Working Capital 0f Jsl

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ASSIGNMENT

OF

“WORKING CAPITAL MANAGEMENT ”

ON

Jindal Drilling & Industries Ltd.

SUBMITTED TO

PROF. CHAND TANDON

SUBMITTED BYSAURABH ANEJA

MBA II YEAR

2009-2011

NEW DELHI INSTITUTE OF MANAGEMENT





attempting to manage the current assets, current liabilities and

the relationship that exists between them.

Positive working capital means that the company is able to pay

off its short-term liabilities. Negative working capital means that

a company currently is unable to meet its short-term liabilities

with its current assets. A negative working capital is a sign of

managerial inefficiency in a business with low inventory and

accounts receivable. In any other situation, it is a sign of a

company may be facing bankruptcy or serious financial trouble.

3



Types of working capital

The type, kinds of a thing are depending upon the different

utilization of working capital. It prominently works in the

direction of performing different functions in different

situation and in the context of divergent variables. Sofollowing are some important types of working capital.

.

1) Net Working Capital:

Term Net working capital can be define in two way

4

Net Working

Capital Gross Working

Capital

Permanent

Working capital

TemporaryWorking Capital

Types of

Working Capital

Balance Sheet

Working Capital

Cash Working

Capital

Negative

Working Capital



i) It is the difference between current assets and

current liabilities.

ii) Amount left for operational requirement.

2) Gross Working Capital:

Gross working capital means the total current assets.

3) Permanent Working Capital:

It is the minimum amount of the current assets, which are

needs to conduct the business even during the dullest season

of the year. This amount varies from year to year depending

upon the growth of a company and stage of the business cycle

in which it operates. It is the amount of funds required to

produce the goods and services, which are necessary to

satisfy demand at a particular point.

It represents the current assets, which are required on acontinuing basis over the year. It is maintain as the medium

to carry on operation at any time. Permanent working capital

has following features:

i) It is classified on the basis of the time factor.

ii) Its size increase with the growth of the business.

iii) It constantly shifted from one assets o another and

continues to remain in the business process.

4) Temporary Working Capital:

It represents the additional assets, which are required at

different times during the operating year. Seasonal working

capital is the additional amount of current assets particularly

5



cash, receivables, and inventory which is required during the

more active business seasons of the year. It is the temporary

investment in the current assets and possesses he following

features:

a) It is not always gainfully employed, though is

May also shift from one asset to another as

permanent working capital does.

b) It is particularly suited to business of seasonal

on cyclical nature.

5) Balance Sheet Working Capital:

The balance sheet working capital is one, which is

calculated from the items appearing in the balance sheet.

Gross working capital, which is represented by the excess of

current assets over current liabilities, is example of the balance sheet working capital.

6) Cash Working Capital:

It is one, which is calculated from the items appearing in

he Profit and Loss Account. It shows the real flow of money

or value at a particular time and considered to be most

realistic approach in working capital management. It is the

basic of he operation cycle concept, which has assumed a

great importance in financial management in recent year. The

reason is that the cash working capital indicates he adequacy

of he cash flow which is an essential pre requisite of a

business.

6



7) Negative Working Capital:

It emerges when current liabilities exceeds current assets,

such a situation is absolutely theoretical and occurs when a

firm is nearing a crisis of some magnitude.

Methods of Calculation of

Required Working

Capital

The methods of calculation of required working capital are as

follows:

Working Capital Cycle:

The working capital cycle is also known as operating cycle. It

refers to the duration between the firm’s payment of cash for

raw material, entering into production and inflow of cash from

debtors and realization of receivables. Simply speaking,

operating cycle is the duration between the outflow of cash and

inflow of cash and this may be evidenced from the following

working capital cycle.

7

Receivables

Finished Goods

Raw Material Work In Process

Cash



The above and network diagram may offer a clear picture of a

complete working capital i.e. it is a cash phenomenon. In the

diagram, raw material, stock refers to material only. In work

in process, components involve are raw material, wages, and

overhead more specifically manufacturing overheads.

Finished stock consists components of material, wages and

overheads inclusive of factory, office and administration and

selling and distribution. Debtors include material, wages,

overheads and profits. Credit involves for the components of

raw material, etc. something a contingency margin is also

given while estimating the working capital requirement.

The operating cycle consists of him following events, which

continues throughout his life of a firm remaining engaged in

commercial activities.

Avg. Stock of Raw Material

1) Raw Material Holding Period =

Avg. Cost of Consumption per day

Avg. Stock of Work in Process

2) Work in Process Holding Period =

Avg. Cost of Production per day

Avg. Stock of Finished Goods

8



3) Finished Goods Holding Period =

Avg. Cost of Goods Sold per day

Avg. Book Debt

4) Receivables Collection Period =

Avg. Credit Sales per day

Avg. Trade Creditors

5) Creditors Collection Period =

Avg. Credit Purchased per day

In the form of a simple equation working capital cycle or

operating cycle can be represented as bellow:

O = R+W+F+D-C

where, O = Operating Cycle (In Days)

R = Raw Materials Holding Period

W = Work in Process Holding Period

F = Finished Goods Holding Period

D = Receivables Collection Period

C = Creditors Collection Period.

9



Components of Working Capital:

Current Assets:

i) Stock of Raw Material (for…month consumption)

ii) Work In Process (for…Month)

a) Raw Materials

b) Direct Labour

c) Overheads

iii) Stock of Finished Goods (for…month sales)

iv) Sundry Debtors or Receivables (for…month sales)

v) Payments in Advance (if any)

vi) Balance of Cash (required to meet day-to-day Expenses)

vii) Any Other (if any)

Less: Current Liabilities:

i) Creditors (for…month purchase of raw materials)

ii) Outstanding Expenses (for month)

iii) Others (if any)

Amount

------

------

------

------

------

------

------

------

------

------

10



Working Capital (CA – CL)

Add: Provision/ Margin for contingencies

Net Working Capital Required

---------

------

----------

Evaluation of workingcapital

The working capital management needs attention of all the

finance head/ working capital management is important for

avoiding unnecessary blockage of fund. Like that liquidity is

important at it refer to the short-term financial strength of

11



company. It is very important to have proper balance in regard

to the liquidity of the firm.

Table I - Statement of Working CapitalRequirement

Rs. InCrores)

Particulars

Mar'10

Mar'09

Mar'08

Mar'07

Mar'06

A. Current Assets

Inventories 11.93 13.25 7.23 6.88 3.73

Sundry Debtors 252.8 299.7126.7

1 90.31 43.98

Cash And Bank 1.12 17.04 56.77 1.96 2.31

Loans And Advances135.2

3140.8

5 70.3 26.6 14.18

Total Current Assets

401.0

8

470.8

4

261.0

1

125.7

5 64.2 B. CurrentLiabilities

Liabilities213.2

8306.5

1119.5

4 86 45.75

Provisions 5.4 3.67 3.81 0.72 2.97

Total Current Liabilities218.

68310.

19123.

35 86.7248.7

2

Net Working Capital

Requirement (A-B)

182.4

160.65

137.66 39.03

15.48

12



Table II - Statement of Changes in Working

Capital

(Rs. In Crores)

Effect onWorkingCapital

ParticularsMar'09

Mar'10 Increase

Decrease

A. Current Assets

Inventories 13.25 11.93 1.32

Sundry Debtors 299.7 252.8 46.9Cash And Bank 17.04 1.12 15.92


5135.2

3 5.62

Total Current Assets470.8

4401.0

8

B. Current Liabilities

Liabilities306.5

1213.2

8 93.23

Provisions 3.67 5.4 1.73

Total Current Liabilities310.

19218.

68

Net Working Capital

Requirement (A-B)

160.65

182.4 21.75

13



Graph Showing Working

Capital

14



Graph Showing Working

Capital movement

15



Table I: -

It is observed that current asset and the current liabilities has

been increase from 2006-10. Working capital of JDI Ltd. shows

a fluctuation of current liabilities and current assets.

Table II: -

Statement of changes in the working capital is preparedto show the changes in the working capital between the two

balance sheet dates. This statement is prepared with the help of

the current asset and current liabilities derived from the 2

balance sheets

So,

i) An increase in current asset increases working capital

ii) A decrease in current assets decreases in working

capital

iii) An increase in current liabilities decreases working

capital.

16



iv) A decrease in current liabilities increase working capital

It is worth noting that schedule of changes in working capital

is prepared only from current assets and current liabilities and

the other information is not of any use for preparing this

statement.

Profit & Loss - Jindal Drilling &

Industries Ltd. (Rs. InCrores.)

Mar'10

Mar'09

Mar'08

Mar'07

Mar'06

12Months

12Months

12Months

12Months

12Months

INCOME:

Sales Turnover1,195.

37777.8

3412.7

6304.4

9223.8

3

Excise Duty 0 0 0 0 0

NET SALES1,195.

37777.8

3412.7

6304.4

9223.8

3

Other Income 0 0 0 0 0

TOTAL INCOME1,200.

81782.5

8414.7

7306.2

5225.7

1

EXPENDITURE:

ManufacturingExpenses 962.3

645.84

339.47

227.89

174.23

Material Consumed 43.58 22.7 16.29 19.41 18.11

Personal Expenses 37.11 26.1 12.15 6.31 4.31

Selling Expenses 0 0.67 0.52 0.86 0.23AdministrativeExpenses 15.75 9.08 7.06 6.58 5.24ExpensesCapitalised 0 0 0 0 0

Provisions Made 0 0 0 0 0

17



TOTALEXPENDITURE

1,058.73 704.4

375.49

261.05

202.12

Operating Profit 136.64 73.43 37.27 43.44 21.72

EBITDA 142.07 78.18 39.28 45.2 23.6

Depreciation 12.1 12.81 8.95 10.04 11.26Other Write-offs 0 0 0 0 0

EBIT129.9

8 65.37 30.33 35.16 12.33

Interest 1.87 2.66 3.27 4.11 1.39

EBT 128.11 62.71 27.06 31.05 10.94

Taxes 43.97 20.02 10.47 11.25 1.47Profit and Lossfor the Year 84.14 42.69 16.59 19.8 9.47

Non RecurringItems 0 -5.48 1.78 -1.79 -2.49Other Non CashAdjustments 0.01 0.12 0 0 0

Other Adjustments 0 0 0 0 0

REPORTED PAT 84.14 37.33 18.37 17.95 6.98

Balancesheet- JindalDrilling &IndustriesLtd.

(RS. InCrores)

ParticularsMar'1

0Mar'0

9Mar'0

8Mar'0

7Mar'0

6

Liabilities

12Mont

hs

12Mont

hs

12Mont

hs

12Mont

hs

12Mont

hs

Share Capital 11.47 11.47 11.47 10.27 10.27

Reserves & Surplus339.6

8258.8

8224.6

9 60 42.65

Net Worth351.1

5270.3

5236.1

5 70.27 52.92

Secured Loans 19.05 39.5 40.36 21.27 62.65

18



Unsecured Loans 0 0 0 3.55 8.56

TOTAL LIABILITIES 370.2309.8

5276.5

2 95.09124.1

2

Assets

Gross Block129.4

1127.4

8102.3

3 56.41 46.1

(-) Acc. Depreciation 54.75 43.53 32.63 25.3 16.08

A. Net Block 74.66 83.95 69.69 31.1 30.02B. Capital Work inProgress. 0.83 0.39 4.32 0 78.45

C. Investments.112.3

2 64.85 64.85 24.94 0.17

Inventories 11.93 13.25 7.23 6.88 3.73

Sundry Debtors 252.8 299.7126.7

1 90.31 43.98

Cash And Bank 1.12 17.04 56.77 1.96 2.31


3140.8

5 70.3 26.6 14.18Total CurrentAssets

401.07

470.85

261.01

125.76 64.2

Current Liabilities 213.28 306.51 119.54 86 45.75

Provisions 5.4 3.67 3.81 0.72 2.97Total CurrentLiabilities

218.68

310.19

123.35 86.72 48.72

D. NET CURRENTASSETS

182.39

160.66

137.66 39.04 15.48

Misc. Expenses 0 0 0 0 0TOTAL ASSETS(A+B+C+D) 370.2

309.85

276.52 95.09

124.12

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Working Capital 0f Jsl