Summer Training Report

Summer Training report

On

WORKING CAPITAL MANAGEMENT

Submitted partial fulfilment of the requirement for the award of the

Degree of

Master of Business Administration

in

Finance

of

LOVELY PROFESSIONAL UNIVERSITY

Submitted to Submitted by

Mr.Lalit Kumar Bhardwaj Vikalp Rai SaxenaFaculty of MBA (Finance) B-70

11013514

Session 2010-2012

CERTIFICATE BY THE FACULTY GUIDE

SUMMER TRAINING REPORT 1

This is to certify that Miss. Vikalp Saxena, student of MBA has completed the summer training on the topic

Working Capital Management in a reputed company Crompton Greaves ltd., Mandideep. The summer

training project report is based on the work done by the candidate himself and fulfills the requirement of the

project necessary for partial fulfillment of the MBA degree. The work carried out by the candidate on the

above mentioned topic is up to the mark as supported by the certificate issued by the organization where the

candidate has undergone training for completion of the project work.

To the best of my knowledge and belief, the work has not been submitted anywhere else for award of any

degree or diploma. We wish him success in his life.

Date 19/08/2011 Mr. Lalit Kumar Bhardwaj

Place LSB (faculty guide)

DECLERATION


I Vikalp Rai Saxena student of MBA from LOVELY PROFESSIONAL UNIVERSITY

declare that the work that is being presented in the report entitled “WORKING

CAPITAL MANAGEMENT” in the partial fulfillment of the requirement for the award

of degree of Master of Business Administration is an authentic record of our own work.

The work has been carried out at CROMPTON GREAVES M-7 MANDIDEEP,

BHOPAL (M.P.).The matter embodied in the report has been submitted for the award

of any other degree or diploma.

VIKALP RAI SAXENA B-63

11013514

MBA-3rd Semester

ACKNOWLEDGEMENT


I express my deep sense of gratitude to my respected and learned guides Mr. Prashant Kaushal (Sr. Finance Manager) & Miss. Anshu (Dy. Finance Manager) of Crompton Greaves ltd for their valuable and guidance .I thankful to them for the encouragement they have given me in completing the project.

I also grateful to my training guide Mr.Lalit Kumar Bhardwaj (Finance) and training co-ordinator Mr. Lokesh Jasrai(LSB) for permitting me to utilize all the necessary facalities of the institution.

I also thankful to all the other faculty & staff members of my department for their kind co-operation and help.

Lastly, I would like to express my deep appreciation towards my classmates and my parents for providing me the moral support and encouragement.

VIKALP RAI SAXENA B-63

11013514

MBA-3rd Semester

PREFACE


Practical training constitutes an integral part of management studies. Training gives an

opportunity to the students to expose themselves to the industrial environment, which is quit

different from the classroom teachings. One cannot rely on theoretical knowledge. It has to

be coupled with practical to be fruitful. Training also enables the management students to see

themselves the working condition under which they have to work in the future. It thus

enables the students to undergone those experiences, which will help them later when they

join any organization. After liberalization the Indian economic sense is changed. Industrial

activity in India has become a thing to watch & I really wanted to be a part of it &it is

essential for me being a finance student. I underwent six weeks of training at CROMPTON

GREAVES LTD. I consider myself lucky to get my summer training in such a big

Company. It really helped me to get a practical insight into actual business environment &

provide me an opportunity to make my financial management concepts more clear.

INDEX


Sr. No. Contents Page no.

1 Introduction to subject 62 Objective of study 73 Industry Profile 84 Company Profile 9-115 Company Purpose & Mission 126 Product Profile 13-207. Working capital 21-248. Methods for calculation of working capital 25-329. Working capital Ratios 32-3810. Conclusion 3911. Findings 4012. Bibliography 41

INTRODUCTION TO SUBJECT:-

A firm required as sufficient amount of working capital to run its day-to-day business. We can hardly find a firm that does not have any amount of working capital .But firms


differ in their requirement for working capital. The firms need working capital because sales do not convert into cash instantaneously. There is always a time duration required to convert sales, after the conversion of resources into inventories, into cash.

PROJECT TITLE :-

Working capital management

This is done to ensure that the company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses. This project is done in Crompton Greaves a Motors manufacturing Plant in Mandideep (Bhopal). Crompton Greaves is a multinational company. It’s manufacturing not only big equipment but also small equipment like household Equipment its include fans, tube light etc. The company had acquired better position in the world. I have chosen the Machine division because Crompton greaves is a first Indian multinational company in the world.

Location

Crompton Greaves Limited

Large & Traction Machine Division: Industrial System

M7, Industrial Area MPAKVN, Mandideep, Bhopal 462046.

It is situated at 25 km from Bhopal. Transport facilities are available from each and every corner of Bhopal and other nearby places.

OBJECTIVE OF STUDY :-


The basic objective of working capital is to provide adequate support for the

smooth functioning of normal business operations of a company. The term adequate working capital is

subjective depending on management’s attitude towards uncertainty /risk.

1. Maintenance of working capital

2. Availability of ample funds at the time of needs.

INDUSTRY PROFILE :-


The origins of CG can be traced back to the pioneering work of Colonel REB

Crompton, who, in 1878 founded a business at Chelmsford, Essex, England under the name of REB

Crompton & Co., to engage in the manufacture and contracting of electrical equipment.

In the 1960s CG took its initial steps to revolutionize its portfolio, which till then comprised only motors and consumer products. It took a major leap in the electrical engineering segment, through the acquisition of transformer technology from Westinghouse Electric Corporation of USA, for manufacture of 400 kV transformers and aluminium wound transformers. This was followed by further expansion in the switchgear, vacuum interrupter and allied businesses. By 2005, the Company had emerged as one of the leading companies in the electrical engineering domain of India, in its three business areas of Power Systems, Industrial Systems and Consumer Products; and a serious contender in the global arena. CG established its international manufacturing footprint in the year 2005

by acquisition of the Belgium based Pauwels Group, which gave CG additional manufacturing facilities for

Power and Distribution transformers at Belgium, Ireland, USA, Canada and Indonesia. This was followed

with a series of successful acquisitions - Ganz, Hungary in 2006; Microsol, Ireland in 2007; Sonomatra,

France; MSE, USA in 2008 and PTS, UK in 2010 in its quest to establish a technology edge, increase its

global market reach and enhance the product portfolio. The business domains of the new companies that

joined the CG family, has charted the way for CG becoming a "full solutions provider" which has carved out

for CG a position as a serious international player and a recognized transnational corporation.

Initially, CG`s foreign acquisitions operated their respective businesses

under their individual Brand names. To integrate these new entrants into the CG family, the first step was

integration of processes, systems and technologies across all the acquired companies worldwide. The next

step was to articulate the one single idea that provided a common thread through all the CG Group

companies. We discovered our shared philosophy as "our core strength is the value we place on

relationships, and the ability to provide solutions, which, in turn, strengthen these relationships". This

realisation and initiative gave birth to CG`s new Brand Identity which was launched on 15th October, 2009,

succinctly conveying this shared philosophy.

Whilst the Company`s name in India will continue to be Crompton Greaves,

the names of all the foreign companies in the CG family start with "CG", thus establishing their lineage and

uniting every company in the CG family with a common face to the internal as well as the external world,

globally.

Today, CG is a public listed company, amongst the "A" (premier)

category of listings on the Bombay and National Stock Exchanges of India and its GDRs are listed on the

London Stock Exchange, with over 70,000 shareholders.

COMPANY PROFILE:-


Crompton Greaves Limited was established in 1937. It is a member of the Gautam Thapar led group

of companies, AVANTHA. Since its inception, the Company has assiduously endeavoured to bring about

meaningful & revolutionary changes in the lives of people, through its wide spectrum of products and

services.

The company’s origins go back to two entrepreneurial ventures in the 19th century. One of them was an

English firm by the name of R.E.B. Crompton & Company, which was founded in 1878 by Colonel Rookes

Evelyn Bell Crompton, a renowned electrical engineer. The other was James Greaves & Company (JGC), an

Indian firm that was established in 1858. JGC went into a partnership with George Cotton, an agent of the

East India Company, to set up a venture called Greaves Cotton & Company. In 1927, Crompton & Company

merged with F. A. Parkinson, pioneers in the field of large-scale industrial engineering to form a new

company, Crompton Parkinson. Crompton Parkinson, UK, set up a factory in Worli, Bombay, for the

manufacture of small electric motors and ceiling fans under the style Crompton Parkinson Works (India)

Ltd. A marketing organisation under the banner, Greaves Cotton and Crompton Parkinson (Pvt.) Ltd. was

established simultaneously with Greaves Cotton & Co., the selling agents of Crompton Parkinson Works

(India).

From the beginning, R.E.B. Crompton & Company had focused on generation of electricity, with lighting

making up a significant part of its activities. A Crompton dynamo powered the first electric-lit house in the

world at Colchester, Essex. The company set up arc lighting plants at Buckingham Palace, Holyrod Palace,

Crystal Palace and King’s Cross Station, London.

Today, Crompton Greaves has three strategic business units (SBUs) namely; Power Systems, Industrial

Systems and Consumer Products.

Power Systems

This group includes the Transformers, Switchgear and Engineering Projects businesses of Crompton

Greaves. It involves the manufacture of power and distribution transformers, switchgear, lightning arrestors,

circuit breakers, substation equipment and design, servicing, power solutions and execution of turnkey T&D

and substation projects. Its manufacturing facilities are located in different parts of India.

Crompton Greaves Ltd (CG) has become the first company in India to indigenously manufacture an 800 kV

class power transformer for NTPC’s Sipat Power Project, in Chattisgarh.

Industrial Systems

This group consists of HT and LT Motors, FHP Motors, Alternators, Drives, Stampings, Railway

Transportation and Signalling equipment. The manufacturing facilities are spread across India.


Consumer Products

This group is in the business of Fans, Light Sources and Luminaires, Pumps and Household Electrical

Appliances such as geysers, mixers, grinders, toasters and lanterns with plants based at a few locations in

India.

International Acquisitions

With the acquisition of the Pauwels Group of Belgium in May 2005 and Ganz Transelektro and its Associate

Company Transverticum in Hungary, in October 2006, the company has evolved into a leading and superior

Power Solutions provider.

Pauwels is one of the World’s leading manufacturers of three-phase Distribution and Power Transformers

and its products are renowned for their high performance and proven reliability. Pauwels is optimised to

meet customer specifications with respect to energy losses, noise levels, dimensions and weight. The group

operates ISO 9000:2001 certified manufacturing plants and subsidiary companies in three continents. These

plants produce more than 30,000 transformers each year.

Ganz Transelektro designs and manufacturers one and three phase, mineral oil immersed transformers for

outdoor or indoor operation, in the power range upto 600 MVA and the voltage range upto 750 kV. The

present family of products includes the metal enclosed, sulphur-hexafluoride gas insulated switchgear.

The acquisition of Microsol Holdings Limited, Ireland, in May 2007 is yet another major step forward for

the company in its journey of transforming itself into an end-to-end complete solutions’ provider in power

transmission and distribution. Microsol is engaged in providing automated solutions for medium voltage and

high voltage substations, and has a significant presence in the UK and the USA. This acquisition will

reinforce the power business’ ability to design, build and service world-class substations with state-of-the-art

automation.

The job opportunities enlisted in this section relate to India only; for opportunities in other parts of the world

visitors may wish to contact the respective local offices of Pauwels, Ganz etc

International Operations

CG is one of the largest suppliers from India in each segment of Transformers, Switchgear, Motors &

Generators, Pumps, Fans and Lighting equipment. Its manufacturing and marketing superiority is spread

over 140 sales offices worldwide. Apart from developed countries, CG also enjoys an export presence in the

emerging Southeast Asian and Latin American countries. Crompton Greaves as an organisation remains

committed to:


The highest levels of Corporate Governance and seeks to achieve a healthy blend of performance

with conformance; creating the environment and the means through which corporate objectives are

attained.

The Company is committed to maintaining high standards of ethical behaviour and Corporate

Governance.

The Company is committed to serving its shareholders with honesty, fairness and integrity.

The 5 CG Values of Performance Excellence; Leading Edge Knowledge; Nurturance; Customer

Orientation and Intellectual Honesty are well entrenched in the performance culture of the Company

and permeates all actions of its employees.

The Company strives to achieve well-defined levels of Business Excellence by continuously

benchmarking itself against standards like the CII-Exim Bank Business Excellence Model and the

CII HR Excellence Model.

The Company has aggressively increased its initiatives in Community Development through

declaration of a formal ‘Statement of intent’ on Corporate Social Responsibility and has taken

concrete steps in fulfilling its plans.

COMPANY PURPOSE & MISSION :-


Purpose

Transforming your needs into smart solutions for an enhanced quality of life.

Corporate Mission

To create value by providing integrated solutions and superior knowledge based products and services in the domain of generation, transmission, distribution and utilisation of electrical energy.

To become the company of choice for utilities, industry and households in the global market, by leveraging technology and productivity through a highly empowered and engaged team.

Power Systems

To become a world-class provider of integrated solutions to our global customers in the domain of transmission and distribution of electrical energy, by offering reliable state-of-the-art products and services.

Industrial Systems

To become a world-class provider of integrated solutions in the area of power conversion and utilisation of electrical energy, to consumers, industries and railways, by offering energy efficient, intelligent, e-enabled products and services

Consumer Products

To enhance the quality of life of every consumer in the world at large - household and industrial, by providing smart solutions offering world-class products and services.

PRODUCT PROFILE:-

POWER SYSTEMS


Transformers & Reactors : They are among the top 10 transformer manufacturers in the world, and one of the very few companies worldwide that designs and manufactures a wide range of power & distribution transformers and reactors.

The range of Power Transformers offered is from 25 kVA to 600 MVA, and 11 kV to 765 kV class, and Reactors from 10 MVAr to 125 MVAr, and 33 kV to 765 kV class. These products are conforming to IEC, ANSI, IS, BS and other international standards. It has recently made a foray in the manufacture of 765 kV transformers with the execution of its maiden order for Power Grid Corporation of India. We emerged as a large supplier of a wide range of transformers and reactors for all critical applications. Our products are used in industries such as power utilities, process industries, railways, mines, electricity boards, industrial users,etc.in global markets.We have pioneered the technology for manufacture of compact, reliable SLIM® transformers with high overload capacity in collaboration with Dupont’s Nomex® thermal insulating technology, rendering it a world leader in wind farm installations, where these transformers have extensive utility. Its Hungarian plant has over 125 years of experience in the production of power transformers.

Power Transformers

Distribution Transformers

Distribution Unit Substations

Special Transformers

Switchgear Products- MV / HV / EHV / UHV: CG manufactures the widest range of Medium to Ultra High Voltage(UHV) switchgear products to meet the requirements of power generation and distribution substations in utilities and industries. Our products are in service for several years in many countries. We also export Low Voltage Panel Products from our India based export house.

Vacuum Circuit Breakers : We are the largest manufacturer of VCB in India and the same has been accredited by renowned market research firms like Frost & Sullivan

Gas Circuit Breakers : The legendary CG GCB is a dead tank design that comes with comprehensive safety interlocks.The product is highly reliable & rugged - sutaible for alittude up to 2000m without any deration.

Ring Main Units : CG Lucy is the largest manufacturer of SF6 gas insulated Vaccum RMU in India. With near total population in many metros, Our RMUs make the metros of India to glow with reliable power.


Unitised Substations : Unitised Substation (USS) is a product comprising of various substation equipment housed inside a metal enclosure providing a complete solution to the customer.

Disconnectors : CG has been a name to reckon with in the global electrical arena. We bring all our products with State of the art technology which supplement the existing CG range of switchgear products.

Surge Arresters : Our surge arresters incorporate ZE elements (Zn0 elements) with superior non-linear voltage-current characteristics, high quality and reliability.

Gas Insulated Switchgear : We offer latest technology GIS. They are now found affordable in place of AIS. The Product comes with flexible SF6 gas insulated modules of various equipment to suit different network configurations.

Instrument Transformers -MV / HV / EHV / UHV :CG range of instrument transformers includes Current Transformers, Inductive Voltage Transformers and Capacitive Voltage Transformers. Our Instrument transformers have significantly contributed to the electricity boards and utilities across the globe. Several thousands of EHV Instrument Transformers have been put into service in various environments in over 60 countries since 1984 and operating satisfactorily.

With the support of our global R & D, we have developed 1200 kV Capacitor Voltage Transformer ( CVT ), which has been successfully type tested.

Our EHV range of instrument transformers uses (Oil Impregnated Paper) OIP as the main insulation system. Napthene based mineral insulating oil (free from inhibitors) is used in the equipment manufactured. This oil is highly stable against oxidation as well as chemical and electrical aging. The capacitor technology used in capacitor voltage transformers and coupling capacitors is all paper or paper plus film (mixed dielectric).

We also offer Medium Voltage Dry Type Instrument Transformers, since 1995. More than 60,000 units of Dry Type Polycrete® Outdoor Instrument Transformers are in operation globally.

Our Instrument Transformer manufacturing units in India also offer Condenser Bushings for power & distribution transformers.Description Rated Voltage StandardsDetails

Current Transformers- HV 72.5 to 550 kV IEC,ISInductive Voltage Transformers- HV 72.5 to 420 kV IEC,ISCapacitive Voltage Transformers- HV 72.5 to1200 kV IEC,ISCurrent & Voltage Transformers - Dry Type MV 11 to 33 kV IEC,IS


Power Quality Solutions : CG offers customized solutions that ensure clean power, energy savings, improved operational efficiency and reliability through a range of state-of-the art-products and services. Power Quality solutions are based on a range of products and services. Products like Capacitor Switch, LT/HT Automatic PF control Panel, Fixed and Automatic Harmonic Filters, Dynamic Reactive Power Compensator – STATCOM, mechanically switched and thyristor switched capacitor panels when implemented specific to the application, ensure clean and efficient use of energy.

Description Type ApplicationDetails

Active Harmonic Filter (AHF) AHF Used for centralized harmonic suppression in a Power System

Capacitor Switch Line Current/Power Capacitor Switch for improving power factor Factor Based

Passive Harmonic Filters PHFControlled Harmonic Current management & Protection of capacitors

Automatic Power Factor Correction System (APFC)

APFCUsed for centralized reactive power compensation at the point of common coupling (PCC)

STATCOM SVCUsed for centralized reactive power compensation & harmonic suppression in a power system.

Medium Voltage Current and Voltage Transformers

CTs & VTsused for measuring voltage and current in electrical power systems

Condenser Bushing OIP Bushings

Vacuum Contactor VC / MVC / CS-VP

Capacitor / Reactor Switching

T & D Systems / Engineering Solutions :

CG is a specialist in turnkey substation projects up to 765 kV. These projects are carried out for large industrial customers as well as for major electricity utilities.We have built up an important reference list in the turnkey construction of both AIS and GIS substations in many countries around the world. Beside this we completed several rural electrification projects as well as HV transmission lines which came along with some of the turnkey substation projects

Description In Brief Ratings Voltages Standards

Mobile Substations Fully equipped electrical substations mounted on semi-trailers.

Up to 100 MVA

Up to 245 kV

ANSI,IEC

Mobile Circuit Breakers or Switchers

These are employed during emergency situations, sometimes in combination with

- Up to 245 kV

ANSI,IEC


mobile transformers

Mobile Capacitor Banks

These are deployed to meet temporary demand for reactive power compensation

-Up to 245 kV

AIS Substations Substations for industries & utilities -Up to 765 kV

GIS Substations To fulfill all substation requirements -Up to 500 kV

Modular Substations Compact, Easy transportation & quick installation

Up to 150 MVA

Up to 245 kV

ANSI,IEC

WindSub onshore This substation allows multiple turbines to be connected to the electricity grid

Up to 500 MVA

Up to 500 kV

ANSI,IEC

Turnkey Solutions Turnkey substation projects are carried out for large industrial customers & Electricity Boards

-Up to 500 kV

WindSub offshore Reliability, Reduced offshore maintenance are important designing factors to take into account.

Up to 500 MVA

Up to 500 kV

ANSI,IEC

Substation Engineering Services

Civil Work, Physical Design, Electrical, Protection Control & System Studies, SCADA

Transmission Engineering Services

Transmission Line Engineering, Construction, Studies & Support, Management & Support

Testing & Commissioning

Complete substation equipment , functional relay & controls testing

Project Management Project engineering, management & execution

EPC Services Provide our clients with a complete EPC scope

Procurement Procurement

SAP Operations Undertakes all operational (SAP) activities up to and including 132kV

Client Services Client Services for T & D Systems

Transformer & Switchgear Components :


Description Rated Voltage Rated Current Standards

Outdoor Type

On-load tap changers Up to 72 kV Up to 300 A IEC,IS,BS

Vacuum Interrupter Up to 52 kV Up to 20 kA

Condenser Bushings Up to 420 kV Up to 3150 A IEC

Industrial Systems:

CG’s Industrial Systems is engaged in the business of power conversion equipment a wider spectrum of High and Low Voltage rotating machines (motors and alternators), stampings, as well as railway transportation and signalling products. Industrial Systems is largely India focused with a very strong market presence and market leadership position in many segments. It also caters to foreign markets through its facilities in Hungary and exports. Its product portfolio includes motors and generators ranging from 100W to 100MW. CG enjoys a market leadership for AC Motors and the second position in AC Generators and DC Motors in India. CG is the largest manufacturer of Low Tension motors in India offering a range of AC and DC motors, ranging from 0.18kW to 450kW in various standard and customized configurations to respond to the exacting demands of the industry. To ensure the highest levels of customer satisfaction, the latest designs have been incorporated for its range of product offerings, to achieve better performance as well as versatility in mechanical features. The products of this business have received many international certifications including CSA, UL, CE and Flame Proof Gas Group IIA and IIB certifications. The customer emphasis for this business group has been the textile, cement, sponge iron and large steel plants sectors, which are growing segments

Motors; High / Low Voltage AC & DC

Railway Signalling & Coach Products

Generators / Alternators; AC & DC

Drives & Automation

Traction Motors / Alternators / Control Electrics

Stampings / Laminations


FHP / Commercial Motors

Services For Industrial Systems

Consumer Products:

Fans :

Appliances:

Kitchen Appliances

Juicers, Mixers, Grinders, Hand Blenders

Electric Cookers, Kettles, Toasters

Induction Cook tops, Gas Stoves

Lighting :

Luminaries

Commercial Luminaries.

Industrial Luminaires

Streetlight Luminaries’

Post Top / Landscape Luminaries’


Industrial & Other Fans

Industrial Fans

Special Purpose Fans

Cooler Products

Domestic Fans

Ceiling Fans

Table Fan, Pedestal Fan, Wall Mounting Fan

Domestic Exhaust Fans

Home Appliances

Dry / Steam Irons, Room Heaters

UPS, Rechargeable Lanterns

Water Heaters - Instant, Storage, Gas

Flood Lighting luminaires

LED Lighting Luminaires

High Mast / Street Lighting Poles

Specialty Luminaire

CG Fael Luce

CG Lemins-LED Luminaires

Lamps

Incandescent / Halogen

FTL / CFL

LED Lamps - Pharox / Cromstar

HID ( HPSV / HPMV / Metal Halide )

Consumer Fixture

Strip / Channel Type Fixtures & Accessories

Control Gears & Accessories

Home Automation:

Audio & Video Door Entry Systems

Multi Apartment Solutions

Audio / Video Door Phone

Access - Control systems

Automation Solutions

Home - Automation Solutions

Integrated Security Systems:

Electronic Surveillance

Video- Surveillance / Electronic Access Control

Wiring Accessories:

Plugs & Socket

Plugs & Sockets / Interlocked Switch Socket

Enclosures


Fire Solutions

Fire Alarm and Control Systems

Weather Proof Enclosures

Cable Glands / Cable Reels

Union / Roller Series

Explosion Proof Range

Explosion Proof

WORKNG CAPITAL MANAGEMENT:


INTRODUCTION

Working capital management is concerned with the problems arise in attempting to manage the current assets, the current liabilities and the inter relationship that exist between them. The term current assets refers to those assets which in ordinary course of business can be, or, will be, turned in to cash within one year without undergoing a diminution in value and without disrupting the operation of the firm. The major current assets are cash, marketable securities, account receivable and inventory. Current liabilities ware those liabilities which intended at there inception to be paid in ordinary course of business, within a year, out of the current assets or earnings of the concern. The basic current liabilities are account payable, bill payable, bank over-draft, and outstanding expenses. The goal of working capital management is to manage the firm s current assets and current liabilities in such way that the satisfactory level of working capital is mentioned. The current should be large enough to cover its current liabilities in order to ensure a reasonable margin of the safety.

Concept of working capital

Gross Working Capital = Total of Current Asset Net Working Capital = Excess of Current Asset over Current Liability

Current Assets Current Liabilities

Cash in hand / at bank Bills Receivable Sundry Debtors Short term loans Investors/ stock Temporary investment Prepaid expenses Accrued incomes

Bills Payable Sundry Creditors Outstanding expenses Accrued expenses Bank Over draft

Working capital in terms of five components:

1. Cash and equivalents: - This most liquid form of working capital requires constant supervision. A good cash budgeting and forecasting system provides answers to key questions such as: Is the cash level adequate to meet current expenses as they come due? What is the timing relationship between cash inflow and outflow? When will peak cash needs occur? When and how much bank borrowing will be needed to meet any cash shortfalls? When will repayment be expected and will the cash flow cover it?

2. Accounts receivable: - Many businesses extend credit to their customers. If you do, is the amount of accounts receivable reasonable relative to sales? How rapidly are receivables being collected? Which


customers are slow to pay and what should be done about them?

3. Inventory: - Inventory is often as much as 50 percent of a firm's current assets, so naturally it requires continual scrutiny. Is the inventory level reasonable compared with sales and the nature of your business? What's the rate of inventory turnover compared with other companies in your type of business?

4. Accounts payable:- Financing by suppliers is common in small business; it is one of the major sources of funds for entrepreneurs. Is the amount of money owed suppliers reasonable relative to what you purchase? What is your firm's payment policy doing to enhance or detract from your credit rating?

5. Accrued expenses and taxes payable: - These are obligations of your company at any given time and represent a future outflow of cash.

Two different concepts of working capital are:-

Balance sheet or Traditional concept Operating cycle concept.

Balance sheet or Traditional concept:- It shows the position of the firm at certain point of time. It is calculated in the basis of balance sheet prepared at a specific date. In this method there are two type of working capital:-

Gross working capital Net working capital

Gross working capital: - It refers to the firm’s investment in current assets. The sum of the current assets is the working capital of the business. The sum of the current assets is a quantitative aspect of working capital. Which emphasizes more on quantity than its quality, but it fails to reveal the true financial position of the firm because every increase in current liabilities will decrease the gross working capital.

Net working capital: - It is the difference between current assets and current liabilities or the excess of total current assets over total current liabilities.

Working capital= current assets - current liabilities.


RAW MATERIAL

WORK IN PROGRESS

FINISH GOODSSALES

DEBTORS & BILLS RECEIVABLES

CASH

OPERATING CYCLE

Net working capital: - It is also can defined as that part of a firm’s current assets which is financed with long term funds. It may be either positive or negative. When the current assets exceed the current liability, the working capital is positive and vice versa.

Operating cycle concept: - The duration or time required to complete the sequence of events right from purchase of raw material for cash to the realization of sales in cash is called the operating cycle or working capital cycle.

Types of Working Capital:-


SIGNIFICANCE OF WORKING CAPITAL:-


TYPES OF WORKING CAPITAL

ON THE BASIS OF B/S CONCEPT

GROSS WORKING CAPITAL

NET WORKING CAPITAL

ON THE BASIS OF TIME

REGULAR WORKING CAPITAL

TEMPORARY WORKING CAPITAL

SEASONAL WORKING CAPITAL

SPECIFIC WORKING CAPITAL

SIGNIFICAN--CE OF

WORKING CAPITAL

PAYMENT TO

SUPPLIERS

DIVIDEND DISTRIBUT

I-ON

INCREASE DEBT

CAPACITY

INCREASE IN FIX

ASSETS

INCREASE EFFECIEN

C-Y

EASY LOAN FROM BANKS

Factors requiring consideration while estimating working capital.

The average credit period expected to be allowed by suppliers. Total costs incurred on material, wages. The length of time for which raw material are to remain in stores before they are issued for

production. The length of the production cycle (or) work in process. The length of sales cycle during which finished goods are to be kept waiting for sales. The average period of credit allowed to customers The amount of cash required to make advance payment

Importance of Working Capital Ratios

Ratio analysis can be used by financial executives to check upon the efficiency with which working capital is being used in the enterprise. The following are the important ratios to measure the efficiency of working capital. The following, easily calculated, ratios are important measures of working capital utilization.

Ratio Formulae Result Interpretation

Stock Turnover(in days)

Average Stock * 365/Cost of Goods Sold

= x days On average, you turn over the value of your entire stock every x days. You may need to break this down into product groups for effective stock management.Obsolete stock, slow moving lines will extend overall stock turnover days. Faster production, fewer product lines, just in time ordering will reduce average days.

Receivables Ratio(in days)

Debtors * 365/Sales

= x days It takes you on average x days to collect monies due to you. If your official credit terms are 45 day and it takes you 65 days.One or more large or slow debts can drag out the average days. Effective debtor management will minimize the days.

Payables Ratio(in days)

Creditors * 365/Cost of Sales (or Purchases)

= x days On average, you pay your suppliers every x days. If you negotiate better credit terms this will increase. If you pay earlier, say, to get a discount this will decline. If you simply defer paying your suppliers (without agreement) this will also increase - but your reputation, the quality of service and any flexibility provided by your suppliers may suffer.

Current Ratio Total Current Assets/Total Current Liabilities

= x times Current Assets are assets that you can readily turn in to cash or will do so within 12 months in the course of business. Current Liabilities are amount you are due to pay within the coming 12 months. For example, 1.5 times means that you should be able to lay your hands on $1.50 for every $1.00 you owe. Less than 1 time e.g. 0.75 means that you could have liquidity problems and be under pressure to generate sufficient cash to meet oncoming demands.

Quick Ratio (Total Current Assets - Inventory)/Total Current

= x times Similar to the Current Ratio but takes account of the fact that it may take time to convert inventory into cash.


Liabilities

Working Capital Ratio

(Inventory + Receivables - Payables)/Sales

As % Sales

A high percentage means that working capital needs are high relative to your sales.

Statement showing change in working capital for CGL:-

( Rs.in lacs)

INVESTMENTS 31- 03-2010

31-03-2009

CURRENT ASSETS, LOANS AND ADVANCES:

Inventories 303.53 281.32

Sundry debtors 1212.79 1012.26

Cash and bank balances 548.5 472.51

Loans and advances 155.37 132.54 2220.19 1898.63

Less: CURRENT LIABILITIES AND

PROVISIONS:

Current liabilities 1446.6 1187.67

Provisions 153.57 140.66 1600.17 1328.33

Net current assets 620.02 570.3 1874.92 1359.48

Net working capital current assets-current liabilities

620.02 570.3


Particulars 09-10 08-09 Increase ( + ) Decrease (- )Current AssetsInventories 303.53 281.32 22.21Sund. Debtors 1212.79 1012.26 200.53Cash & Bank 548.5 472.51 75.99Loan & Advances 155.37 132.54 22.83Total ( A ) 2220.19 1898.63

Current Liabilities

C.L. 1446.6 1187.67 258.93Provisions 153.57 140.66 12.91Total ( B ) 1600.17 1328.33

( A-B ) 620.02 570.3 321.56 271.84↑ in working capital 49.72 49.72Total 620.02 620.02 321.56 321.56

Sources of Additional Working Capital

Sources of additional working capital include the following:

* Existing cash reserves * Profits (when you secure it as cash) * Payables (credit from suppliers) * New equity or loans from shareholders * Bank overdrafts or lines of credit * Long-term loans

ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL

INVENTORY ANALYSIS

Inventory is total amount of goods and materials content in a store of factory at any given time. Inventory means stock of three things:-

1. Raw materials2. Semi finished goods.3. Finished goods.


Position of inventory in Crompton greaves Limited

YEAR

Stores, spares and packing materialsRaw materialsWork-in-progress - ManufacturingFinished goods – ManufacturingAdd: Excise duty on finished goods

Finished goods - TradingWork-in-progress - ContractsAt costAt realizable sales value

Less: Progress payments Due from customers

31.03.10 (in crore) (in crore)

4.44 87.12

145.93 31.20 3.44 34.64

31.40 -

--

- - 303.53

31.03.09 (in crore) (in crore)

3.24 97.17

111.25 31.03 2.00 33.03

17.84 0.56 27.94 28.50

9.71 18.79 281.32

INTERPRETATION:

By analyzing the 2 years data we see that the inventories are increased year by year. We are looking increasing pattern in inventories. We can see that inventories are grown by 8% in 09-10 from previous year. By this growth we can say that the company is growing in manufacturing sector. The company uses inventory when they have demand in market and CG is having a great demand in manufacturing sector. That is biggest reason for increase in inventories.


SUNDRY DEBTORS ANALYSIS

Debtors or an account receivable is an important component of working capital and fall under current assets. Debtors will arise only when credit sales are made.

Position of Sundry Debtors in Crompton greaves Limited

YEAR

(Unsecured)Debts outstanding for a period exceeding six months

Considered goodConsidered doubtful

Other debtsConsidered good

Less: Provision for doubtful debts

31.03.10

(in crore) (in crore)

112.5861.03

173.61

1100.21 1273.82

61.03 1212.79

1212.79

31.03.09

(in crore) (in crore)

143.85 36.28 180.13

868.41 1048.54

36.28 1012.26

1012.26


31-03-2010 31-03-2009900

950

1000

1050

1100

1150

1200

1250

Position of Sundry Debtors

Column1

INTERPRETATION

In the table we see that there is rise in the debtors of Crompton greaves Limited in the successive years. A simple logic is that debtors increase only when sales increase and if sales increases it is good sign for growth. We can see 26% in 09-10 from previous years. We can say that it is a good sign as well as negative also. Company policy of debtors is very good but a risk of bad debts is always present in high debtors. When sales are increasing with a great speed the profit also increases. If company decreases the debtors they can use the money in many investment plans.

CASH AND BANK BALANCE ANALYSIS

Cash is called the most liquid asset and vital current assets; it is an important component of working capital. In a narrow sense, cash includes notes, bank draft, cheque etc while in a broader sense it includes near cash assets such as marketable securities and time deposits with bank.

Position of Cash and Bank Balance in Crompton greaves Limited

Cash on handBank balances with scheduled banksOn current accountsOn deposit accounts

31-03-2010(In crore) (In crore)

0.13

112.30436.07

548.37

31-03-2009 (In crore) (In crore)

0.13

181.36 291.02

472.38


548.50 472.51

31-03-2010 31-03-2009420

440

460

480

500

520

540

560

Position of cash and bank balance

Column1

Interpretation

We have analyzed that the cash and bank balance position of the company is increasing this year from previous year which means company is not fully utilizing its cash or investing its cash in some better projects. It is recommended for the company to invest its excess cash to some better projects.

LOANS AND ADVANCES ANALYSIS

Loans and Advances here refers to any to amount given to different parties, company, employees for a specific period of time and in return they will be liable to make timely repayment of that amount in addition to interest on that loan.

LOANS AND ADVANCES

(Unsecured, considered good)

Interest accrued on investments and deposits

Advances recoverable in cash or in kind or for value to be received

Balances with excise, customs, service tax and value added tax, etc.

31-03-2010

1.05

174.14

70.35

245.54

31-03-2009

2.89

140.74

85.34

228.97


31-03-2010 31-03-2009220

225

230

235

240

245

250

loan and advances

Column1

INTERPRETATION

If we analyze the table we can see that it follows an increasing trend which is a good sign for the company. We can see that from the year 2009 to 2010 it increases. We can see that the increase of 8-9% from previous year.

The increasing pattern shows that company is giving advances for the expansion of plants and machinery which is good sign for better production of cement and other goods. Although company’s cash is blocked but this is good that company is doing modernization of plants in time to compete with other competitors in market.

CURRENT LIABILITIES ANALYSIS

Current liabilities are any liabilities that are incurred by the firm on a short term basis or current liabilities that has to be paid by the firm within one year.

Position of Other Current Liabilities in Crompton greaves Limited


Acceptances

Sundry creditors

Due to customers

Progress bills raised

Less: Construction and project related work at realizable value

Advances from customers

Unclaimed dividend

Unclaimed matured fixed deposits

Due to Directors

Interest accrued but not due on loans

Other liabilities

Due to erstwhile shareholders of acquired subsidiaries

31-03-2010 31-03-2010

123.29

1486.51

359.32 -

339.61

19.71

726.28

1.54

0.13

1.67

10.91

0.22

255.05

33.08

2656.72

31-03-2009 31-03-2009

156.52

1431.88

-

-

-

729.04

1.25

0.17

1.42

4.90

2.52

224.81

51.06

2602.15

INTERPRETATION

If we analyze the above table then we can see that current liability increases. The important component of current liabilities is sundry creditors and other liabilities. In 2009-2010 it increases by 5% from the previous


year. This is liability for company so this should be less. When company has minimum liabilities it creates a better goodwill in market.

PROVISIONS ANALYSIS

Position of Other Provisions in Crompton greaves Limited

PROVISIONS

31-03-2010 31-03-2009

Taxes 42.29 41.59

(Net of advance tax Rs. 271.43 crore; previous year Rs. 219.71 crore)

Fringe benefit tax - 0.30

(Net of advance tax Rs. nil; previous year Rs. 5.03 crore)

Interim dividend - 18.33

Corporate dividend tax - 3.11

Employee benefits 86.86 103.89

Others provisions 231.10 206.65

(Refer Note 15 of Schedule 'B')

360.25 373.87

31-03-2010 31-03-2009

350

355

360

365

370

375

380

Position of Other Provisions in Crompton greaves Limited

PROVISIONS ANALYSIS


Interpretation

In 2009 company pays more tax than 2010 which means company earns more profit in 2009 i.e. company’s PAT is more in 2009 as compared to 2010. Company pays 5% less tax in 2010.

Working capital ratios & its interpretation

Position of RECEIVABLE RATIO in Crompton greaves Limited

FORMULA

DEBTORS RECEIVABLE RATIO = ---------------- * 365

SALES

YEAR 31.03.10 31.03.09

RECEIVABLE RATIO (IN DAYS) 83.77 80.13

31-03-2010 31-03-200978

79

80

81

82

83

84

85

Position of RECEIVABLE RATIO

RECEIVABLE RATIO

INTERPRETATION

Generally a low debtor’s turnover ratio implies that it considered congenial for the business as it implies better cash flow. The ratio indicates the time at which the debts are collected on an average during the


year. Needless to say that a high Debtors Turnover Ratio implies a shorter collection period which indicates prompt payment made by the customer.

Now if we analyze the two year data we can say that company doesn’t hold a good position while receiving its money from its debtors. The ratios are in an increasing trend, which implies that recovery position is not so good and company should work on it to lessen number of days of receivable.

Position of CURRENT RATIO in Crompton greaves Limited

FORMULA

TOTAL CURRENT ASSETS

CURRENT RATIO= --------------------------------------------

TOTAL CURRENT LIABILITIES

YEAR 31.03.10 31.03.09

CURRENT RATIO 1.3 1.4

31-03-2010 31-03-20091.24

1.26

1.28

1.3

1.32

1.34

1.36

1.38

1.4

1.42

Current ratio

Current Ratio

INTERPRETATION


This ratio reflects the financial stability of the enterprise. The standard of the normal ratio is 2:1 but in most of companies standard is taken according to Tandon Committee which is taken as 1.33:1.

Now if we analyze the two years data it can be predicted that it holds a stable position all throughout period but it is seen that it holds a low position than the standard one and the company is required to improve its position.

Position of QUICK RATIO in Crompton greaves Limited

FORMULA

TOTAL CURRENT ASSETS - INVENTORIES

QUICK RATIO= -----------------------------------------------------------------

TOTAL CURRENT LIABILITIES

YEAR 31.03.10 31.03.09

QUICK RATIO 1.19 1.21

31-03-2010 31-03-20091.07

1.12

1.17

1.22

1.27

1.32

1.37

1.42

Quick ratio

Quick Ratio


INTERPRETATION

It is the ratio between quick liquid assets and quick liabilities. The normal value for such ratio is taken to be 1:1. It is used as an assessment tool for testing the liquidity position of the firm. It indicates the relationship between strictly liquid assets whose realizable value is almost certain on one hand and strictly liquid liabilities on the other hand. Liquid assets comprise all current assets minus stock.

By analyzing the two years data it can be said that quick ratio of company is good in both the years as it is near standard value.

Cash Flow Statement Crompton greaves Ltd .

Particulars Mar 10

(in crores)

Mar 09

(in crores)

Profit Before Tax 870.26 614.27

Net Cash Flow-Operating Activity 687.97 572.44

Net Cash Used In Investing Activity (451.10) (108.81)

Net Cash Used in Fin. Activity (160.88) (148.77)

Net Inc/Dec In Cash And Equivalent 75.99 314.86

Cash And Equivalent Begin of Year 472.51 157.65

Cash And Equivalent End Of Year 548.50 472.51


Conclusion

The overall performance of Crompton Greaves Limited is getting on a good track. Profit before tax in 2010 is 870.26 crores which is much more than 612.27 crores in 2009. The cash earning of the company improved substantially to Rs. 548.50 crores as against Rs.472.51 crores in the last financial year. With the increase in capacity on account of expansion projects being undertaken by the company, it is expected that the company would be in a position to maintain the growth in future years.

Company has parked its surplus fund in the various debt schemes of mutual fund. There is an increase of 107% in investment from the previous year. Company is cash rich but as there are expansion and diversification plans under the consumer products, company is not utilizing these funds. For meeting the working capital needs and capacity expansion needs it has borrowed from banks.

Findings

Statement Showing Difference from Previous Year

(amt. in crores)

CGL’s NPAT is increasing day by day from last four years and the growth is remarkable.

CGL has shown that it is very strong competitor in consumer goods sector of India.

Overall all ratios of the company are good and company need to work with more efficiency.

Lack of advertisement can be said as weak point of the CGL.

CGL’s investment policies are very much reliable.

Position of the stock is increasing per year that is good sign to face the competition coming ahead.

Highest ever net profit of Rs. 576.96 crores.

Highest ever dividend payout of Rs. 81 crores.


Particulars 09-10 08-09

Inventories 303.53↑ by 7.89%

281.32↑ by 4.32 %

Sundry Debtors 1212.79↑ by 19.81%

1012.26↑ by 11.22%

Cash & Bank 548.50↑ by 16.08%

472.51↑ by 9%

Current Liabilities 2656.72 ↑ by 2.09%

2602.15 ↑ by 4.6%

General reserve 2504↑ by 36.75%

1831↑ by 29.44%

Debt equity ratio reduces to 0.2:1 from 0.4:1.

Bibliography

Pandey,I.M. (2010), Financial Management, 10th Ed. Noida: vikas Publishing house pvt Ltd., pp. 648-660.

Jain,N.K. (2004), Working Capital Management, 4th Ed. NewDelhi: A.P.H Publishing corpotation., pp.77-109.

Chandra Prasanna (2007), Financial Management theory and practices, 7th Ed. New Delhi: Tata McGraw Hill Publishing Company Ltd., pp. 755-667.

Annual Reports of Crompton Greaves limited 09-10 & 08-09.http://www.cgglobal.com/frontend/finalnonproduct.aspx?cnl2=Nu/tTrrPlMI=

http://www.moneycontrol.com/stocksmarketsindia/


http://www.moneycontrol.com/stocksmarketsindia/

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