Working Capital Management PROJECT REPORT MBA 2013

8/13/2019 Working Capital Management PROJECT REPORT MBA 2013

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WORKING CAPITAL MANAGEMENT OF BAHETY CHEMICALS & MINERALS PVT. LTD., DANDELI.

BABASAB PATIL- 1 -

INDEX TABLE

SL.NO CONTENTS PAGENO.

1 PART I

EXECUTIVE SUMMARY

2 TO 6

2 PART II

INTRODUCTION TO THE STUDY

INDUSTRY PROFILE

TO 1!

" PART # IIIINTRODUCTION OF COMPANY

1$ TO "$

! PART # IVRESEARCH METHDOLOGY

OB%ECTIVES OF THE STUDY

"6 TO "

6 PART # VWORKING CAPITAL MANAGEMENT

!' TO 66

PART # VIDATA ANALYSIS AND INTERPRETATION

6 TO ($

( PART VIIFINDINGS

SUGGESTIONS &

CONCLUSIONS.

(6 TO (

ANNEXURE

FINANCIAL STATEMENT.

BIBILOGROPHY.

' TO 2


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EXECUTIVE SUMMARY

BABASAB PATIL- 2 -

EXECUTIVE SUMMARY

INDUSTRY PROFILE.

COMPANY PROFILE.NEED FOR THE STUDY.

OB%ECTIVES OF THE STUDY.

SCOPE OF THE STUDY.

LIMITATIONS OF THE STUDY.

METHODOLOGY.

FINDINGS.

SUGGESTIONS.

CONCLUSION.

PART # I


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5T/ 0* 3 - -78)9: ;


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)he chemical industry is one of the oldest domestic industries in !ndia,

contributing significantly to both the industrial and economic gro"th of the country since

it achieved independence in 19:; )he chemical industry currently produces nearly

; , commercial products, )he industry covers a large spectrum of categories

including inorganic and organic chemicals, drugs and pharmaceuticals, plastics and

petrochemicals, dyes and pigments, fine and specialty chemicals, pesticides and

agrochemicals and fertili5ers

COMPANY PROFILE

Bahety chemicals and Minerals &7vt'


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)he scope of the study is identified after and during the study is conducted )he main

scope of the study "as to put into practical the theoretical aspect of the study into real life

"ork e*perience )he study of "orking capital is based on tools like atio Analysis,

6tatement of changes in "orking capital urther the study is based on last ? years Annual

eports of Bahety #hemicals $ minerals pvt ltd

LIMITATIONS OF THE STUDY

)he study duration &summer in plant' is short

)he analysis is limited to just five years of data study &from year 2 3 to year 2 1 '

for financial analysis


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FINDINGS4

+orking capital of the Bahety #hemicals $ Minerals 7vt


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BABASAB PATIL- ; -


INDUSTRY PROFILE

PART # II


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BACKGROUND OF STUDY

C#ash is the lifeblood of businessC is an often repeated ma*im amongst

financial managers +orking capital management refers to the management of current or

short-term assets and short-term liabilities #omponents of short-term assets include

inventories, loans and advances, debtors, investments and cash and bank balances 6hort-

term liabilities include creditors, trade advances, borro"ings and provisions )he major

emphasis is, ho"ever, on short-term assets, since short-term liabilities arise in the conte*t

of short-term assets !t is important that companies minimi5e risk by prudent "orking

capital management

STATEMENT OF THE PROBLEM )his project deals "ith the study about +orking #apital Management0 in

BAHETY CHEMICALS AND MINERALS PVT. LTD

IMPORTANCE OF THE STUDY)here are numerous aspects of "orking capital management that makes it an important

topic for the study

)he management of assets in any organi5ation is an essential part of overall

management )he enterprise, at the time of formation attaches great importance to fi*ed

assets management, as a part of investment decision-making Do"ever, in the overall

day-to-day financial management, after the initial investment, the management gives

more importance to managing "orking capital !f "e look at any financial statement it

"ill be evident that the investment in fi*ed assets remains more or less static but the

"orking capital is constantly changing A healthy "orking capital position is the sine-

.ua-non of a successful business )his is reflected in ade.uate inventories, lo"est level of

debtors, minimum utili5ation of bank facilities for "orking capital, etc thus the study of

"orking capital management occupies an important place in financial management

BABASAB PATIL- -


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INDIAN CHEMICAL INDUSTRY SCENARIO

#hemical !ndustry is one of the oldest industries in !ndia, "hich contributes

significantly to"ards industrial and economic gro"th of the nation !t is highly science

based and provides valuable chemicals for various end products such as te*tiles, paper,

paints and varnishes, leather etc , "hich are re.uired in almost all "alks of life )he

!ndian #hemical !ndustry forms the backbone of the industrial and agricultural

development of !ndia and provides building blocks for do"nstream industries

#hemical !ndustry is an important constituent of the !ndian economy !ts si5e is estimated

at around G6E 8? billion appro* , "hich is e.uivalent to about 8H of !ndiaFs I%7 )he

total investment in !ndian #hemical 6ector is appro* G6E 3 billion and total

employment generated is about 1 million )he !ndian #hemical sector accounts for

18-1:H of total e*ports and -9H of total imports of the country !n terms of volume, it is

12th largest in the "orld and 8rd largest in Asia #urrently, per capita consumption of

products of chemical industry in !ndia is about 1/1 th of the "orld average =ver the last

decade, the !ndian #hemical industry has evolved from being a basic chemical producer

to becoming an innovative industry +ith investments in $%, the industry is registering

6ignificant gro"th in the kno"ledge sector comprising of specialty chemicals, fine

#hemicals and pharmaceuticals

)he !ndian #hemical Market 6egment "ise is as under -

CHEMICAL INDUSTRY STRUCTURE

Dighly fragmented and "idely dispersed

+estern !ndia accounts for :?-? H of total !ndian chemical !ndustry


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FOREIGN TRADE

!ndia "as a net importer of chemicals in early 199 s, but has no" become a net

e*porter due to reduction in !mports because of implementation of many large scale

petrochemical plants like eliance etc and also because of tremendous gro"th of e*ports

in sectors like bulk drugs and pharma, pesticides, dyes and intermediates

B);


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LISTS OF CHEMICAL INDUSTRIES

2 Microns


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"ater "hich is represented by chemical formula D2= is a chemical compound consisting

of t"o hydrogen

#hemical compounds are further divided into subcategories )hose chemical compounds

"hich are based on carbon and hydrogen atoms are called organic compounds and other

chemical compounds "hich are based on elements other than carbon and hydrogen are

called inorganic compounds Another form of chemical compound "hich contain bond

bet"een carbon and metal are called organ metallic compound .

#hemical compounds in "hich components share electrons are kno"n as covalent

compounds "hereas compounds consisting of oppositely charged ions are kno"n as

iconic chemical )alking about property of chemical compounds, a chemical compound

may have several possible phases At lo" enough temperatures all compounds can e*ist

as solids 6ome chemical compounds may also e*ist as li.uids, gases, and even plasmas

very kno"n chemical compound decompose "hen heat is applied !ndian chemicals

industry during 2 ?- 3 "as G6E8 ?9 billion, a gro"th of 1 28Hover the previous year

and a #AI of 3 H during the last 8 years #hemical industry occupies an important

place in the country(s economy %uring 2 ?- 3 contributed about 8H of I%7 and

1; 3H of the manufacturing sector Do"ever, !ndia continued to be a net importer in

2 ?- 3, "ith imports of G6E; 92 billion and e*ports of E9 ? billion the post +)= era,!ndian chemical industry is undergoing a massive e*pansion, brand building and

increased global reach )he industry is e*pected to gro" at a#AI of over 1 H for the

ne*t 8 years, in line "ith the gro"th of manufacturing industry

)he "ide and diverse spectrum of chemical products can be broken do"n into number of

categories - inorganic and organic &commodity' chemicals, drugs and pharmaceuticals,

plastics an petrochemicals, dyes and pigments, fine and specialty chemicals, pesticides

and agrochemicals and fertili5ers )his report covers all the segments e*cept

petrochemicals, drugs and pharmaceuticals )he report covers overall industry scenario in

the conte*t of global chemicals industry, various segments, gro"th drivers, critical

success factors, issues and challenges and future outlook for the industry )he report also

profiles the major 1;companies in the !ndian industry &11 !ndian companies and 3

M@#s' )he report is useful for industry analysts, banks and financial institutions,

investors, consultants, corporate engaged directly or indirectly in the chemicals industry

and international readers "ho "ant to keep abreast of the !ndian manufacturing sectors

BABASAB PATIL- 18 -


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ORGANIC CHEMICALS=rganic chemicals are compounds that are formed from the t"o basic building

blocks of carbon and hydrogen !t is one of the most important sectors of the chemical

industry, providing the basic feedstock for a variety of other industrial sectors such asdrugs and pharmaceuticals, dyes and dye intermediates, leather chemicals, paints and

pesticides

As in the case of most of the other chemical sectors, the domestic industry is a late starter,

"ith the pioneers in the field being the @ational =rganic #hemical !ndustries


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BABASAB PATIL- 1? -

INTRODUCTION OF COMPANYCOMPANY PROFILE.VISION AND MISSION.BOARD OF DIRECORS.OB%ECTIVES OF BCM.PVT.LTD.PRODUCT PROFILE OF BCM.PVT.LTD.EXPANSION AND DIVERSIFICATION.SWOT ANALYSIS OF BCM.PVT.LTDORGANI ATION STRUCTURE.DEPARTMENTAL STUDIES.

PART # III


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INTRODUCTION OF THE COMPANY

COMPANY PROFILE

HISTORY OF THE COMPANY

Bahety chemicals and Minerals &7vt'


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BABASAB PATIL- 1 -

N - */ ;->= 7 - >=+-3 012;

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CAPITAL STRUCTURE OF BCM.CO.LTD

SHARE CAPITAL4#

1 Authori5ed capital s 1 , ,

1 , e.uity shares of s 1 each

2 6ubscribed/ paid-up share capital s 1 , ,

1 , e.uity shares of s 1 each

BORROWED FUND-

)he #ompany has taken long term loans from #orporation Bank %andeli !t has also

taken unsecured loans from its joint associate 6hri aghavendra #hemicals )he

company has also received government subsidy of 2?H on capital investments

TABLE SHOWING THE LONG TERM LOANS TAKEN BY BCM .CO.LTD

Y


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6hri #handrashekhar > Bahety

6hri >a"aharlal Bahety

6hri 7ritvipal Bahety

6hri Badal Jumar Bahety

6mt a"aharlal > Bahety

MANAGING DIRECTOR

6hri #handrashekhar Bahety

STAFF

@AM 6 % 6!I@A)!=@Mr Mahesh @adkarni inance Manager

Mr N %eshpande Administrative Manager Mr ajendra Mahalkar 7roduction Manager Mr @eil 7urchase Manager Mr 7atil


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Alum is used in "ater treatment as mordant in dyeing Aluminium sulphate mainly usedin paper si5ing and in "ater treatment 7harmaceutically, it is employed in dilute solution

as a mild astringent and antiseptic for the skin 6oda alum or aluminium sulphate is used

in some baking po"ders Aluminium sulphate is kno"n more as alum !t is a colourless

solid, "hich is soluble in "ater but insoluble in alcohol

MA%OR PRODUCTS OF THE COMPANY

Ni5 ferric alum

Ni5 ferric li.uid alum

@on K ferric alum

USES4

!ndustrial "aste"ater treatment

Municipal "aste"ater treatment

#larification and phosphorus removal

7otable and process "ater treatment #olor and turbidity removal

7ulp and paper mills, 7aper si5ing, 6oap manufacturers, Manufacture of glycerin

from soap lyes 6"imming pools, oil "ell operators

BABASAB PATIL- 22 -

A+ >)9) >#S +=/


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USE4%yeing and purification, +ater treatment

USES4

Gsed for dyeing and purification

Gsed in the pulp $ paper industry

Gsed in +ater and +aste "ater )reatment 7lants

BABASAB PATIL- 28 -

A+ >)9) >#S +=/

A+ >)9) >#S +=/


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EXPANSION AND DIVERSIFICATION *pansion of the company is under progress )he company is planning to

produce alum ferric solid through conventional process, Boiler evaporation of "ater from

li.uid alum stimated investment in e*pansion process is s 2;


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SWOT ANALYSIS OF BAHETY CHEMICALS & MINERALSPVT.LTD.

STRENTHS1 Availability of manpo"er

2 Digh .uality product

8


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ORGANISATION STRUCTURE

BABASAB PATIL- 23 -

MA@AI!@I %! #)=

Manager

7G #DA6% 7)


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DEPARTMENTAL STUDIES OF BCM. CO.LTD

PURCHASE DEPARTMENT.

LABORATORY DEPARTMENT.

ADMINISTRATION DEPARTMENT.

PRODUCTION DEPARTMENT.

FINANCE DEPARTMENT.

MARKETING DEPARTMENT.

PURCHASE DEPARTMENT4

)he purchase officers and assistance head the purchase department )he clearly

take the re.uisition from various departments and for"ard to the purchase offices and

then the purchase officer arranges to the purchase re.uired materials from the best seller

available in the market

)he purchase department plays a very important role in the company "here the

dealing made bet"een the purchase officers and sellers is convenient then it can be help

in reduction of the price of the materials and their by "hich "ill also result in increase of

profit

FUNCTIONS

7urchase the good .uality materials

Dave a better dealing at present and future "ith the supplier

7urchase only and re.uired materials

BABASAB PATIL- 2; -


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PRODUCTION DEPARTMENT4

)he 7roduction department is one of the important department in the company

!t is the department that produces the product on "hich the company is established

6pecial care is taken in this department on production


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materials are together, e*othermic reaction takes place &


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together, e*othermic reaction takes place &


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materials are together, e*othermic reaction takes place &


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is responsible for the man po"er in the "hole factory 7ersonal Manager is concerned

"ith the most efficient use of people to achieve organi5ation and individual goals !t is the

"ay of managing people at "ork so that they give the best to the organi5ation

Administration department also takes care of the planning, organi5ing, directing,

controlling, procuring and developing and integrating of the company and human

resources to the end !t also looks after the financial matters of the company

FUNCTIONS4

Maintenance of files, records etc ,

#ollecting and presenting the data in the form of useful information from the

recordsMaintenance of time management in the company

!nsuring smooth running of the office files by interacting "ith e*ternal agendas as

re.uired

Iood relation bet"een the employer and employee

Maintaining the financial matters of the company

Iood relations "ith supplier and customers

Maintenance of salary, "ages records

Jeeping all the records of all the departments

FINANCE DEPARTMENT4

inance is an essential component of the business to maintain its operations

effectively )his dept is concerned "ith day-to-day activities like purchases, sales salary

etc and proper management and maintenance of accounts of concerned year

6ince B#M is the small scale industry it maintains very good accounting system,

)he "hole financial matter is mainly dealt by the separate dept called finance dept

)he Major sources of finance are,

1 6hares & .uity 6hares'

2


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ecording day to day transactions in a systematic manner

Maintaining proper accounts of purchases and sales

Maintaining profit $ loss A/c and 7reparing the Balance sheet of B#M

systematically7aying the interest on loans at right time

Maintain $ paying the ta*(s $ insurance

Make use of available finance resources properly

Maintain li.uidity of assets properly to earn the ma*imum profit

MARKETING DEPARTMENT4

Marketing %epartment is also a one of the important department in the company

)his department is important because it gives a clear picture of ho" much to produceQ

+hich "ill also help in the investment to he made and to purchase department to

purchase ra" materials

)he marketing department has a procedure, by "hich it is done i e , fit receives the

order from the buyers and for"ards the order to the production department and as per the

order production department produces the re.uired production and it makes the packing

of materials and sends it to the buyers as per the order

Marketing department also take care of the time given to it by the buyer to produce the

product !f there is any default in the order such as product not as per order or not at time

or minimum product supplied the party "ill send back the sample to the organi5ation and

the organi5ation gives certain percentage of discount for the default but no replacement is

made

BABASAB PATIL- 8: -


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THE SOME OF THE IMPORTANT CUSTOMERS OF THE BAHETYCHEMICALS AND MINERALS PVT. LTD., ARE4#

TABLE SHOWING CUSROMERS

SL.NO CUSTOMERS LOCATION

1 + 6) #=A6) 7A7 M!

" RGA ! !@%G6) ! 6

MAD @% A #D M!#A


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SCOPE OF THE STUDY )he scope of the study is identified after and during the study is conducted )he main

scope of the study "as to put into practical the theoretical aspect of the study into real life

"ork e*perience )he study of "orking capital is based on tools like atio Analysis,

6tatement of changes in "orking capital urther the study is based on last ? years Annual

eports of Bahety #hemicals $ minerals pvt ltd

BABASAB PATIL- 83 -

RESEARCH METHDOLOGY.

SCOPE OF THE STUDY.

OB%ECTIVES OF THE STUDY.

METHDOLOGY.


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OB%ECTIVES OF THE STUDY

)o study the sources and uses of the "orking capital

)o study the li.uidity position through various "orking capital related ratios

)o study the "orking capital components such as receivables accounts,

#ash management, !nventory management

)o make suggestions based on the finding of the study

RESEARCH METHDOLOGY

INTRODUCTION4

esearch methodology is a "ay to systematically solve the research problem !t May be

understood as a science of studying no" research is done systematically !n that various

steps, those are generally adopted by a researcher in studying his problem along "ith the

logic behind them

BABASAB PATIL- 8; -


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)he secondary data are those "hich have already collected and stored 6econdary data

easily get those secondary data from records, annual reports of the company etc !t "ill

save the time, money and efforts to collect the data

)he major source of data for this project "as collected through annual reports, profit and

loss account of ? year period from 2 3-2 1 $ some more information collected from

internet and te*t sources

SAMPLING DESIGN

6ampling unit inancial 6tatements

6ampling 6i5e


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BABASAB PATIL- : -

WORKING CAPITAL MANAGEMENT.INTRODUCTION.MEANIG OF CAPITAL.MEANING OF WORKING CAPITAL.NEED OF WORKING CAPITAL.CLASSIFICATION OF WORKING CAPITAL.ESTIMATION OF 5WC? RE IUREMENTSOPERATING CYCLE OF WORKING CAPITAL.FINANCING OF WORKING CAPITAL.DETERMINANTS OF 5WC? RE UIREMENTS.#=M7=@ @)6 = + # M?.

PART # V


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CAPITAL

I9*7- ;*)-94 #apital is the keynote of economic development !n this modern age, the level

of economic development is determined by the proportion of capital available

M


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INTRODUCTION OF WORKING CAPITAL4

+orking capital is the life blood and nerve centre of a business >ust as circulation of

blood is essential in the human body for maintaining life, "orking capital is very essential

to maintain the smooth running of a business @o business can run successfully "ithout

an ade.uate amount of "orking capital

)here is operative aspects of "orking capital i e current assets "hich is kno"n as funds

also employed to the business process from the gross "orking capital #urrent asset

comprises cash receivables, inventories, marketable securities held as short term

investment and other items nearer to cash or e.uivalent to cash +orking capital comes

into business operation "hen actual operation takes place generally the re.uirement of

.uantum of "orking capital is determined by the level of production "hich depends

upon the management attitude to"ards risk and the factors "hich influence the amount of

cash, inventories, receivables and other current assets re.uired to support given volume of

production

+orking capital management as usually concerned "ith administration of the current

assets as "ell as current liabilities )he area includes the re.uirement of funds from

various resources and to utili5e them in all result oriented manner !t can be stated "ithout

e*aggeration that effective "orking capital management is the short re.uirement of long

term success

)he importance of "orking capital management is indisputableS Business liability relieson its ability to effective management of receivables, inventory, and payables By

minimi5ing the amount of funds tied up in current assets irms are able to reduce

financing costs or increase the funds available for e*pansion Many managerial efforts are

put into bringing non-optimal level of current assets and liabilities back to"ards their

optimal levels

BABASAB PATIL- :2 -


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MEANING OF WORKING CAPITAL

+orking capital means the funds &i e S capital' available and used for day to day

operations &i e S "orking' of an enterprise !t consists broadly of that portion of assets of a

business "hich are used in or related to its current operations !t refers to funds "hich are

used during an accounting period to generate a current income of a type "hich is

consistent "ith major purpose of a firm e*istence

!n Accounting

DEFINITIONS4

Many scholars( gives many definitions regarding term "orking capital some of

these are given belo"

According to Weston & Brigham

+orking capital refers to a firm(s investment in short-term assets cash, short

term securities, accounts receivables and inventories

Mead Mallott & Field

+orking capital means current assets0

Bonnerille

Any ac.uisition of funds "hich increases the current assets increases

"orking capital for they are one and the same0

BABASAB PATIL- :8 -


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7ositive "orking capital means that the company is able to pay off its short-term

liabilities companies that have a lot of "orking capital "ill be more successful since they

can e*pand and improve their operations

@egative "orking capital means that a company currently is unable to meet its short-term

liabilities "ith its current assets #ompanies "ith negative "orking capital may lack the

funds necessary for gro"th

OB%ECTIVES OF WORKING CAPITAL MANAGEMENT

ffective management of "orking capital is means of accomplishing the firm(s goal of

ade.uate li.uidity !t is concerned "ith the administration of current assets and current

liabilities !t has the main follo"ing objectives-

1 )o ma*imi5e profit of the firm

2 )o help in timely payment of bills

8 )o maintain sufficient current assets

: )o ensure ade.uate li.uidity of the firms

? !t protects the solvency of the firm

3 )o discharge current liabilities

; )o increase the value of the firm

)o minimi5e the risk of business

THE NEED FOR THE WORKING CAPITAL

BABASAB PATIL- :: -
http://www.investorwords.com/2899/lot.htmlhttp://www.investorwords.com/3467/operation.htmlhttp://www.investorwords.com/3467/operation.htmlhttp://www.investorwords.com/8111/negative_working_capital.htmlhttp://www.investorwords.com/2130/funds.htmlhttp://www.businessdictionary.com/definition/necessaries.htmlhttp://www.businessdictionary.com/definition/necessaries.htmlhttp://www.investorwords.com/2258/growth.htmlhttp://www.investorwords.com/2899/lot.htmlhttp://www.investorwords.com/3467/operation.htmlhttp://www.investorwords.com/8111/negative_working_capital.htmlhttp://www.investorwords.com/2130/funds.htmlhttp://www.businessdictionary.com/definition/necessaries.htmlhttp://www.investorwords.com/2258/growth.html


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)he need for "orking capital arises due to the time gap bet"een production and

reali5ation of cash from sales +orking capital is must for every business for purchasing

ra"-materials, semi finished goods, stores $ spares etc and the follo"ing purposes

1. T- = 7;/


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+orking #apital Management refers to management of current assets and current


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Iross "orking capital is the amount of funds invested in various components of

current assets #urrent assets are those assets "hich are easily / immediately converted

into cash "ithin a short period of time say, an accounting year #urrent assets includes

#ash in hand and cash at bank, !nventories, Bills receivables, 6undry debtors, short term

loans and advances

)his concept has the follo"ing advantages -

i inancial managers are profoundly concerned "ith the current assets

ii Iross "orking capital provides the correct amount of "orking capital at the right

time

iii !t enables a firm to reali5e the greatest return on its investment

iv !t helps in the fi*ation of various areas of financial responsibility

v !t enables a firm to plan and control funds and to ma*imi5e the return on investment

or these advantages, gross "orking capital has become a more acceptable concept in

financial management

2 N * W-78)9: C


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1 P 7>


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1 S-+ 9;3 - */ 0)9 004Ade.uate "orking capital helps in maintaining the

solvency of the business by providing uninterrupted of production

2 G-- )++ 4 6ufficient amount of "orking capital enables a firm to make prompt

payments and makes and maintain the good"ill

8 E


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+orking capital should be ade.uate so as to protect a business from the adverse

effects of shrinkage in the values of current assets !t ensures to a greater e*tent the

maintenance of a company(s credit standing and provides for such emergencies as strikes,

floods, fire etc !t permits the carrying of inventories at a level that "ould enable a

business to serve satisfactorily the needs of its customers !t enables a company to operate

its business more efficiently because there is no delay in obtaining materials etcS because

of credit difficulties

INADE UATE OF WORKING CAPITAL4 +hen "orking capital is inade.uate, a company faces many problems !t stagnates the

gro"th and it becomes difficult for the firm to undertake profitable projects for non-

availability of "orking capital funds %ifficulty in implementing operating plans and

achieving the firm(s profit targets =perating inefficiencies creep in "hen it becomes difficult

even to meet day-to-day commitments i*ed assets are not utili5ed efficiently thus the firm(s

profitability "ould deteriorate 7aucity of "orking capital funds renders the firm unable to

avail attractive credit opportunities )he firm loses its reputation "hen it is not in a position to

honor it short-term obligations thereby leading to tight credit terms

DANGERS OF EXCESSIVE WORKING CAPITAL4

)oo much "orking capital is as dangerous as too little of it *cessive "orking capital raises

problems

1 !t results in unnecessary accumulation of inventories )hus chances of inventory

mishandling, "aste, theft and losses increase

2 !ndication of defective credit policy and slack collection period #onse.uently, it

results in higher incidence of bad debts, adversely affecting profits,

8 Makes the management complacent "hich degenerates in to managerial inefficiency

: )he tendencies of accumulating inventories to make a speculative profit, "hich tends

to liberali5e the dividend policy, make it difficult for the concern to cope in the future

"hen it is not able to make speculative profits

BABASAB PATIL- ? -


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ESTIMATION OF WORKING CAPITAL RE IUREMENTS

Managing the "orking capital is a matter of balance )he firms must have

sufficient funds on hand to meet its immediate needs )he Bahety chemicals $ minerals

&pvt'


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OPERATING CYCLE OF WORKING CAPITAL4)he "orking capital cycle reserves to the length of time bet"een the firm paying cash for

materials etc , this "orking capital also kno"n as operating cycle +orking capital cycle

or operating cycle indicates the length or time bet"een companies paying for materials

entering into stock and receiving the cash from sales of finished goods )he operating

cycle &+orking #apital' consists of the follo"ing events +hich continues throughout

the life of businessQ

#onversion of cash into ra" materials

#onversion of ra" materials into "ork in progress

#onversion of "ork in progress into finished stock

#onversion of finished stock into accounts receivables&%ebtors'through sale and

#onversion of account receivables into cash

BABASAB PATIL- ?2 -

RAWMATERIALS

WORK#IN#PROGRESSFINISHED STOCK

DEBTORS

CASH


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FINANCING OF WORKING CAPITAL

I9*7- ;*)-94

After determining the level of "orking capital, a firm has to decide ho" it is to befinanced

!n that B#M, it "as financing the "orking capital from the follo"ing four common

sources )hey are,

1. SHARES4

)he B#M has issued the e.uity shares for raising the funds )he .uity shares do not

have any fi*ed commitment charges and the dividend on these shares is to be paid subject

to the availability of sufficient funds )hese funds have been injected from the company(s

o"n personal resources and from the members

2. TRADE CREDIT4

)he trade credit refer to the credit e*tended by the suppliers of goods in the normal

course of business )he firm has a good relationship "ith the trade creditors 6o that

suppliers send the goods to the firm for the payment to be received in future as per the

agreement or sales invoice !n this "ay, the firm generates the short-term finances from

the trade creditors !t is an easy and convenient method to finance and it is informal and

spontaneous source of finance for the firm

". BANK CREDIT4

#ommercial banks play an important role in financing the trade $ industry Bank

provides short-term, medium term $ long term finance to an industrialist or a business

man

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1. L-


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DETERMINANTS OF WORKING CAPITAL RE UIREMENTS!n order to determine the amount of "orking capital needed by the firm a number of

factors have to be considered by finance manager )hese factors are e*plained belo"

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=n the other hand, if liberal credit terms are available from the suppliers of goods L)rade

creditors , the need for "orking capital is less )he "orking capital re.uirements of

business are, thus, affected by the terms of purchase and sale, and the role given to credit

by a company in its dealings "ith #reditors and %ebtors

!n B#M company ra" materials are purchased "ith a credit or cash and finished goods

are sold on cash basis and also credit basis

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(. S ==+3 C-9 )*)-904

!f supply of ra" material and spares is timely and ade.uate, the firm can get by

"ith a comparatively lo" inventory level !f supply is scarce and unpredictable or

available during particular seasons, the firm "ill have to obtain ra" material "hen it isavailable !t is essential to keep larger stocks increasing "orking capital re.uirements

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ESTIMATION OF CURRENT ASSETS

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!. D *-70 4 )he "orking capital tied up in debtor should be estimated in relation to total cost

price & e*cluding depreciation ' symbolically,

Budgeted #ost of 6ales per Average %ebt

7roduction * unit e*cluding * #ollection 7eriod

& !n units ' depreciation &months/days'

12 months / ?2 "eeks / 83?days

$. C


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2. D)7 ;* W


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FORMAT FOR DETERMINATION OF WORKING CAPITAL4

SL.NO PARTICULARS AMOUNT

1

2

6)!MA)!=@ = CURRENT ASSETS

1 Minimum desired cash and Bank balances ***

2 !nventories

a" material ***

+ork-in-progress *** inished stock ***

" %ebtors ***

)otal #urrent Assets

6)!MA)!=@ = CURRENT LIABILITIES

1 #reditors ***

2 +ages ***

" =verheads ***

)otal current liabilities

NET WORKING CAPITAL

&)otal #urrent assets K )otal #urrent liabilities'

Add Margin for contingency net

+orking capital re.uirement

XXX

XXX XXX

XX

XXXX

COMPONENTS OF WORKING CAPITAL

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)he components of "orking capital are

CASH MANAGEMENT

RECEIVABLES MANAGEMENT

INVENTORY MANAGEMENT

CASH MANAGEMENT 4

#ash is the important current asset for the operation of the business #ash is theBasic input needed to keep the business running in the continuous basis, it is also the

ultimate output e*pected to be reali5ed by selling or product manufactured by the firm

)he firm should keep sufficient cash neither more nor less #ash shortage "ill disrupt

the firm(s manufacturing operations "hile e*cessive cash "ill simply remain ideal

"ithout contributing anything to"ards the firm(s profitability )hus a major function of

the financial manager is to maintain a sound cash position #ash is the money, "hich a

firm can disburse immediately "ithout any restriction )he term cash includes coins,

currency and che.ues held by the firm and balances in its bank account

NEED FOR HOLDING CASH

)he need for holding #ash arises from a variety of reasons "hich are,

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irms also maintain cash balances in order to take advantage of opportunities

that do not take place in the course of routine business activities or e*ample, there may

be a sudden decrease in the price of a" Materials "hich is not e*pected to last long or

the firm may "ant to invest in securities of other companies "hen the price is just right

)hese transactions are purely of speculative nature for "hich the firms need cash

OB%ECTIVES OF CASH MANAGEMENT

7rimary object of the cash management is to maintain a proper balance bet"een

li.uidity and profitability !n order to protect the solvency of the firm and also to

ma*imi5e the profitability ollo"ing are some of the objectives of cash management

1 )o meet day to day cash re.uirements

2 )o provide for une*pected payments

8 )o ma*imi5e profits on available investment opportunities

: )o protect the solvency of the firm and build up image

? )o minimi5e operational cost of cash management

3 )o ensure effective utili5ation of available cash resources

CASH BUDGETING

#ash budgeting is an important tool for controlling the cash !t is prepared for

future period to kno" the estimated amount of cash that may be re.uired #ash budget is

a statement of estimated cash inflo"s and outflo"s relating to a future period !t gives

information about the amount of cash e*pected to be received and the amount of cash

e*pected to be paid out by a firm for a given period

#ash budgeting indicates probably cash receipts and cash payments for an under

consideration !t is a statement of budgeted cash receipts and cash payment resulting in

either positive or negative cash or for a "eek or for a year and so on

RECEIVABLES MANAGEMENT 4

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eceivables or debtors are the one of the most important parts of the current

Assets "hich is created if the company sells the finished goods to the customer but not

receive the cash for the same immediately )rade credit arises "hen a company sales its

products or services on credit and does not receive cash immediately !t is an essential

marketing tool, acting as a bridge for the moment of goods through production and

distribution stages to customers

)he receivables include three characteristics

1' !t involve element of risk "hich should be carefully analysis

2' !t is based on economic value )o the buyer, the economic value in goods or services

passes immediately at the time of sale, "hile seller e*pects an e.uivalent value to be

received later on

8' !t implies futurity )he cash payment for goods or serves received by the buyer "ill

be made by him in a future period

A company gives trade credit to protect its sales from the competitors and to attract the

potential customers to buy its products at favorable terms )rade credit creates receivables

or book debts that the company is accepted to collect in the near future )he customers

from "ho receivables have to be collected are called as )rade %ebtors0 receivables

constitute a substantial position of current assets

Iranting credit and crediting debtors, amounts to the blocking of the company(s funds

)he interval bet"een the date of sale and the date of payment has to be financed out of

"orking capital as substantial amounts are tied up in trade debtors !t needs carefulanalysis and proper management

!n B#M ltd , they are selling the goods on cash basis and also on credit basis

INVENTORY MANAGEMENT 4

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BENEFITS OF HOLDING INVENORIES4Dolding of large and ade.uate inventories is very beneficial to every firm

)he benefits or advantages of holding inventories area as follo"s

1 educing orders cost

2 #ontinuous production

8 )o avoid loss

: Availing .uantity discount

? !t enables the firm to avoid scarcity of goods meant for either production o

sale

COST OF HOLDING INVENTORIES4

Dolding of inventory e*poses the firm to a number of risks and costs isks ofholding inventories can be put as follo"s

1 Material cost

2 =rder cost

8 6torage cost

: !nsurance

? =bsolescence

3 6poilage

!n the B#M, each of the above mentioned costs have to be controlled through efficient

inventory management techni.ue )hat is

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BABASAB PATIL- 3; -

DATA ANANLYSIS AND INTERPRETATION.

PART # VI


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INTRODUCTION4atio Analysis is a po"erful tool of financial analysis Ale*ander Dall first

presented it in 1991 in ederal eserve Bulletin atio Analysis is a process of

comparison of one figure against other, "hich makes a ratio and the appraisal of the ratios

of the ratios to make proper analysis about the strengths and "eakness of the firm(s

operations )he term ratio refers to the numerical or .uantitative relationship bet"een t"o

accounting figures atio analysis of financial statements stands for the process of

determining and presenting the relationship of items and group of items in the statements

N-* ! have used the ratio analysis in this project in order to substantiate the managing

of "orking capital or this, ! used some of the ratios to get the re.uired output

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INTERPRETATION4

!n the above table, it is seen that during the year 2 :- ? and 2 ?- 3 there "as a net

increase in "orking capital of s 83 ? !t indicates an ade.uate "orking capital in

Bahety chemicals $ minerals pvt ltd ,

)his is because of

1 !ncrease current assets such as 6undry debtors by s ;32?;1 , other current assets

by s 1::? And decrease in !nventories by s :3 ? , #ash $ Bank balance

by s 992? ,


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!n the above table, it is seen that during the year 2 ?- 3 and 2 3- ; there "as huge net

increase in "orking capital by s 819 82? As #ompare to 2 :- ? and 2 ?- 3

)his is because

1 )here is !ncrease in current assets such as !nventories by s 32 313 , 6undry

debtors by s 2;?;1:3 , #ash $ Bank balance by s ;1191 ,


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2 )here is %ecrease in current liabilities such as 6undry creditors by s :28:3 ,

7rovisions by s 2138:

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T< + $4 S* 9* - C/


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FINDINGS.

BABASAB PATIL- ? -

FINDINGS.

SUGGESTIONS &

CONCLUSIONS.

PART # VII


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+orking capital of the Bahety #hemicals $ Minerals 7vt


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FINANCIAL STATEMENT.

BIBILOGROPHY.

FINANCIAL STATEMENT 2'' #2'1'

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PROVISIONAL BALANCE SHEET AS AT "10* MARCH, 2'1'

BIBLIOGRAPHY

TEXT BOOKS

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P7

Documents

Working Capital Management PROJECT REPORT MBA 2013