability of

management, saving through reduction of working capital could be possible by reducing

the length of global delay by rescuing and/or favorable redistribution of this global delay

among the different delay centres. However, better information and improved staff

involve cost.

Appavadhanulu (1971) recognizing the lack of attention being given to

investment in working capital, analysed working capital management by examining the

impact of method of production on investment in working capital. He emphasized that

different production techniques require different amount of working capital by affecting

goods-in-process because different techniques have differences in the length of

production period, the rate of output flow per unit of time and time pattern of value

addition. Different techniques would also affect the stock of raw materials and finished

goods, by affecting lead-time, optimum lot size and marketing lag of output disposals.

He, therefore, hypothesised that choice of production technique could reduce the working

capital needs.

Chakraborty (1973) approached working capital as a segment of capital

employed rather than a mere cover for creditors. He emphasized that working capital is

the fund to pay all the operating expenses of running a business. He pointed out that

return on capital employed, an aggregate measure of overall efficiency in running a

business, would be adversely affected by excessive working capital. Similarly, too little

working capital might reduce the earning capacity of the fixed capital employed over the

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succeeding periods. For knowing the appropriateness of working capital amount, he

applied Operating Cycle (OC) Concept.

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3. CONCEPTUAL OVERVIEW

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3.1 History of Cables and Wires Industry

A cable is one or more wires bound together covered by a protective sheath or

jacket. The individual wires may be covered with coloured insulation for easy

identification used for in house laying and also for underground use. Bunching small

wires before concentric stranding adds the most flexibility and tight lays during stranding

makes the cable extensible. Bare conductors are used mainly for overhead lines by

stranding bare wires often reinforced by steel wire inside. Pulling and compressing forces

balance one another around the high-tensile centre cord that provides the necessary inner

stability. As a result the cable core remains stable even under maximum bending stress.

In this process, smaller individual wires are twisted or braided together to produce larger

size wires that are more flexible than solid wires of similar size.

In the 19th century and early 18th century, cable was often insulated using cloth or

paper. Plastic materials and PVC (Poly Vinyl Chloride) are generally used today except

for high reliability power cables. Polyethylene Granules such as HDPE (High Density

Polyethylene) and LDPE (Low Density Polyethylene) are commonly used for insulation

in telecommunication cables today. To limit fire hazard to cable’s jacketing materials that

are inherently fire retardant is used for jacketing.

3.2 Industry Profile

3.2.1 World Scenario

The economic liberalization and industrial globalization lead to spectacular

development of the infrastructure such as buildings, roads and cables are the crucial

element that wire up the length and breadth of the countries as power and telecom

networks. Now the world is all set to see a "war of the accesses" with ever increasing

demand for cables and conductors. World have learnt with time the “ philosophy of co-

operation and co-existence” obviously leading to pooling of both technical and financial

resources for a better economically viable environment for industrial growth and

development.

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3.2.2 Indian Scenario

INDIA has made remarkable progress in recent years in the manufacture of cables

and conductors. The country has not only achieved self sufficiency in this field but has

also made a big head way into the international market. Rural electrification and

telecommunication networks undertaken by various state governments as part of national

policy lay the crucial infrastructure backbone for the recently liberalized industry with

increased Private Public Participation (PPP) and privatization. The investment strategy of

the government primarily relies on promoting investment through a combination of

public investment with private investment participation. PPP will promote and streamline

strategies for future development and management of the economic and social

infrastructures ensuring effective use of resources, access to modern technology, timely

implementation and operation for rapid economic growth. The Indian economy grew at

an average annual rate of 9% in 2008 before global economic meltdown. Despite the

adverse circumstances Indian economy grew by 6.7% in 2009, 7.9% in 2010, and 8.5% in

2011 and is expected to achieve a growth rate of 9% in the year 2012. The telecom sector

and the power sector needs infrastructure development which is crustal for fueling for the

growth for the economy however power shortage remain a problem in many part of the

country and the distribution segment (transition and distribution) shows steady growth in

the requirement for cables and conductors. In the telecom sector private investment

increased from Rs.6crores in 2003 to Rs.51crores in 2010 and competition and access to

consumers seems to be the driving force. Therefore the pace of economic and social

development of the nation depend to a very large extend of the development of

infrastructure in the power sector as well as in the telecommunication sector.

The market segmentation and structure of the cable industry in India are

there both in Power sector as well in Telecom sector. Power cables are segregated into

high and low voltage varieties. Telecom cables are classified as high capacity cables

(Optic Fiber Cables) and low capacity cables (Jelly Filled Telecom Cables). Organized

players have higher presence in Indian Telecom sector since it involves higher capital and

technology inputs when the higher presence of unorganized players in Indian power

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cables segment is evident for reasons of low investment. The current scenario prevailing

in the Indian cables industry has ample focus on government policy along with demand-

supply position. In this context, special focus has been given to the impact of government

decisions on the industry for direct foreign investment putting an end to Public sector

monopoly in the Industry.

3.2.3 State Scenario

Emphasis is given for 100% electrification giving importance to rural electrification as a government policy in Kerala State. Moreover telecommunication network is wide spread all over the state including remote rural areas. Power connection and telephone connection have become a basic need for everyone in the state. Due to the onslaught of the mobile phones, in the country, the requirement for telecom cables are diminishing in the state also. TRACO in public sector and around ten manufacturers in the private sector compete in the market for power cables and conductors in the state. TRACO has got a manufacturing capacity of 6000 metric ton conductors/per annum, where as the manufacturing capacity of all the private manufacturers taken together constitute only 5500 metric ton/per annum. All the private companies are located in the southern part of the state in Trivandrum and Kollam district. TRACO is logistically located at central Kerala. When Kerala State Electricity Board floats tenders for conductors the private manufacturers does not quote for consignees at northern part of Kerala due to high transportation cost. Hence TRACO has got a monopoly in bare conductors, distribution cables and control cable market when transmission cables are mostly dominated by private players of outside state.

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3.3 Company Profile

Traco Cable Company

TRACO CABLE COMPANY is incorporated in the year 1960; the foundation stone of

Irumpanam unit was laid down by Shri Manubhai.M Shai. The then Union Minister for

Industries on March 19th 1960.The company started its operation in the year 1964. Shri

M.D Jose was the first chairman and the managing director on whose initiation

Irumpanam unit of the Traco Cable Company commenced its operation.

TRACO CABLE COMPANY, a Premier Kerala Government Company,

commenced operations in the year 1964, manufacturing high quality Electric Cables and

Wires in Technical Collaboration with M/s. Kelsey Engineering Co. Ltd., Canada. Since

then TRACO has been in the forefront in meeting the needs of Public Sector

Undertakings in India like Railways, Electricity Boards of various states in the country

and others for AAC/ACSR, Power and Signaling Cables. One of India's most sought after

Paper Insulated Lead Sheathed Telecommunication Cables were produced by TRACO in

collaboration with Hindustan Cables, West Bengal under an agreement signed in 1974

until the liberalization of Licensing policy in the country, TRACO was one of the two

manufactures of Telephone Cables in India and the only one in the whole of South India.

Always playing its humble role in the process of nation building, TRACO’s cables carry

energy, actuate signals and help to connect people in far flying areas in this vast sub

continent, that’s India with its quality products.

The superiority of TRACO cables is the result of better know-how

combined with well equipped machinery and efficient work force. Rigorous quality

control is maintained during every stage of production, which ensures, that the products

going into the market are according to the IS specifications. With the progress in Cable

Technology, Paper Insulated Cables gave way to the much more sophisticated Jelly Filled

Telephone cables which are superbly suited for communications. TRACO was one

among those who first perceived the opportunities inherent in this new development. It

soon went into Technical collaboration with M/s. General Cables Inc., USA, world 13

leaders in the Communication cable field and manufactured them in India to exacting

standards

The company started its function with a capital of Rupees one core divided into

250000 per: shares of Rs.10 each and 750000 equity shares of Rs.10 each. The unit was

has been manufacturing cables required for the Railways, the BSNL and the KSEB.

Traco's power cable manufacturing unit has a workforce of 210 and the telephone cable

division around 450. The estimated turnover of Traco cables is around Rs 44.8crore.

RISING FROM UNDERGROUND TO THE SKIES

It is true that all these years much of our time and effort was spent on making

underground cables that are as fail proof as can be. As a result, we have connected

millions of people, playing an important role in communications. And our efforts are still

on, to bring you better products. But there are no plans to stop with underground cables

alone. And thereby ignore people who could not be connected with underground cables

due to geographic and economic reasons. In short, TRACO has diversified into Aerial

Cables.

TRACO's new range of self support Aerial Cables connect people aerially at the

same time, economically. They are manufactured to both national and international

standards.

TRACO has developed Aerially Bunched Cables for LT Overhead lines also. They

are polythene Insulated Aluminum Cables of specification: REC Specification

No.s2/1984 and have a rated voltage of 1.1 K V. These types of cables help in reducing

the power interruptions to the barest minimum level possible. Many of the advanced

countries are all ready switching over to these cables from the bare counter system.

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UNITS OF TRACO CABLE COMPANY LIMITED

1. Corporate office

The registered and corporate office of traco cable Company is located in Cochin,

panampilly nagar the industrial city of Kerala. Board of directors, MD’s office, and

all main heads of traco Cable Company is located at the registered and corporate

office.

2. Tiruvalla unit

In tiruvalla unit of traco cables having two major divisions they are power cable

division and telephone cable divisions

3. Irimpanam unit

In irimpanam unit also having two divisions

Power cable division.

Telephone cable division.

4. Kannur unit

Kannur unit mainly focused on house wiring cables.

INFRASTRUCTURE AVAILABLE(IRUMPANAM UNIT)

Land : 15.38 Hectares

Plant area : 7500 sq.mtrs

Total built up area : 9500 sq. mtrs

Electricity : 2 nos. 1000KVA transformers in addition to

K.S.E.B. power connection.

Water : 3 nos. bore wells for process water and

3 nos. well for Drinking water (7000ltrs/day)

Cooling tower : 1 FRP/ Spray cooling tower with an

overhead tank and ground level tank

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ORGANISATIONAL POLICY

BOARD OF DIRECTORS

CHAIRMAN

Shri.K.S.SRINIVAS, IAS,

ADDITIONAL SECRETARY TO GOVERNMENT,

INDUSTRIES DEPARTMENT,

GOVERNMENT OF KERALA,

THIRUVANANTHAPURAM.

MANAGING DIRECTOR

Cdr. (Retd) K.SHAMSUDDIN

MANAGING DIRECTOR

TRACO CABLE COMPANY LIMITED,

COCHIN – 682036.

DIRECTORS

1, Shri.K.S.SRINIVAS , IAS

ADDITIONAL SECRETARY TO GOVERNMENT,

INDUSTRIES DEPARTMENT,

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GOVERNMENT OF KERALA,

THIRUVANANTHAPURAM.

2, Cdr. (Retd) K.SHAMSUDDIN

MANAGING DIRECTOR,

TRACO CABLE COMPANY LIMITED,

COCHIN – 682036.

3, Shri.M.RADHAKRISHNAN

JOINT SECRETARY TO GOVERNMENT,

FINANCE DEPARTMENT,

GOVERNMENT OF KERALA,

THIRUVANANTHAPURAM- 695001

4, Shri.R.MADHUSOODHANAN NAIR

MANAGING DIRECTOR

INDUSTRIES DEPARTMENT,

GOVERNMENT OF KERALA,

5, Shri.K.ASOKAN,

MEMBER (TRANSMISSION & TRANSMISSION),

KSEB,

THIRUVANANTHAPURAM.

6, Shri.S.VENKADEESWARAN

MANAGING DIRECTOR,

TELK,

ANGAMALY SOUTH P.O,

ERNAKULAM DIST.

ORGANISATIONAL SETUP

The company‘s Registered office is at Panampilly Nagar, Kochi with manufacturing units at Irimpanam in Ernakulam District and Thiruvalla in Pathanamthitta District and also a new Unit at Thalassery in Kannur District. TRACO CABLE COMPANY LIMITED maintains the traditional lines of management having pyramid structure of hierarchy. The Board of Directors consists of members appointed by the Government of Kerala and the Managing Director is the Chief Executive Officer who

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delegates the authority to the Unit Chiefs and other department heads. The Head of Irimpanam unit is Mr.Boban George, Senior Manager and different departments such as Production, Quality Assurance, Finance, Maintenance, Personnel & Administration, Stores, Purchase and Marketing are having department heads reporting to the unit head.

MANAGEMENT IN IRIMPANAM UNIT

SENIOR MANAGER (UNIT HEAD) - BOBAN GEORGE

SENIOR MANAGER(MAINTENENCE) - K.S. KRISHNAKUMAR

MANAGER( P&A) - JOSHY ABRAHAM

MANAGER (P&A) - JOHN VARKEY

MANAGER (MARKETING) - BOBY GEORGE

MANAGER (FINANCE) - MANOJ BINDHU

MANAGER (PRODUCTION) - MANOJ A.T

MANAGER (QA&STORES) - DEEPA MERIN JACOB

ORGANIZATION STRUCTURE OF THE COMPANY

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FUNCTIONAL DEPARTMENTS

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The major functional departments at Traco Cables Ltd are:

MARKETING DEPARTMENT

Marketing department serves as the face of the organization, coordinating and

producing all materials representing the company. It is the marketing department's job to

reach out to potential customers, investors and the community, and create an image that

represents the company in a positive light. Marketing departments often collaborate with

other divisions within the company, such as advertising, promotions, sales, product

development and market research.

The marketing department moreover plays a vital role in the production planning as

a constant feedback of the quality of finished products is verified regularly to check the

possibility of finishing the production of the uses specified products in time. Hence, the

department plays an overall significant role in the functioning of the organization.

Marketing is a matching process by which a producer provides a marketing mix (product,

price, promotion and physical distribution) that meets consumer demand of a target

market within the limits of society. Since the inception company has been managing its

activities with a centralized control. Due to the increase in competition and necessity to

exert full control over the system the company has introduced a Decentralized way of

managing the departmental activities from this fiscal year.

(a) Responsibilities of the marketing department.

Major responsibilities of a Marketing Department are as follows:

1. Focus on the Customer 

2. Monitor the Competition 

3. Find & Direct Outside Vendors 

4. Create New Ideas 

5. Communicate Internally 

6. Manage a Budget 

7. Understand the ROI 

8. Set the Strategy, Plan the Attack, and Execute

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(b) Functions of the marketing department

1. Order canvassing:

The department continuously monitors the media, newspapers, sites etc. for

canvassing the orders.

2. Tender participation:

The company participates in tenders. There are two types of bids namely price bid

and technical bid. The companies qualifying in the techno-commercial bid are allowed

to participate in the price bid. The Techno –Commercial bid includes details such as

capability of the company, quality of products and processes, status of past orders etc. If

qualified in it, the company can apply for the actual bid. Performance bank guarantee

and security deposit bank guarantee is required to participate in the bid.

3. Monitoring the activities of the agents:

All over India, the company has fixed agents for order canvassing. They are given a

commission of 1% or 2%.

4. Giving information:

The department is entrusted with the responsibility of giving necessary information

to all the other departments. Once the order is received, it is forwarded to the costing

department for evaluation, finance department for funding purposes, purchase

department for the purchase of raw materials and finally to the factory for production

planning.

PRODUCTION DEPARTMENT

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The production department is the driving force turning the wheels of every

manufacturing company because without it there are no goods to sell to customers. Along

with producing the goods a manufacturer sells, the production department determines

how much of those goods can be produced in a certain time frame.

The main role of production is to turn inputs (raw materials) into outputs (finished

goods). Outputs refer to a finished product or service and inputs are the materials that are

needed to manufacture certain goods. When a business completes this process they are

able to achieve customer satisfaction by producing products that are ready to be used and

fit for purpose.

The production department is responsible for ensuring quality is achieved in each

item produced. They will need to carry out inspections and implement suitable quality

initiatives.

(a) Quality of goods

The production department's main duty is to ensure the goods being produced meet

the customer's quality expectations. Even though the quality assurance department

inspects the goods through the manufacturing process, the production department has

certain quality duties too. Each step measures the raw material to make sure it is within

the tolerances recommended before it goes to the next step.

(b) Production scheduling

A production department can only manufacture or assemble so many products in a

certain amount of time. It is the duty of the production department to maintain a

production schedule so other departments know what is being produced and how long it

takes to produce that quantity.

(c) Coordinating duties

This is the last step in a long production process. The production department

coordinates the production of each part of the assembled goods to ensure all parts are

being produced in conjunction with each other. All parts of an assembled product are

formed from raw material. This process takes several steps from the production

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department to make sure each part of the product is being produced simultaneously or

within the same time frame.

(d) The production department in Traco

The production department in TRACO Cable Company is located in the

factory sites. The Production Department is headed by the Production Manager. His

main objective is to do production planning and to carry out the work according to the

plans prepared. The investigator analyses the Production process and notes the purchased

raw materials. The major raw materials are aluminums, steel and copper.

(e) Production planning

a. Material planning

On receipt of trial order / anticipated order /work order from the marketing

department, a material indent is prepared with reference to the customer specification

showing quantity and delivery time. The material indent is forwarded to the Head of

Materials for procurement. Material position is reviewed daily and intended to materials

departments for corrective action.

b. Production scheduling

Monthly production planning and scheduling is prepared based on orders

depending on priority as informed by marketing department. The monthly planning

schedule copy is giving to the Materials, Marketing, Finance, and QA&IT and Stores

departments to facilitate advance arrangements in their respective areas.

According to the schedule, different shifts are planned. And on completion, the

finished goods are handed over to the Quality Assurance Department. The Quality

Assurance Department conducts various tests and after testing, if they are satisfied they

issue a clearance and the finished goods are dispatched from the stores

department.

(f) The books maintained in production department are:-

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1) Production log book :- Quantity level assigned to each machine

recorded in this book.

2) Daily production report: - Records details of daily production.

3) Daily production review report :- It reviews weather the daily

production is

Achieved as planned or not.

4) Raw material stock position :- Records the position of stock of raw

materials.

PURCHASE DEPARTMENT

The Purchasing Department is an important player in any company's operations.

For an organization to excel, it must have a solid group of capable individuals executing

agreements on its behalf so that it's not over-paying for goods and services and so that it

can focus on business at hand. Purchasing provides a necessary support service to its

organization. Inter-departmental cooperation is another key duty of purchasing

management, because the Purchasing Department is the liaison between the organization

and its suppliers. Excellent vendor relations are vital in obtaining best value and best

pricing. Most purchasing departments have two types of purchasing agents: capital and

non-capital. Non-capital purchasing agents must have a general knowledge of materials

acquisition, and they must possess the ability to use their professional judgment in

matters of pricing, bids and quotations, and vendor selection. Purchasing agents are the

front-line liaisons between vendors and company departments. . In addition, purchasing

agents ensure that departments follow company policy when they submit their requests

for supplies. . In addition, purchasing agents ensure that departments follow company

policy when they submit their requests for supplies. Capital purchasing agents perform

many of the same duties described above, but they also have additional tasks. They not

only purchase capital equipment and assist with renovation projects; they monitor capital

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leases and compare purchase prices with the allotted capital budget.

(a) Duties and responsibilities of purchase department

Consults with users to develop specifications; makes recommendations regarding

purchases.

Contacts and receives informal quotes from appropriate vendors; compares costs and

evaluates the quality and suitability of equipment, materials and supplies.

Prepares and processes requisition forms; recommends vendors.

Prepares requests for removal and disposal of surplus items.

Verifies budget codes and availability of funds.

(b) Purchase department in Traco

Main duties of purchase department are to purchase the raw materials, machinery,

spares and general goods. purchase department has a very important role to ensue the

purchasing and delivery of the materials on time then only the production process will

done without any time lag.

(c) Duties of purchase department:

Duties of purchase department are to purchase various materials for the production

process.

Materials which are purchased by purchasing department are as follows:-

General consumables, Calibrated equipments

Machinery

Packing materials

Raw materials

Spare parts etc.

(d) Packing materials:

Raw materials purchased for packing are as follows:-

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Wooden drum

Wooden batten

Packing paper

Hoop iron etc.

(e) Machinery:

Machineries are purchase according to the increase in number of orders for

production.

Traco Cable Company has both imported machineries and Indian made machineries.

(f) Spare parts:

Any spare parts required for maintenance is also purchased by the purchasing

department.

(g) Rating criteria

The vendors are assessed on the basis of a wide variety of factors are as following:

Compliance with other specifications

Co-operation

Credit terms

Discounts received

Freight and delivery charges

Installation cost

Maintenance of specifications

Management Competence

Market information

Price

Promptness of delivery

Service

(h) Purchasing process

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1. Indents duly approved with delivery schedule for the procurement of raw

materials and packing materials are received by the materials department from the

units and corporate office.

2. The indents are scrutinized by the Materials department for its correctness,

completeness in specification / description.

3. If any discrepancy is found in the indent will be returned to the respective

intender for rectification of discrepancies. Items for which specific details are

available, the indents will be rectified in the Corporate Office and the same will

be intimated to the intender.

4. Depending upon the nature and status of the indent, Tenders / quotation will be

invited from approved list of suppliers and schedules will be given to the

suppliers based on the indent and stock position of different raw materials on day

to day basis. In case of indents from Irimpanam Unit for manufacture of Jelly

Filled Telephone Cables, raw materials will be arranged either by transfers from

Tiruvalla unit or diverting from the suppliers. Depending upon the urgency, raw

materials are transferred between the two units.

5. Updating of the approved list of suppliers will be as detailed in the Work

Instruction.

6. The tenders / quotations are analyzed on the basis of technical and commercial

aspects. If the offers are found technically and commercially viable, purchase

proposal is prepared and put up through the commercial advisory committee

before the Chairman and Managing Director/ Board for approval. In urgent cases

orders will be placed and ratified later.

7. Purchase proposal is made on self generated indents as per work instruction.

8. Once the purchase proposal is approved, purchase order will be prepared by the

respective officers. The purchase order will be signed by the Head of Materials /

AM (Mat) on behalf of Managing Director.

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9. Details of indent, Purchase orders placed, supplies made, Stores Receipt Vouchers

indicating whether quality of material is as per the purchase order, quality of

packing etc., will be entered in the Purchase Register. Steps will be taken to get

the replacement for rejected material.

10. Copies of the purchase order will be forwarded to the Indenter, Finance

department and Stores department.

11. If any changes are required in the Purchase Order, it will be intimated to the

supplier by amendments after necessary discussions with the concerned

departments. Copies of the amendments will be forwarded to the concerned

departments as above.

12. In case of advance payment/ clearance of documents from bank are required;

assistance from Finance Department will be obtained.

13. In case of rejection due to non-conformity to quality specification of the material,

appropriate action will be taken for alternate arrangement or replacement.

14. On receipt and acceptance of the consignment, intimation will be made to Finance

department to regularize/ release the payment based on the supplier’s invoice and

Stores Receipt Voucher.

15. Once material acceptance is confirmed and payment is released, all records will

be kept in the respective files.

16. The vendor performance will be evaluated on the basis of quality, delivery,

packing, and service and unsatisfactory performance if any will be intimated to

the supplier as detailed in the work instruction.

17. In case of exigencies, raw material can be procured from stockiest/ other cable

manufacturer confirming to specifications/ standards.

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STORE DEPARTMENT

TRACO Cable Company has a fell functioning store department. Duty of store

department is to take care of raw materials, finished goods, spares and tools. Materials

required for all departments are deals with general store. In TRACO Cable Company the

store department usually follows FIFO method of storage. This FIFO method will help to

avoid deterioration of materials and to avoid confusion on fluctuation of prices. A day

book is maintained in this store department for recording all the daily transaction taken

place.

There are mainly three stores TRACO namely:

General store

Spare and tools store

Finished goods store

(a) General store:

In general store all materials which required for all departments are maintained

Materials handled by general store are as follows:-

Raw materials

Printed stationary and other stationary materials

Packaging materials

Miscellaneous materials

Electrical consumable materials

Building materials

All consumable materials

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(b) Spare and Tool Store:

In spare and tools store all tools, spares, machinery, etc. for production process

(c) Finished goods store:

In finished goods store all final products are stored here. After testing, the goods are

packed and dispatched.

(d) various auditing conducted in each financial year are as follows:-

Statutory auditing

Outside auditing

Accounts general auditing etc.

(e) Short term objectives in store department

Scrap due to deterioration of materials in storage should be ZERO

Damage on raw materials and finished materials due to bad handling should be

ZERO

Time for dispatch for finished goods for which commercial clearance is available

48 hours

Customer complaints on packing should be ZERO

(f) Responsibilities of personnel working in store department

a) Stores officer

Stores Officer is responsible for the maintenance of the system for the storage,

packing, preservation dispatch of both the incoming raw materials and the

outgoing final product.

b) Store keeper (general store)

Storage and preservation of materials

Preparation of stores receipt voucher

Monthly stock taking

Materials receipt and issue

Maintenance of stock with identification tags;

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Maintaining ledgers and material requisitions

Intimating the material receipt to Inspection & Testing department for

inspection and testing

Handling of raw materials, packing materials, consumables and stationery

items

Annual physical inventory taking

c) Store keeper (spares and tools)

Storage and preservation of materials

Preparation of stores receipt voucher

Periodical stock taking

Material receipt and issue

Maintenance of stock with identification tags

Maintaining ledgers and material requisitions

Handling of spares, tools plant equipments & machines

Annual physical inventory taking

d) Storekeeper (finished goods store)

Packing and dispatching of finished goods ;

In case of power cables, the inspection certificate is receiving from Quality

Assurance/ Inspection& Testing department and accordingly packing is done

as per specification.

FINANCE DEPARTMENT

The roles and responsibilities of a finance manager require a sincere commitment

and an inexhaustible need for new challenges. Each industry has its own rules and

spending regulations so that finance managers must adhere to and more importantly hold

each department of the business accountable to in order to maintain a fully functioning

and federally compliant organization. Finance managers may allocate resources to each

department and draw up plans for future departmental budgeting in an effort to maximize

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company finances for optimal performance and also have final approval for all financial

transactions for purchases occurring from outside the business.

(a) Duties and responsibilities of finance department

Duties and responsibilities of finance manager are as follows:-

Cheque payments.

Control of bank and cash.

Coordinating the audit of Statutory, Internal and Comptroller& Auditor General of

India.

Dealing with income tax matters.

Dealing with sales accounting and cost accounting.

Dealings with the sales tax cases.

Finalization of accounts

Furnishing of CMA data and other details with banks.

Furnishing of sales tax returns.

Overall supervision of the finance department.

Passing of bills for payment like statutory dues.

Preparation of pass orders.

Preparation of various reports

Preparing monthly report to the government.

(b) Functions of the department

The head of finance department is responsible for the control and financial

accounting of the company, budgeting and performance appraisal, funding of projects,

control on budgeting and non budgeted expenditures and liaison with banks, financial

institutions and government.

The major functions of the Finance Department are:

1. Making Arrangements for Funds.

2. Working Capital Management.

3. Maintaining Accounts.

4. Costing System

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a. Making arrangements for funds.

The Finance Department makes arrangements for funds from banks. Presently

the company has got an arrangement with a consortium of four banks for the arrangement

of funds. The banks issue a credit monitoring arrangement in which the Finance

Department has to convince the bank for lending funds to the company. Every month the

company has to submit a stock statement to the bank containing the current position of

the company’s raw materials, funds available, debtors, stock etc. The bank is given an

idea as to how much fund is required by the company and according to that the bank

lends funds to the company. Only 75% of funds are issued by the bank. Rest has to be

financed by the company’s funds.

Even if the sanctioned amount by the bank is high, the company can draw only according

to the present position of the company’s stock, funds, debtors etc.

b. Working capital management.

Working Capital Management is another important function of the Finance

Department. The raw materials are used for work in progress. It is then converted into

finished goods. The finished goods are then sold on credit, thereby resulting in the

creation of debtors. On receiving the payment from debtors, the cash is used as funds.

The Finance Department assures that the processes in the cycle are not blocked at any

stage. This cycle can get blocked if there is a delay in dispatch of finished goods or if

there is a delay in payment of debts. Whenever there is a shortage of funds the finance

department assures maximum and apt use of available funds. There are certain Working

Capital facilities available to the organization. Some of these facilities are: 1. Letter of

Credit. 2. Bank Guarantee 3. Bills Discounting.

(c) Letter of credit

Here the organization opens letter of credit account and within about ninety days, if

the organization is not able to pay, the bank pays to the supplier. The supplier dispatches

the supplies only after the buyer opens a letter of credit account.

(d) Bank guarantee.

Once an order is taken up by the company for supplying the goods, a guarantee is

given by the company’s bank that the goods will be supplied as undertaken by the

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company. All the details about the supply is given and also the time period within which

the goods will be supplied.

(e) Bills discounting

The bills are discounted if there is a shortage of funds. For long term loans to the

Finance Department of the company approaches the banks.

(f) Maintaining of accounts.

At present the accounting system in use is partially computerized and partially

manual. Till 2001 the accounts were maintained fully manually. In 2001 Tally 5.4 was

introduced in the organization for the purpose of keeping accounts. Here again the

accounts maintained are not fully computerized. Only the financial accounts are

maintained in computerized form. The transactions done are first recorded in vouchers

manually and the net effect is taken and recorded in the computer. Other functions of the

Finance Department includes overseeing the payment to Income Tax, payment of Sales

Tax, TDS (Tax Deduction at Stores) and also to comply along with the statutory

requirements of the company.

(g) Costing system

When an order is received, the product is manufactured according to the

specifications as required by the customer. Here the machine centre is treated as the cost

centre and the cost is accumulated on it and then allocated to each product. On the basis

of this cost sheet is prepared.

This is then sent to the Marketing Department. The price fixation is done by the

marketing department. The marketing department is provided with the cost of the product

and according to the cost incurred on the particular product and a specific profit margin

the price of the product is fixed. They are using the cost plus margin method.

(h) Accounting policies

(1) General

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The financial statements are prepared under historical cost convention on accrual basis

except where otherwise stated and in accordance with applicable account standards.

(2) Fixed Assets and Depreciation

a. Fixed Assets are stated at acquisition cost less depreciation.

b. Depreciation is provided on written down value method.

(3) Inventories

Various items of closing stock have been valued as under:

a. Finished goods –At lower cost or net realizable price inclusive of excise duty

b. Work in Progress- At material cost plus the labour and overhead Expenses to material

consumed.

c. Raw Material- At cost

d. Stores, Loose Tools and Packing materials- At cost.

e. Scrap – At net realizable price.

f. The company recognizes sales at the point of dispatch of goods to the customer. Sales

are net of duty and sales tax.

(i) Budgeting

The budget is prepared within the company itself. The budget is prepared by fixing

an estimate sale and accordingly all other expenses are fixed.

QUALITY ASSURANCE DEPARTMENT

Quality control is there to ensure that the product being sold is not in any way

harmful or defective. Quality control is a process employed to ensure a certain level of

quality in a product or service. It may include whatever actions a business deems

necessary to provide for the control and verification of certain characteristics of a product

or service. The basic goal of quality control is to ensure that the products, services, or

processes provided meet specific requirements and are dependable, satisfactory, and

fiscally sound. Quality control involves the examination of a product or process for

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certain minimum levels of quality. The goal of a quality control team is to identify

products or services that do not meet a company’s specified standards of quality.

(a) Quality policy of the company

‘TRACO Cable Company Limited shall strive for continual improvement in its

performance, by meeting the needs of internal and external customers, complying

with regulations through the involvement of all its employees’.

Purpose of quality assurance department: 

To provide an instruction for functions of quality control department.

        Objective of quality assurance department: 

To provide a documented procedure for functions of quality control department.

         Scope of quality assurance department:    

This procedure is applicable for functions of quality control department.

Procedure of quality assurance department:    

Testing and release or rejection of all incoming raw materials, packing materials, in-

process / intermediates and finished products as per specified specifications.

Maintaining testing records as per standard procedures for raw materials, packing

materials, in-process / intermediates and finished products.

(b) Quality assurance in traco cable company

TRACO CABLE COMPANY has a well known label of quality products. Main duty

of quality assurance department is to ensure the products have reached its international

standard specification and also ensure that the quality is higher than the competitors.

Traco has ISO certification so that it is the responsibility to ensure the right quality for

the products. It is also the responsibility of the Quality Assurance Department to

check whether the quality of the finished goods match the International standard.

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(c) Functions of the quality assurance department

The following are the major functions of the Quality Assurance Department :

Incoming inspection

In process inspection

Finished goods inspection.

(d) Incoming inspection

Incoming inspection the inspection of raw materials that are brought into the

organization.

The inspection and testing of raw materials carried against Raw Material receipt

in stores.

Raw materials kept in the respective go downs are visually inspected.

Samples are collected and tested according to the raw material specification.

(e) In process inspection and testing procedure

Inspection and testing as per work instructions after the following stages of

production.

RBD

fine wire drawing and insulating

aging

twinning

stranding

rewinding and printing

co extrusion of conductors with fiber glass roving

Records of inspection and testing after each stage shall be maintained.

Identification tags in the drums, coils shall be marked with inspection status.

In case of non conformity, non conformity report shall prepare and the material shall

be kept with “STOP CARD”. The non conformity report shall be forwarded to the

head of production.

head of production and head of QA and IT will decide on the course of action to be

taken for disposal and the decision recorded in the “STOP CARD”

The re worked material shall be re inspected to verify conformance.

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(f) Final inspection and testing procedure

Receiving finished materials from production department for inspection

Carrying out tests on each drum of cable/ coil as per relevant work instruction

Preparation of test reports and authorization

Identification of accepted material with “QA PASSED / TESTED OK” stamp

Holding up material with “STOP CARD”

Decision on disposal

Re inspection of re worked material.

(g) The various tests are as follows.

1. Tests for aluminium coil

Breaking load

Diameter is checked.

Resistance

Wrapping test.

2. Tests for steel wire

Breaking load

Diameter is checked.

Wrapping test

MAINTENANCE DEPARTMENT

TRACO cables have a well functioning maintenance department. The main

duty of the maintenance department is to maintenance and preservation of machinery and

infrastructure. It is the responsibility of the maintenance department to make sure that the

factory premises are clean and all the necessary facilities are available for a good working

environment. The maintenance department should ensure that all machines are well

functioning for the production. The machines which is used for production should be

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properly maintained and repaired whenever it necessary. This will result in smooth

working of the production process without any disruption.

(a) Responsibilities of maintenance department

The main responsibilities of maintenance department is to

Timely inspection and servicing of equipment,

Instructing workers on proper use of equipment,

Raising timely indent for replacement of equipment or spare parts.

(b) Functions of the maintenance department

The main functions of the maintenance department are as follows:-

Controlling maintenance personnel.

Deciding inspection methods and routine.

Developing and issuing standard instructions.

Issuing maintenance work orders.

Maintaining maintenance records.

Measuring efficiency of maintenance.

Planning maintenance work on a long term basis.

Storing maintenance materials e.g., tools, spare parts, lubricants, etc.

(c) mainly there are two types of maintenance

Breakdown maintenance

Preventive maintenance

Breakdown maintenance

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Break down Maintenance is done when any of the machines in the production unit

fails to do its particular work. It refers to the repair work taken after the failure of a

machine or equipment. For example Replacement of the torn belt is a case of breakdown

maintenance. Breakdown maintenance is corrective maintenance as it is undertaken to

restore equipment to an accepted standard. It involves mainly the repair of defective

equipment.

Procedure followed in the company:

When there is a break down, the shift in charge first examines the nature of break

down and reports immediately on its occurrence to the Maintenance Department

by sending the “Requisition for Machine Maintenance” (RMM)

Maintenance Department analyses the report and assigns a person for carrying out

the maintenance and records it in the Machine History book.

If necessary the spares are arranged and the maintenance is carried out by the

person from the Maintenance Department.

The authorized personnel from the Maintenance Department and User department

shall jointly inspect the machine/equipment after repair and RMM should be

closed after ensuring the smooth operation of the machine/equipment by the User

department.

The Engineer in charge keeps a record of the major maintenance works done. This

is record is known as the machine history book.

The reports regarding the machine breakdown time shall be prepared and based in

the breakdown report, Monthly Machine availability will be presented in the

review meeting which will be held with the Unit chief and Maintenance Head.

Preventive maintenance

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Preventive Maintenance is a precautionary measure that is taken so as to prevent any

kind of machine breakdown in the future. It consists of routine actions taken in a planned

manner to prevent breakdowns.

There are two constituents of preventive maintenance they are:-

Lubrication: Lubrication ensures long and safe working of the equipment

without mishaps.

Inspection: Inspection facilitates detection of faults in equipment so that repairs

and replacements may be undertaken before the faults assume the proportion and

shape of a breakdown.

(d) Procedure followed in the company:

The annual schedule for Preventive Maintenance for all critical machinery and

auxiliary equipments are prepared before the starting of the financial year. Also

the detailed monthly update schedule is prepared before the beginning of each

month and distributed to the concerned sections. This is done by the Head of

Maintenance Department.

The Engineer in charge sees that the instructions/check lists for carrying out

inspection and maintenance of each machines/auxiliary equipments are followed

according to the work instruction/check lists.

Any suggestion/complaint that is brought up against the machine during the

course of preventive maintenance must be done with and records are properly

maintained.

Also during Preventive Maintenance the Engineer in charge does the calibration

of measuring devices which form part of the machines as and when required, as

per the work instructions/check list.

After Preventive Maintenance is done the records of the work carried out and the

spares consumed is maintained in history books by the Engineer in charge.

Also the modification made on the machine/equipment is recorded and

maintained in the history book.

The status of Preventive Maintenance done is also shown on the equipment.

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PERSONNEL AND ADMINISTRATION DEPARTMENT

Personnel and Administration Department to providing a growth oriented,

employee’s friendly working environment. The Personnel and Administration

Department takes care of recruitment and selection as well as industrial relation. . It refers

to a set of programs, activities of functions designed to carry out in order to maximize

both employee as well as organizational effectiveness. A personnel administrative

specialist provides support to the staff of the personnel department by ensuring the

department accomplishes assigned responsibilities on a daily basis. This can include

coordinating events, arranging meetings and travel plans, creating presentations,

preparing reports.

(a) Duties and functions of P&A department

Utilize the human power at the right place at right time

Develop the human resource by proper training.

Administrative functions including canteen, security, housekeeping, vehicle for

employees

Determine and manage work environment

Basic functions of P&A department are as follows:-

Discipline

Grievance handling

Industrial relations

Job description

Manpower planning

Performance appraisal

Recruitment

Training

Welfare function

(b) Functions of P&A department in Traco Cable Company

Appointing of temporary hands/ casuals if required.

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Calculation of retirement/ Terminal benefits to retiring, resigning and terminated

employees or employees dying in service.

Grievance handling.

Issuing of promotions/ personal grade to each employee.

Maintaining of attendance of employees, late coming, early going, absenteeism,

overtime etc.

Maintaining of personnel files.

Mede-claim policy, personal accidents claim etc.

Providing facilities like housekeeping, lighting, telephone etc.

Work connected with loans and advances of employees.

Work related to Employment leave, deputation of employees to other organizations

and transfer of employees.

Implementation of Long Term Agreement, promotion policy, pay revision, pay

fixation etc.

(c)Time office

A well functioning Time office also functioned under the P&A department. Punching

system is following regularly

Main duty in time office is to maintain

Attendance marking

Salary details

Leave marking

Over time

Short leave

Late and cut etc.

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(d) Recruitment and selection process in Traco cable company

Since TRACO is a Government Company, the recruitment is through Public

Service Commission (PSC) tests and through employment exchange. In this selection

process it also includes the selection of semi-skilled workers to the Grade 3 officer post.

For the managerial post advertisement are given in newspapers. According to the

performance of the candidate in the group discussions and interview, the selection is

carried out. Recruitment and selection of the managerial post were conducted in

corporate office which is situated at Panampilly Nagar. Unskilled workers will be

promoted to the semi-skilled position after much experience and training. The

appointment procedure is as per government rules. Currently, no recruitment is being

done in the company since the existing employees are in excess.

(e) Training

Training is very important for efficient performance in the job. There is a

procedure called TNA (Training Need Assessment). The higher level managers of all

departments assess the training needs of the employees under them. After this TNA

report is forwarded to the Head Office for approval. At the Head Office, the Managing

Director decides as to what type of training has to be provided. Based on the TNA an

annual training plan is prepared in March of every year. There are two types of training:

1. In house Training

Here, the training is given in the organization itself. It can be of two types, using

Internal Faculty and External Faculty.

2. External Training

Here the employees who need training are sent outside for training in

institutions that conduct training programs.

If there is more number of employees with training needs, the organization goes for an

in-house training programmed and if only a few employees need training, they are sent

outside for training. After the training programmed is completed the employee needs to

submit a feedback assessment of the training programmed based on how they can

improve the performance. Later the employee is observed as to whether any changes have

44

happened in the performance of the employee. It also helps in the promotion of

employee.

(f) Performance appraisal

Performance appraisal is done twice a year. Its main objectives performance appraisal

is:

Personal grading of each person. Grading is done according to performance in their

jobs.

There are certain parameters that are established and according to these parameters

the employee’s job performance is measured.

Parameters include: increase in productivity, inter personal relations, ability to adjust

to working environment etc.

The main parameters are

1) Attendance,

2) Punctuality and

3) Job knowledge.

It is then grouped into five categories such as poor, satisfactory, good, very good and

excellent. Points are given for each category and then grouped into grades. A skill

matrix is prepared and based on that training need is assessed.

(g) Wages and salaries

All employees are appointed in their respective scales of pay, which is finalized as

part of long term agreement made in periodic settlements. There is an increment in

wages and salaries every year. Here at TRACO, wages are also paid per work and

additions are made for overtime. Deductions are also made for reasons of leave,

late entry etc.

(h) Discipline

There are certain standing orders set by the organization on the conduct of

employees. Standing orders works as the main guideline regarding the discipline. In case

of misconduct, the following steps are taken:

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First the management issues a note to the delinquent furnish replay on the allegation

regarding misconduct

Then it sends a charge memo asking for explanation and the reasons for not taking

disciplinary action as per standing orders.

An enquiry officer is appointed for a domestic enquiry considering the gravity of the

misconduct management witnesses as well as witnesses from the delinquent with

opportunity to give evidence and to produce documents related to the matter.

Management side represented by presenting officer and delinquent side can be

represented by a co worker or an advocate.

Then a decision is taken based on finding of the enquiry report

Disciplinary authority communicates the enquiry report to the delinquent calling for

his explanation and if no satisfactory replay is furnished disciplinary action taken.

Disciplinary actions like

Barring increments without cumulative effect

Barring increments with cumulative effect

Warning MEMO or reprimand

Frequent instants of disciplinary action

Absenteeism

Failure to obey orders of superior’s affecting the work

Causing damages to company property due to accidents

Using abuse languages against superiors or co-workers

Man handling other

(i) Incentives and fringe benefits

Incentives are usually given to the workers. A production target will be given to

the workers. Incentives will be given accordingly by cash. Also, there is a special pay.

Several fringe benefits given by the company to employees such as regards fringe benefit

they are:

Milk allowance,

Heavy duty allowance,

Night shift allowance and

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Over time allowance.

Special allowance.

(j) Welfare measures

There is a welfare fund provided by the company. On retirement, a fixed amount will

be given to the employees. This is applicable to the workers and officers. There is a

provident fund for the employees.

(k) Participatory management

As a part of participatory management, a production meeting is being held in the

company. All the trade unions are called together for discussions. There exists a works

committee also in TRACO. Under Industrial Disputes Act 1947, every establishment

employing 100 or more workers is required to constitute a works committee. Such a

committee consists of equal number of representatives of employer and workers. The

main purpose of works committees is providing measures for securing and preserving

amity and good relations between the employer and employees.

(l) Transfer and promotion

Transfer of the employees depends upon the vacancy created in the company. Job

rotation is not here. Promotion is done according to the performance appraisal.

(m) Trade unions

There are two recognized trade unions in the company. They are:

TCEU –TRACO Cable Employees Union (CITU)

TCEA –TRACO Cable Employees Association (INTUC)

There are two more UN recognized but registered trade unions of AITUC and

STU who was not success full in the referendum.

(n) Manpower details

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CATEGORY NUMBER

ADMINISTRATIVE AND MANAGERIAL 14

FOREMAN AND CHARGEHAND 11

SKILLED WORKMEN 45

SEMI-SKILLED WORKMEN 105

UNSKILLED 1

CASUAL LABOUR 8

4. THEORETICAL FRAME WORK OF WORKING CAPITAL MANAGEMENT

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Theoretical Frame Work of Working Capital Management

A successful sales program is necessary for earning profits by any business enterprises. Sales don’t convert into cash instantly. There is a time lag between the sale of goods and receipt of cash. Therefore there is a need for working capital in the form of current assets to deal with the problem arising out of the lack of immediate realization of cash against goods sold. Therefore sufficient working capital is necessary to sustain sales activity.

The working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the relationship that exists between them. The term current asset refers to those assets which are the ordinary course of business within a year, out of the current or earnings of the concern. Current liabilities are accounts payable, bills payable, bank overdraft and outstanding expenses. Working capital is that portion of firm’s asset which is financed by long-term funds. Interaction between current assets and current liabilities is the main theme of the theory of working capital management.

Goal of working capital management is to manage the firms current assets and current liabilities in such a way so that a satisfactory level of working capital management is deciding the optimum level of investment in various current assets. There are three important current assets, cash, accounts receivables and inventory.

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4.1 Definitions of Working Capital

“Working capital is ordinarily defined as the excess of current asset over current liabilities”

“Working capital management involves the relationship between a firm’s short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable, accounts payable and cash.”

4.2 Management of Working Capital

Management will use a combination of policies and techniques for the management of working capital. These require managing the current assets generally cash and cash equivalents, inventories and debtors. There are also a variety of short term financing options which are considered;

Cash Management- identifies the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs.

Inventory management- identifies the level of inventory which allows for uninterrupted production but reduces the investment in raw material and hence increases cash flow; see Just In Time (JIT) and Economic Order Quantity (EOQ).

Debtors management- identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flow and cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see Discount and allowances.

Short term financing- inventory id ideally financed by credit granted by supplier; dependent on the cash conversion cycle, it may be necessary to utilize a bank loan (or overdraft), or to “convert debtors to cash” through “factoring”.

4.3 Kinds of Working Capital

Working capital can be classified either on the basis of concept or on the basis of periodicity of its requirement.

On the basis of concept

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On the basis of concept working capital is of two types.

Gross working capital - Gross working capital is represented by the total current assets.

Net working capital – Net working capital is the excess of current asset over current liabilities.

Net working capital = Current Assets – Current Liabilities

On the basis of requirement

On the basis of requirement working capital is of two types.

Permanent working capital – It is that amount of investment which should always be there in the fixes or minimum current assets like inventory, accounts receivables or cash balance etc. to carry out business smoothly. Such an amount can’t be reduced if the firm wants to carry on business operations without interruption.

Variable working capital – The excess the amount of working capital over permanent working capital is known as variable working capital. It may also be subdivided into two parts.

o Seasonal working capital – Such capital is required to meet out

the seasonal demands of busy periods occurring at stated intervals.

o Special working capital – Such capital is required to meet out the

extra ordinary needs of contingencies. Events like strike, fire, unexpected competition, rising price tendencies, or initiating a big advertisement campaign require such capital.

4.4 Objectives of Working Capital

For purchase of raw material, components and spares.

To pay wages and salary.

To incur day to day expenses and overhead cost like power, office expense etc.

To meet various selling costs as packaging, advertising etc.

To provide credit facility to customers.

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To maintain inventories of raw materials, work in progress, stores and spares and finished goods.

4.5 Advantage of Maintaining Adequate Working Capital

Solvency of business: adequate working capital helps in maintaining solvency of business by providing uninterrupted flow of production.

Goodwill: sufficient working capital helps a business to make prompt payments and thus helps in creating and maintaining goodwill.

Easy loans: a concern having adequate working capital, high solvency and good credit standing can arrange loan from banks and others on easy and favorable terms

Cash discounts: adequate working capital helps a concern to avail cash discounts on purchase and hence it reduces costs.

Regular supply of raw materials: sufficient working capital ensures regular supply of raw materials and continuous production.

Regular payment of expenses: a company having working capital can make regular payment of salaries, wages etc which raises the morale of its employees, increases their efficiency, reduces wastages there by enhances production and profits.

Exploitation of favorable market condition: concern with adequate working capital can exploit favorable market condition like purchasing its requirements in bulk. When the prices are lower and holding its inventories for higher prices.

Ability to face crisis: only concerns with adequate working capital can face business crisis on emergencies such as depression, because during such periods there is much pressure on working capital.

Quick & regular return of investments: sufficient working capital enables a concern to pay quick and regular to its investors as there may not be much pressure to plough back profits. This gains the confidence of its investors and creates a favourable market to raise additional funds in future.

High morale: adequate working capital creates an environment of security, confidence and high morale and creates overall efficiency in a business.

4.6 Determinants of Working Capital

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A host factors influencing the levels of wept needs for a firm can be categorized into two

groups:

Internal factors

External factors

A. Internal Factors

1. Nature of Business

The composition of current asset is a function of the size of a business and the industry to

which it belongs. Small companies have smaller proportion of cash, receivable and

inventory than large corporations. This difference becomes more marked in large

corporations.

2. Size of business

The size of business have also an important impact on its working capital needs. Size

may be measured in terms of a scale of operations. A firm large scale of operations will

need more working capital than a small firm.

3. Firms Production Policy

A firm following uniform production policy will have to stocks of material during the

off season periods and thus incur greater inventory and risk. The effect of seasonal

fluctuations upon Working Capital can be offset by pursuing the policy of adjusting

production plan to seasonal changes. In this case, inventories are kept at minimum

levels but the production manger must shoulder the responsibility of constantly,

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varying production schedules in accordance with the changing firm's production

policy has also an important impact on its working capital needs.

4. Firm's Credit Policy

Credit control included such factors as the volume of credit sales, the terms of credit

sales, the collection policy, etc., with a sound credit control policy; it is possible for a

firm to improve its cash inflow.

5. Access to Money Market

The WCPL requirements of a firm are conditioned by the firm's access different sources

of money market. Credit facilities at liberal terms will be able to get by with less

working capital than a firm without such facilities.

6. Growth and Expansion of Business

Working capital requirements of an enterprise tend to increase in correspondence with

growth in volume of sales. Additional current asset will be needed to support increased

scale of operations.

7. Profit Margin & Dividend Policy

Magnitude of Working Capital in a firm is dependent upon its profit margin and

dividend policy. As a matter of fact, a high net profit margin reduces the Working

Capital requirements of firm because it contributes towards the Working Capital pool.

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Distributions of high proportion of profits in of cash dividend results in drain on cash

resources and thus reduce company's Working Capital to that extent.

8. Depreciation Policy

The depreciation policy influences the level of Working Capital by affecting tax

liability and retained earnings of the enterprise.

9. Operating Efficiency Of A Firm

Operating efficiency of the firm results in optimum utilization of resources at minimum

cost.

10. Co-Ordination of Activities in Firm

Where production and distribution activities are co-ordinate pressure on WPCL will be

minimized.

B. External factors

1. Business Fluctuations

Seasonal fluctuations in sales affect the level of variable WCPL. Business expands

during the period of prosperity and decline during the period of depression.

Consequently, more WCPL is required during the period of prosperity and less

during the period of depression.

2. Technological Developments

Technical development in the area of production can have sharp effects o the need for

WCPL. If the firm switches over to new manufacturing process and installs new

equipments with which it is able to cut period involved in converting raw materials into

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finished goods, permanent WCPL requirements of the firm will decrease. If new machine

can utilize less expensive raw materials, the inventory needs may be reduced.

3. Import Policy

Import policy of the government may also have its bearing on the levels of Working

Capital of the enterprises since they have to arrange funds for importing goods at specified

times.

4. Taxation Policy

In the event of regressive taxation policy of the government as it exists today in India,

imposing heavy tax burdens on business enterprises, they are left with very little profits

for distribution and retention purpose, consequently, they have to borrow additional

funds to meet the increased WCPL needs. Thus pressure on WCPL is minimized

particularly when liberal taxation policy is followed.

5. Transport and Communication Developments

Where the means of transport and communication in a country are not well developed,

industries may need additional funds to maintain big inventory of raw materials and

other accessories which would otherwise not be needed where the transport and

communication system are high developed.

6. Just In Time (JIT) Approach

This is an approach to manufacturing developed in Japan. The objective is to have a

perfect matching between the outputs of a manufacturing firm and needs of the

market. Effort is made to minimize the time interval between starting the

manufacturing process and the product being ready for delivery to the customers.

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4.7 Working Capital Cycle

Working capital cycle indicates the length of time between firms’s paying for materials entering into stock and receiving the cash from sales of finished goods. In a manufacturing firm, the duration of time required to complete the sequence of events is called operating cycle. In case of manufacturing company, the operating cycle is the length of time necessary to complete the following cycle of events:-

Conversion of cash into raw materials

Conversion of raw materials into work-in-progress

Conversion of work-in-progress into finished goods

Conversion of finished goods into accounts receivables

Conversion of accounts receivables into cash

OPERATING CYCLE OF A MANUFACTURING FIRM

In case of a trading firm the operating cycle will include the length of time required to convert.

Cash into inventory

Inventory into receivables

Accounts receivables into cash

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Cash

Raw materialsDebtors

SalesWork in progress

Finished goods

OPERATING CYCLE OF A TRADING FIRM

4.8 Nature of Working Capital Management

Working capital management is three dimensional in nature;

It is concerned with formulation of policies with regard to profitability, liquidity and risk.

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CASH ACCOUNTS RECEIVABLES

INVENTORY

It is concerned with the decisions about the composition and level of current assets.

It is concerned with the decisions about the composition and level of current liabilities.

5. DATA ANALYSIS AND INTERPRETATION

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5.1 Net Working Capital Analysis

Net working capital can be defined in two ways

Net working capital is the difference between current assets and current liabilities.

Net working capital is that portion of firm’s current assets, which is financed with

long term funds.

As long as the current asset exceeds the current liabilities, the excess must be financed

with long term fund. Thus net working capital is a qualitative concept, which indicates

the liquidity position of the firm and suggests the extent to which working capital needs

may be financed by permanent or long term sources funds.

Net working capital = Current Assets - Current Liabilities

The following table shows the working capital of Traco Cable Company from 2005-2006

to 2009-2010.

Table 5.1

ANALYSIS OF NET WORKING CAPITAL (RS IN LAKHS)

YEAR CURRENT ASSETS

CURRENT LIABILITIES

NET WORKING

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CAPITAL

2005-2006 2492.91 1081.32 1411.59

2006-2007 3266.39 1810.43 3084.96

2007-2008 3677.07 2123.88 1553.19

2008-2009 3278.89 1796.58 1482.31

2009-2010 3144.94 1525.61 1619.33

It is revealed from the table 5.1 that the net working capital of Traco Cable Company

shows a positive trend up in the year 2009-2010 after huge fall in 2007-2008.

Graph 5.1

NET WORKING CAPITAL

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5.2Ratio of Gross Working Capital to Sales

This ratio indicates the amount of working capital employed rupee of sales. It is getting

by dividing gross working capital by sales. A lower ratio implies more efficient use of

funds.

Gross Working Capital Ratio = Gross Working Capital / Net assets

Table 5.2

RATIO OF GROSS WORKING CAPITAL TO SALES (RS IN LAKHS)

YEAR GROSS WORKING CAPITAL

SALES RATIO

2005-2006 2492.91 3684.87 0.677

2006-2007 3266.39 5143.31 0.635

2007-2008 3677.07 3216.36 1.143

2008-2009 3278.89 4967.83 0.660

2009-2010 3144.94 7168.65 0.43962

From the table 5.2 it is revealed that the ratios are fluctuating trend. During 2005-06 it

was 0.677 and then it was decreased to 0.439 in 2009-10 because of decrease in loans and

advances.

Graph 5.2

GROSS WORKING CAPITAL TO SALES

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5.3 Net Working Capital Turnover Ratio

The net working capital turnover ratio shows the relationship between net working capital and sales; and help to measure whether the working capital is effectively utilized in making sales. There is no standard ratio for net working capital turnover. High ratio is an indication of efficient utilization of current assets of the firm.

Table 5.3

NET WORKING CAPITAL TURNOVER RATIO (RS IN LAKHS)

YEAR SALES NET WORKING CAPITAL

NET WORKING CAPITAL

TURNOVER RATIO

2005-2006 3684.87 1411.59 2.61

2006-2007 5143.31 3084.96 1.67

2007-2008 3216.36 1553.19 2.07

2008-2009 4967.83 1482.31 3.35

2009-2010 7168.65 1619.33 4.43

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Table 5.3 indicates the net working capital turnover ratio of Traco Cable Company. There is slight fluctuation in the year 2006-07 than increasing trend. High Net Working Capital indicates the efficient working capital management.

Graph 5.3

NET WORKING CAPITAL TURNOVER RATIO

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Liquidity Analysis

5.4 Current Ratio

Current ratio indicates the availability of current assets in rupees for every one rupee of current liabilities. A ratio of greater than one means that the firm has more current assets than current liabilities. As a conventional rule, a current ratio of 2 to 1or more is considered satisfactory

Current Ratio = Current Assets / Current Liabilities

Table 5.4

CURRENT RATIO (RS IN LAKHS)

YEAR CURRENT ASSETS

CURRENT LIABILITIES

CURRENT RATIO

2005-2006 2492.91 1081.32 2.3

2006-2007 3266.39 1810.43 1.8

2007-2008 3677.07 2123.88 1.7

2008-2009 3278.89 1796.58 1.8

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2009-2010 3144.94 1525.61 2.1

As per the above table the current ratio indicates Traco Cable Company has a standard level of liquidity from the year 2005-06 to 2009-10. In 2009-10 current ratio is 2.1. It shows a good liquidity position of the company.

Graph 5.4

CURRENT RATIO

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5.5 Quick Ratio

A quick ratio of 1 to 1is considered as a satisfactory current financial condition. A quick ratio of more than one may not say it sound liquidity position because all debtors may not be liquid and inventories are not absolutely liquid. If the quick ratio is in low value may say the management of debtors and inventories in efficiently.

Quick ratio = (Current Assets – Inventories) / Current Liabilities

Table 5.5

QUICK RATIO (RS IN LAKHS)

YEAR CURRENT ASSETS

INVENTORIES CURRENT LIABILITIES

QUICK RATIO

2005-2006 2492.91 526.67 1081.32 1.8

2006-2007 3266.39 887.8 1810.43 1.1

2007-2008 3677.07 106.8 2123.88 1.7

2008-2009 3278.89 451.22 1796.58 1.6

2009-2010 3144.94 811.7 1525.61 1.5

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From the above table the quick ratio of the company is higher than the standards. But it does not show the sound liquidity of the company because all debtors may not be liquid and inventories are not absolutely liquid.

GRAPH 5.5

QUICK RATIO

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5.6 Solvency Ratio

Solvency ratio is used to test the solvency of a firm. Solvency means the ability to meet

the outside liabilities. It consists of long term debt and current liability. Total assets

stands for total of fixed assets and current asset.

Solvency ratio = Total outside liability / Total asset

Table 5.6

SOLVENCY RATIO

YEAR OUTSIDE LIABILITY

TOTAL ASSET RATIO

2005-2006 3357.81 3015.50 1.11

2006-2007 3988.66 3893.85 1.02

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2007-2008 2964.83 4236.07 0.7

2008-2009 3154.23 3784.89 0.83

2009-2010 4266.11 3594.31 1.19

The above table shows that the solvency position of the company presented a downward trend till 2007-08. From 2008-09 shows an upward trend.

Graph 5.6

SOLVENCY RATIO

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5.7 DuPont Analysis

A method of performance measurement that was started by the DuPont corporation in the

1920’s and has been used by them ever since. With this method assets are measured at

their gross book value rather than at net book value in order to produce higher ROI. It is

believed that measuring assets at gross book value removes the incentive to avoid

investing in new assets. New asset avoidance can occur as financial accounting

depreciation method artificially produces lower ROI in the initial year that an asset is

placed into service.

The DuPont analysis is a means of analyzing the three components of return on equity;

1. Net margin=net income/ sales. How much profit a company makes for every $1.00 it

generates in revenue. The higher a companies profit margin the better.

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2. Asset turnover=sales/total assets. The amount of sales generated for every dollar’s

worth of asset. This measures the firm’s efficiency at using assets. The higher the

number the better.

3. Leverage factor=total asset/ shareholder’s equity. The higher the number, the more the

debt company has.

The DuPont analysis is a means of analyzing the components of return on total assets.

DuPont analysis= net profit / sales * sales / total asset

Table 5.7

DUPONT ANALYSIS

YEAR NET PROFIT SALES TOTAL ASSETS ROI

2005-06 Nil 3684.87 5387.28 Nil

2006-07 Nil 5143.31 5694.85 Nil

2007-08 Nil 3216.36 6004.71 Nil

2008-09 31.88 4967.83 5979.18 0.005

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2009-10 594.01 7168.65 5426.97 0.11

Graph 5.7

DUPONT ANALYSIS

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On the basis of DuPont analysis the Traco Cable Company’s return on total asset

is less than zero. It means the company is facing a nominal loss. The firm cannot able to

obtain an adequate return on total asset.

5.8 Projection of Working Capital for the Next Two Years

Traco Cable Company’s working capital for the past 5 years are

Table 5.8

WORKING CAPITAL (RS IN LAKHS)

YEAR WORKING CAPITAL

2005-2006 1411.59

2006-2007 3084.96

2007-2008 1553.19

2008-2009 1482.31

2009-2010 1619.33

TREND ANALYSIS

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Trend analysis is the tool used to project the working capital for the next two years.

Table 5.9

TREND ANALYSYS (RS IN LAKHS)

YEAR X Y XY X2 Y2

2005-2006 -2 1411.59 -2823.18 4 1992.59

2006-2007 -1 3084.96 -3084.96 1 9516.98

2007-2008 0 1553.19 0 0 2412.4

2008-2009 1 1482.31 1482.31 1 2197.24

2009-2010 2 1619.33 3238.66 4 2622.23

TOTAL 0 9151.38 -1187.17 10 18741.44

b = (N∑XY – (∑X) (∑Y)) / (N∑X2 – (∑X)2)

b= (5 x -1187.17- (0) (9151.38)) / (5 x 10 – 0)

= -5935.85 / 50

= -118.717

a = (∑Y – b (∑X)) / N

a = (9151.38 – ((-118.717) x 0) / 5

= 9151.38 / 5

= 1830.276

FOR THE YEAR 2011

a + bx

= 1830.276 + (-118.717 x 3)

=1474.13

FOR THE YEAR 2012

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a + bx

= 1830.276 + (-118.717 x 4)

=1355.41

WORKING CAPITAL FOR THE NEXT TWO YEARS

Table 5.10

YEAR WORKING CAPITAL

2011 1474.13

2012 1355.41

Graph 5.8

WORKING CAPITAL TREND

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6. Findings, Suggestions & Conclusion

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6.1Findings

The net working capital of the company is showing a fluctuating trend. In the year

2007 the net working capital of the company was Rs3084.96 Lack s and it was decreased

in 2008 to Rs 1553.19 Lacks because of increase in current liabilities. From 2009 it

showed an upward trend. Company’s present proportion of current asset is good enough

to meet working capital needs. The amount of working capital shows increasing trend

throughout the years under study indicating positive liquidity.

It is revealed that the Gross Working Capital ratios are fluctuating trend. During

2005-06 it was 0.677 and then it was decreased to 0.439 in 2009-10 because of decrease

in loans and advances.

From the study it shows that the working capital turnover ratio is fluctuating

between 2.61 to 1.67 in between 2005-06 and 2006-07. And in 2007-08 ratio increased to

2.07 and in 2008-09 it again increased to 3.35. High ratio indicates efficient utilization of

working capital and. low ratio indicates it is not effectively utilized.

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Current ratio indicates Traco Cable Company has a standard level of liquidity

from the year 2005-06 to 2009-10. In 2009-10 current ratio is 2.1. It shows a good

liquidity position of the company.

The quick ratio of the company is higher than the standards. But it does not show

the sound liquidity of the company because all debtors may not be liquid and inventories

are not absolutely liquid.

Liquidity analysis reveals that current ratio and quick ratio of company is almost

up to the standard ratio in all the years of the study. The average current ratio is 1.94; the

standard ratio is 2:1. The average quick ratio is 1.54; The standard ratio is 1:1.

The study shows that the solvency position of the company presented a downward

trend till 2007-08. From 2008-09 shows an upward trend.

On the basis of DuPont analysis the Traco Cable Company’s return on total asset

is less than zero. It means the company is facing a nominal loss. The firm cannot able to

obtain an adequate return on total asset.

The company has been doing well in terms of sales and revenue for the last two

years of study 2008-09 and 2009-10.

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6.2 Suggestions

The company should make more steps to meet competition by making significant

investment in technology.

The company must make more investment in advertising. That makes awareness

to the customers more about company’s product. It also helps to achieve more market

share.

The company should borrow funds only if it is necessary for productive purpose.

Through reducing the loan amount the company can eliminate fixed interest charges.

If the company can sell more products, they can maintain the cash position or by

reducing the current liability by paying their amount from long term sources the cash

position can be improved as compared to current liability.

The company should follow long term loans from banks and other financial

institution or issue long term securities.

Recruit efficient and skilled officials at the regional official who can make prompt

effort in the payment collection from the debtors.

To increase the efficiency of the receivables system computerization of the whole

system is preferable.

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6.3 Conclusion

The project Study titled “A Study on Working Capital Requirement of Traco

Cable Company for the Next Two Years Based on Current Growth Trend” is an

attempt to study the working capital management and evaluate the liquidity and

profitability of the company for a period of 5 years. It also shows the efficiency with

which the company is in managing its working capital needs. Through the financial

statement analysis the financial position is also studied and it shows that the long term as

well as the short term solvency of the firm is in a good position. On the whole it can be

concluded that the working capital efficiency has been increasing every year. It needs to

be maintained and increased further by effective utiliszation and control of current assets.

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Bibliography

Books

IM Pandey, Financial Management

Prasanna Chadra, Financial Management, Tata McGraw Hill, New Delhi,2004

Accountancy, S N Maheshwari, S K Maheshwari

Sashi K.Gupta &R.K. Sharma, Management Accounting Principles and Practice

Reports

Annual Reports of Traco Cable Company for the year 2005-2006 to 2009-2010

Websites

www.tracocable.com

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