INTRODUCTIONThe success of any organization is mainly dependent upon the four functional areas of management, namely finance, production, marketing, and personnel management. Finance is defined as a provision of money at the time it is required. Therefore, every enterprise, whether it is big, medium or small needs finance to carry on its operations and to achieve its goals. Working capital may be regarded as the lifeblood of the business. A study of working capital is so important because of its close relationship with the current day-to-day operations of a business, such as for purchasing of raw material, for meeting day to day expenditure on salaries, wages, rents, advertising etc., Working capital is defined as excess of current assets over current liabilities. Current assets are those assets, which will be converted into cash with in the current accounting period or with in the next year as a result of the ordinary operations of a business. As pointed out by “Ralph Kennedy and Steward Mc Muller”: Working capital is very essential to maintain smooth running of a business. No business can run successfully without an adequate amount of working capital. The goal of working capital management is to manage the firm’s current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. 1 There is always an operating cycle involved in the conversion of sales into cash. The firm should maintain a sound working capital position. It should have adequate working capital to run its business operations. Both excessive as well as inadequate working capital positions are dangerous from the firm’s point of view. Excessive working capital means ideal funds, which earn no profits for the firm. 2 NEED FOR THE STUDY The study has great significant and provides benefits to various parties whom directly or indirectly interact with the company. It is beneficial to management of the company by providing crystal clear picture regarding important aspects like liquidity, leverage, activity and profitability. The study is also beneficial to employees and offers motivation by showing how actively they are contributing for company’s growth. The investors who are interested in investing in the company’s shares will also get benefited by going through the study and can easily take a decision whether to invest or not to invest in the company’s shares. 3 OBJECTIVES OF THE STUDY The present study Nandi Pipes Nandyal has been undertaken to evaluate the working capital management of the organization by establishing the following objectives. 1. To review the progress and organization efficiency of Nandi Pipes. 2. To find out the working capital position of the company through financial ratios. 3. To know about cause of changes in working capital from time to time. 4. To find out the sources of working capital finance of the company. 5. To give suggestion to company for improvements of working capital position. 4 o Financial management textbooks. o News papers o Text books o World Wide Web. o Company maintained reports. o Executives and staff of finance and accounts department. o Meeting with concerned people o Personal observation. o Officers of accounts sections. and is collected through. o Printed materials o Journals & magazines. Ltd. Primary source of data: This is first hand in nature. 5 . Secondary data: o Annual reports of SUJALA PIPES Pvt.METHODOLOGY OF THE STUDY DATA COLLECTION The data collection of the study consists of two kinds of data. SCOPE OF THE STUDY The scope of study is limited to collecting the data published in the reports of the company and opinions of the employees of the organization with reference to the objective stated above and theoretical frame work of the data with a view to suggest solutions to various problems relating to working capital 6 . there are certain discrepancies and inconsistencies. The limitations are: The study is restricted to limited period. The company has restricted to give the information for more than five years. 7 . The firm refused to disclose some confidential information. The study was conducted with the data available and the analysis was made accordingly.LIMITATIONS OF THE STUDY In spite of honest and sincere efforts. etc. the length of polymer chains. and so will polymers. Each plastic has been developed for a special purpose. PVC pipes poly vinyl chloride have become synonymous. etc. This is like making a daisy chain. This versatile materials with superior qualities such as light weight. energy conservative. with modern living it is undoubtedly a product which has deeply penetrated into common man’s life no wonder the industry has achieved remarkable capabilities and manufacturing of machinery equipment sophistication. depending on the starting monomer selected. The appearance of the daisy chain will be different you use different colored flowers. and the type of modifying compounds added. many substitute to a large estimate of many conventional and costly industrial materials like wood. carbon atoms are joined together. in the future the manifold applications of plastics 8 .PLASTIC PIPES INDUSTRY INTRODUCTION Plastic is a common name for polymers. There are many different types of plastics. metal and leather. Instead of flowers. Each unit in a string is called a monomer and is a chemical usually derived from oil. easy processing corrosion resistance. Materials are made of long strings of carbon and other elements. glass. The monomer is made into polymer by chain-linking reactions. The present investment in all the three segments of industry namely production of raw materials. Such as baskets. etc.in the field of automobiles. the consumption of commodity plastics including LDPE. electronics. electrical. 9 . telecommunication and irrigation and thus. pens. On account of their inherent advantage in properties and versatile in adoption and use. HDPE. the plastic industry is on the threshold of an explosive growth. expansion and diversification of raw materials. carry bags. automobile. bottles. they also have application in agriculture. Water management resources. PS & PVC is immense scope for the use of plastics in agriculture. plastics have come to play vital of applications the world over. building construction. PP. pipes. engineering and electronics. packaging and agricultural gives its immense utility in PVC plastics. electronics. In our country plastics are used in making essential consumer goods which are daily use for common man. At present as percent of total requirement of raw materials and most all type of plastic machines required for the industry are not adequate available. PROSPECTS The production of various plastics a raw material in the country is expected to double by the end of seventh plan. The oldest raw materials for producing plastic are carbon materials obtained from coal tar.ROLE OF PLASTICS IN THE NATIONAL ECONOMY Plastics are got perceived as just simple colorful household products in the mind so common man. 10 . construction and Food processing and packaging Power and gas distributor. Please have changed our world day – by – day. which they have over conventional materials such as. A dominant part of the plastics of the percent and future their utilization in the areas Agriculture. We shall look at the data plastics and particularly their properties. which are of use in practical working with plastic. Today the majority of raw materials of raw materials are obtained from petrochemical sources and they can be economically produced in large quantities. Automobile and transportation Electronics and telecommunications buildings. forestry and water – management. They are becoming more & more important. They owe their success to a whole series of advantages. are man made materials. LIGHT WEIGHT EXCELLENT MOULD ABILITY ATTRACTIVE COLORS LOW ENERGY REQUIREMENTS FOR CONVERSION LOW LABOUR LESS COST OF MANUFACTURING LOW MAINTENANCE HIGH STRENGTH OF MANUFACTURING CORROSION RESISTANT AESTHETICS WITHOUT SURFACE TREATMENT COMPATIBILITY WITH REINFORCING MATERIALS 11 . Now plastics are omnipresent and serving numerous fields. the substance called plastics. Although metals were meeting major chunk of the fabrication demands of the modern world. This carbonaceous substance with excellent rework ability and physical stability could replace most of the earlier used metals. In light of this situation. formability and weight constraints were real impediments. heavily modernized communication sector. agricultural and industrial requirements of the modern world. Agriculture. wood. which could serve the needs and wants of the today’s man. Although acceptance and socialization of this new innovation was slow it has shown a steady encroachment into the life of today’s man. rework ability. was discovered.EMERGENCE OF PVC CONCEPT AND ITS SOCIALIZATION Growing domestic. 12 . the quest for a new substance. became irrepressible. fiber equipment are only few applications among the multifarious uses of the plastics. etc. which has got all the desired characteristics to serve the modern man. India. The usage of poly vinyl chloride pipes in agricultural fields. from the place of higher water potential to the lower water potential. plastics that supplement to greater extent manufacturing of tools required for new agricultural practices.V.C pipes with much unique heat. Even the characteristics of weight and low price attract many more applications.V. modernization of the agriculture practices assumes pivotal place improving the economic status and the processes of the modernization includes usage of high productive. Presently revolutionary triad in management speaks much about drip irrigation. chemical and physical characteristics serve many industrial purposes. They are even positively used as conduits for industrial gases. which was predominant in earlier practices.V. sewage connection and other domestic purposes. P.C pipes supplemented with fittings are used in houses for electric connections. P. P. it has got wide applications even in industrial sector.V. lessen water seepage. Drip irrigation greatly uses P.PVC PIPES AND ITS ECONOMIC ROLE Chief occupation in India is agriculture.C pipes. which developed in Israel and is practiced by all agricultural based nations in the world. 13 . With the services of P.C pipes as core tools of implementation with the services of this sort.C pipes one way or other strength the hands of country’s economy. Apart from these two applications. For the developing countries like.V. Apart from the referred uses. water can be transported efficiently with lesser losses. Cincinnati. glass. etc may substitute to a large estimate of many conventional and costly industrial materials like wood. etc in future the manifold applications of plastics in the field of automobiles. energy conservative. quality of products of etc. the government allowed the imports of sophisticated and high output plans which were not available indigenously.V. POLY VINYL CHLORIDE (PVC) Production of PVC pipes in 1961. against first production of PVC in the world. PVC pipes have been synonymous. There were few pipe manufacturers up to 1978 – 1979 and large production capacity was created during 1979 – 1983. non taxis. higher output. 14 .C pipes have been manufactured in India from the sixties on imported extrusion lines and there after indigenous plans were also available. loss energy cost per Kg of output. with modern living it is undoubtedly a product. It is essential for the company to carryout continuous research and development to update technology. metal and leather. This versatile material with superior qualities such as light weight easy processing corrosion resistance. No wonder the industry has achieved remarkable progress in the terms of supply of raw materials and diversification of processing capabilities and manufacturing of machinery and ancillary equipment sophistication. In 1927 at present there are 6 units manufacture of PVC resins.Rigid P. krausmaffi etc. when many extrusion line were imported from Batten field. which has deeply penetrated in to common man’s life. 33Kgs in UK. The per capita consumption of plastics is very low at 0. When expansion and contraction takes place in the pipes they bend. These PVC pipes are widely sued by the farmers their farming and agriculture for water supply in their fields through PVC pipelines. These levels have effected in the price of the plastic products adversely. Expansion and diversification of processing capacities. packaging and agriculture give its immense utility in PVC plastics. equipment is 1250crores and it provides employment at more than 8lakhs peoples. As a result 15 .5Kgs. expansion & diversification of raw materials. Plastics have been subjected to leaves not only at the central level but also the state and local government. the present investment in all the three segments of industry namely production of raw materials. The per-capita consumption is 68Kgs in FRANCE. At present as percent of total requirement of raw material and almost all type of plastic machines required for the industry are not adequate available. manufacturing of processing machinery. and even in Asian countries like South Korea it is 8. The property of UV stability is incorporated into other wise rigid PVC resin by mixing butyl tin stabilizer.electronics. electrical. The UV stabilizer prevents expansion and contradiction longitudinally in the pipes.5Kg as against the world average of 11Kgs. This property is important in tropical countries like ours were high temperature fluctuations in the daily temperature are quite common. electronic.P. telecommunication and other industries. The thermostats are the initial application of heart and pressure of heat and pressure subjected to fire. Modified P. Polycot. the groups are inherent in the mould. The plastics are classified into two major classes. which is used as an alternative to or replacement of metals in load needing applications. 16 . Another variety of plastics that requires artificial manufacturing relates to true engineering plastics. This is prevented in PVC swr pipes. It is a multi purpose product.O Nylon. Polycarbonates. The plastics are classified into two major classes. fittings are of two types they are injection blow molded and sealed ring cab fittings. In seal ring cap fittings. But up on further application of heat pressure.the joints get loosened because they are fixed to walls with the help of the clamps. This results in the subsequent leakage. the reheating. which cannot be resofted. In PVC swr products. They cured to hard price. and Polyester (PBT/PET) phendic are same of the plastics materials following under the category of engineering plastics. • Thermo plastics • Thermostats The thermo plastics become sufficiently soft as the applications of heart. Engineering plastics are being increasingly used for various applications in automatic. the groove is formed when a seal ring cap is made to fit over a plain-ended pipe coupling as well as rubber ring pipe coupling. at present there is a unit (play defines industries limited.) in India producing HDPE by the end of 1989-1990 was producing 1.25lakh tones.86lakh tones.LDPE: LOW DENSITY POLY ETHYLENE Production of LDPE was stated in the year in 1955 at present there are 3 units manufacturing LDPE with a total capacity of 1. HDPE: High Density Poly Ethylene Production of HDPE in India commenced in 1968.15lakh tones. 17 . Products targeted for LDPE by the end of 1999 are placed at 1. Canada. Sri Lanka.K. 18 . Sweden. Bangladesh. Kuwait. Major export markets for plastics related products are Australia. Egypt. Plastics are man made materials. tough materials for products as diverse as wires and insulation and sheathing and flooring. We shall look at the basic data about plastics and particularly those properties. U. Hong Kong. PVC is one of the most versatile plastics. the oldest raw materials for producing plastics are carbonaceous materials obtained from stagnant at around Rs. Taiwan.A. Federal Republic of Germany..129crores. & Russia. molded.. or thermoform into a multitude of furnished products. It can be extruded.IMPORTANCE OF PIPES INDUSTRY PVC products have found wide acceptance in India and abroad. Hungary. Italy. which are of using practical working with plastics.7crores. The PVC resin can be formulated to give a wide range of propertied from hard. U.The plastic industry as taken up the economy of achieving an export target of Rs.60-70crores per annum double to Rs.S. calendared. Profile and cable trays 3. The consumption of the commodity plastics including LDPE. the plastics industry on the threshold of the explosive growth.PROSPECTS The production of various plastics raw materials in the country is expected to double by the end of the 2010. Wall covering 4. automobiles. House & furniture Exteriors are as follows For exterior it can be used for 1. Doors & windows 2. & PVC is immense scope for the use of plastics in agriculture. Interiors are as follows: In interiors it can be used for 1. Modular office systems 5. Floorings 2. Roofing & rain system 19 . UTILITIES OF PVC PRODUCTS: PVC products cater to both interiors and exteriors. Fencing partitions & paneling 3. telecommunications & irrigation & thus. electronics. HDPE. Drip irrigation has become a wide concept in agricultural sector especially in the field of horticulture. Agriculture. tube wells. water conservation. is 20 . The drip irrigation concept is becoming more popular with its advantages like high yield. The state government of A. a sunrise industry in India economy is essentially on PVC for the seawater suction and pumping to their aqua ponds. The state and central governments are using these pipelines for the public water supply schemes.P is using PVC pipes for the irrigation water supplies for the past few years. less power cost and many more. The demand for this concept is increasing at a pace of 30% to 40% per annum. cement and GGI pipes were conventional methods of irrigation in the lift irrigation schemes. Major irrigation projects will have canals and lift irrigation schemes etc. Now a days PVC pipes replaced the conventional pipes and they constitute almost 90% in this respect. less labour cost. They are using pipelines of 4-5 kg of 10-16 diapipes. & bore wells. commercial cropping and green and poly houses.The other external applications are: In the field of irrigation Portable water supplies and public water supplies In the field of irrigation there are several methods to irrigate the fields. like pipelines. The state govt. fewer fertilizers. less pest management cost. There are major and minor irrigation projects apart from the individual sources like wells. (die basic lead sulphate) 3. L. HYDRO CARBON 8.S.C. (tri basic lead sulphate) 4. D. cool water jet is directed towards it to cool the pipe immediately. STEARIC ACID 7. resin (poly vinyl chloride) 2. These pipes can be sued for the main distributors.providing pipes through APSIDC (Andhra Pradesh state irrigation development schemes). As the pipe comes out of the hot chamber.S. T. TITANIC DIOXIDE MANUFACTURING PROCESS Hot forward extrusion is employed for the manufacture of P. (lead steric) 5. sub-distributors and individual connections. P. Pipes of desired length are cut with the aid of stop and power hacksaw. 21 .C.V.V. pipes resign with weighted amounts of other ingredients.B.PIPES: 1.L. TECHINICAL DETAILS ABOUT P. C. (calcium steric) 6.L.B.S. Production is made in various sizes ranging from 1/2’’ to 10” according to usage.V.C. which are carried to the hot chambers.S. The high temperature of hot chamber melts ingredients and contents and then given forward transit to hallow pipes of required dimension. CALCIUM CARBONATE (ca ca3) 9. Modern invention of glass of carbon black as reinforcing fillers has a way for making high strength beating plastics and replace steel. They cannot bear extremely high or low temperature like metals and other materials such as refractory bricks.REINFORCED PLASTICS Although plastics have high strength to weight ratio. It is blended with a rubbery material. Such a bond is very useful in alloy formation because it impacts processing flexibility with and use of cross-linked products. Sometimes hydrogen bonds are formed between some special ionic groups with hydrogen atom of the carbon chain. For example. polystyrene is highly amorphous and rigid but has low impact strength. Thus by allowing wide range of products can be made. and shall also have high impact properties. Physical blending of two polymers is needed because every polymer has certain set of good properties. 22 . which should have specific set of properties. they are not as strong as metals and deform permanently under load. product will be of high strength. Design of a special product. may not be obtained if it is made only from one polymer. ALLOYS Physical mixture of two or more polymer is termed as alloys. By blending two polymers we can get the required combination of properties. although alloys are physical mixture of polymers. 33lakhs tones. POLYSTYRENE Polystyrene was first manufactured in India in May 1987. POLY PROPYLENE The first production of polypropylene in India commenced in 1978.7lakhs tones. The total installed capacity comes to 1. The production target of polystyrene by end of 1989-1990 is set out to 29. against first production of PVC in the world. 1927.000 tones.PVC POLY VINYL CHLORIDE Production of PVC started in 1961.000 tones. The production target of PVC by the end of 1989-1990 is placed of 2. 23 . At present there six units manufacture of PVC resins. The end of 1993-1994 achieves the production target of 36. EXPORT OF PLASTICS GOOD Plastics have excellent potentialities. Today India exports plastic products to as many as 80 countries all over the world. which are stagnant at ground. U. fix duty. Federal Republic of Germany. Canada. U. and extra to boost export. which yield rich dividend.. draw backs on weighted average basis and charge freight rate on plastic products on weight basis instead of volume basis. supply indigenous raw materials at international prices. Sri Lanka.S. Egypt.17cores. The plastic industry has taken up the challenge of achieving an export target of Rs. 24 . Sweden. Major – export markets for plastic products and linoleum are Australia. the plastics and linoleum’s export promotion council has urged the government to reduce import duty of plastics raw materials. Italy. Bangladesh.. finished plastics products. The exports. Kuwait. Taiwan. Our country is equipped with all kind of processing machinery and skilled labor and undoable. Hong Kong.K. rest 60 to70 cores per annum double to 129 creators. With view to boosting the export.A. and Russia. PROBLEMS Raw material is always being a problem to be recorded with the plastics industry. The situation was slightly improved and is expected to charge considerably by commissioning the major petrol chemical project in the pipeline by the year 1990, the Maharastra gas cracker complex. Haldia petrol chemical & reliance petrol chemicals together with the expansion of existing giants will go a long way to mitigate the long problems. By the terminal year the plan the install capacity is targeted are almost 8lakh tones. The step rise in the way material as the result of imposition of duties and taxed poses another problem to the plastic industry. On account of this domestic price of finished goods are higher than the rest of world. Apart from this the administrated prices for basic raw materials have not been implemented with a balanced view to accommodating the interest of both consumers and manufacturers. And chloride 85% of the polymers it made from naphtha feedstock. Hence the pricing naphtha by the government has a cascading effect. 25 COMPANY PROFILE Rayalaseema, an economically backward area in Andhra Pradesh, was rarefied region for industries. A dynamic entrepreneur Sri.S.P.Y. Reddy who is basically a mechanical engineer started a unit at Nandyal, which manufactures black pipes in 1977. The determination and hard work of Sri.S.P.Y.Reddy helped him to overcome the problems. Later the company started manufacturing of PVC pipes, which terminated the manufacturing of black pipes. This resulted in the formation of a private limited called “NANDI PIPES PVT.LTD.” with Sri. S.P.Y. Reddy as the managing director GROWTH Nandi Pipes Pvt Ltd. is commissioned with the objectives of catering to the agricultural needs of the region. In earlier days, tools used for water flow were very ineffective with high percentage of loses. To counter this drawback P.V.C. pipes were favorably welcomed. This has been the mission of Nandi pipes Pvt. Ltd., the major irritants in agricultural practice like lack of rainfall, ground water lifting. Water transport within the fields has provided magnificent thrust to P.V.C. Pipes market. These factors helped Nandi pipes ltd., to record an excellent growth since 1977 onwards. Quality is the dominating factor in the growth of sales. Well-equipped laboratory and quality control office looks after the quality. The department people are always striving to improve the quality. 26 The company has now only improved the brand name but is also undertaking takeovers of the competitor’s brands. In 1977 the company took over the Sagar brand. The manufacturing plant of Sagar brand was at Medak district. The Nandi pipes has not stopped with that victory, the company has taken over another main competitors brand i.e., monarch in 1999. The manufacturing plant of monarch plant lies in East Godavari District. The threats of the old companies are turned to opportunities to the company by its excellent management. After the change of management the brand image of these brands has improved. At present Nandi Pipes Pvt. Ltd., stands in the market leader position. The only major competitor to the company is Sudhakar Pipes, Maharaja Pipes. The only backdrop to it is the competition from local brands As the majority of customers belong to farmer, they consider price above quality. The company has to create awareness of the company’s quality standards to them. M\S Somali Pipes Private Limited, which is now the premier company in the Nandi group, was started with a capital of Rest 10lakh in the year 1988 Nandi group has group in the size and emerged as the leading industrial group in Andhra Pradesh in the past 18 years. It has made rapid strides in its growth and been maintaining its fair name for its quality and standard products throughout south India and in the other states. Most of the products enjoy ISI and ISO recognition. 27 VISION AND MISSION Vision To serve people through providing good quality products at reasonable cost. Mission To achieve company’s growth innovation and development of resources to meet organizational goals. To provide products and services of best value possible to customers, thereby gaining their respects. TECHNICAL INFORMATION ITL rigid PVC pipes are manufactured in accordance with Indian standards specification 4985:1998 and other international specification. The company also manufactures special ranges of commercial pipes under different ranges to satisfy the customer requirements. ITL PVC pipes are normally manufactured in uniform length of 6 meters with plain ends both the sides also with self-socked one side. Varied length can be manufactured according to the customer requirements. Integrated Thermoplastics Limited is manufacturing rigid PVC pipes from 20mm to 400mm in conformity to ISI 4985: 2000 and other international specification. 28 and civil lines all the time. Africa. we are proud to say that we are associate with “CEYLON ELECTRICITY BOARD – SRILANKA” supplying electrical conduits to there project requirements. We at ITL pipes are proud to say that we follow world – class QCM (Quality Control Management) techniques is our quality control lab to achieve the best quality. mechanical. Europe. EXPLORING NEW HORIZONS: EXPORTS Integrated Thermoplastics Limited is trying hard in exploring their products like rigid PVC pipes of water.QUALITY CONTROL ASSURANCE Integrated Thermoplastics Limited is having well equipped quality testing machines in their labs as per the ISI standards for testing of all diameter and gets excellent result. MAINTENANCE AND SERVICE This company is better equipped with excellent workshop to provide maintenance and service of machinery in electrical. Taking an example our esteemed overseas customers. and SWR pies to Middle East. Stringent quality control tests are regularly conducted to ensure top quality production of PVC products. 29 . electrical conduits. thus reducing production down time. We assure service at any time to enable our equipment and machinery to perform efficiently. and other Asian countries. which helps the company to assign the right job to right person. The company follows the specialization of work. The administrative as well as the technical staff are well qualified and skilled. generates employment to several people. The technical staff at the manufacturing units is well versed in the field of production. DISTRIBUTION NETWORK One of the most important parts of the company’s effective functioning in the competitive market is its distribution network. and Medak District. All the workers are dedicated to work and responsible for their job work done.GENERATING EMPLOYMENT The integrated Thermoplastics Limited has the work force of more than 400 workers working at our manufacturing plant located at Manoharbad Village. which generates new innovative ideas and concepts. In this way the company DYNAMIC WORK FORCE The dynamic work force is the strong base for the success of the company. The company has its own dealer’s network with a number of nearly more than 100 dealers through out the state. 30 . Toopran Mandal. Chattisgarh. UPVC blue sensing pipes. Are in ambit of Nandi groups There has been expansion of product base from him alone PVC pipes and presently the group’s products include follows PRODUCT LINE UPVC potable water pipes. which helps the sales department to cater the needs of the customers at the right time at the right place. Orissa. 31 . Rigid Electrical conduits. Gujarat. Kerala. & Thailand. Garden pipes. Maharastra. Submersible pipes. Suction pipes. REGIONS COVERED IN INDIA Andhra Pradesh Southern States of Karnataka. HDPE pipes.The company has its own vehicles for transportation. UPVC SWR pipes. Goa. Pondicherry. SIZES Various sizes ranging from ½” to 10” are offered to customers. Cement. PACKING Packing plays less important role in the products like PVC pipes because the hollow space inside can be utilized. Nandyal at a capital outlay of Rs156crores. Nandyal. For the purpose of cubic space utilization in trucks while transport. Drip Irrigation equipment. Mineral water. The company is confident of commissioning the project as early as possible. This group also has successfully into trading business and been maintaining Super Bazaar departmental stores and Hardware at the group’s principal place. Even pipes with different gauges and sizes are manufactured to suit specific conditions.Water tanks Agricultural & SWR fittings. Solvent Cement & Plastics. Milk products. The group has floated a public company of ethanol and industrial Alcohol with a capital of Rs14500 liters per day using maize and other agro products as raw materials at the New Industries Estates. The group had over 200 transport vehicles and heavy earth moving equipment facilitating easy and planning to expand its business further and is poise to touch the Rs1000crores mark annual turn – over in the next 4-5 years. organization is adopting the technique like pipe in pipe 32 . PAYMENT PERIOD For Mandy brand the company adopts zero credit policy and goods are not delivered unless cash remittances are made. has got zero level. For Monarch and Sagar brands credit is entitled up to a week. The difference between these brines is due to brand image. one level channels distribution for Monarch and Sagar.Ltd. MANUFACTURER CUSTOMER MANUFACTURER DEALER CUSTOMER 33 .WARRANTIES No written warranties are given to customers except an assurance that the product is reliable. CHANNELS OF DISTRIBUTION Mandy pipes Pvt. Has an extensive network of 300 dealers in Andhra Pradesh who are directly serviced by company sales force and 500 dealers in South India. is very admirable. Ltd. Thus dealers are also supplemented with the benefit of the lower tied – up capital in the form of inventory. TRANSPORTATION Transportation of Nandi pipes Pvt.Nandi pipes Pvt. Ltd. This unique strength of the organization enables the delivery system to be efficient. 34 . This even helps the dealers to reduce inventory levels to the minimum. Thus dealers are also supplemented with the dealers to reduce inventory levels to the minimum. S. it is facilitated with good communication networks. which speaks for itself for the quality of the pipes. Ltd.GENERAL INFORMATION ABOUT THE COMPANY The company is equipped with sophisticated laboratory to carry on the tests to ascertain outgoing quality level of the pipes. As the company is located in the industrial estate of Nandyal. which includes telex. 35 . Uniqueness of workers of Nandi pipes Pvt. Most of the skilled or unskilled labours are duty minded. Numbers of statistics quality control techniques are applied to sustain the quality level of the product. Nandi pipes have got ISI Trademark.I. a unique cash outflow justifies itself by providing good reputation for the company through improved customer service. fax machine and Internet. Supervisory staff or intermediate managerial staff is adept in tackling their area though not highly qualified. Managers at the company are dynamic and well qualified. Company E. Company has also got the Electronic Data Processing. Huge investment is made on transportation vehicles. The company’s major strength is considered to be transportation vehicles. Is their nonindulgence in trade union activities. (Employment State Insurance) and provident fund facilitates to all its employees. ORGANIZATIONAL CHART CHAIRMAN MANAGING DIRECTOR GM(FINANCE) GM(PRODUCTION) GM(MARKETING) GM (ENGINEERING) ACCOUNTS FOREMAN MANAGER PRODUCTION MANAGER MARKETING MANAGER HR MANAGER CLERKS SUPERVISORS MECHANICS OPERATORS EXECUTIVES EXECUTIVES 36 . now the financial status of the company is very sound and is being run only with self financial excepting for loans taken on hypothecation of machinery and stock from SBI. Ltd. The financial manager with the help of accounts and other clerks of the department head the financial department. Marketing mix and advertising particulars of Nandi pipes Pvt. The company follows cash & carries policy for Nandi brand. The products are not delivered until the cash is paid and financial department with the help of marketing department looks after these transactions. an Assistant marketing Manager who reports to the Marketing Manager and 20 salesmen headed by 30 sales representatives who are headed by an Assistant Marketing Manager. heads the marketing department.FINANCIAL DEPARTMENT Though initially the company approached the external sources of financial aid. MARKETING DEPARTMENT Marketing manager who reports to the executive Director. Nandyal. Indicate the department’s effectiveness of the Marketing Department in the organization. 37 . S. financial manager. Though the Government of India has taken various steps to improve supply conditions of PVC resin. the Indian manufacturers could meet only 50% of demand and remaining 50% is met from imports. a public relations officer and a quality control officer all of whom report to the Executive Director.P. PURCHASING DEPARTMENT The perplexing situation that is confronted by the manufactures of the PVC pipes is scarcity of resin. The major petrochemical companies are: Sri Ram Vinyl Ltd. the company provides health card facility etc. Other than Executives there are 1000 works in the all organization.PERSONNEL DEPARTMENT The personnel department consist the details of the executives and workers of the organization. Two Marketing Managers. – plast Ltd Reliance perto Chemicals National Organic Chemical Industries Ltd. Executive Director and Manger of the concerned departments makes the recruitment and selection of personnel.Reddy as the managing director and executive director.Y. 38 .Indian perto Chemical industries Ltd. Chem. The organization is formed with Sri. Apart from the attractive salaries. A panel consisting of Managing Director. as well as any claims against money. Individual businesses are face problems dealing with the acquisition of funds to carry on their activities and with the determination of optimum methods of employing funds.INTRODUCTION TO FINANCE Finance is a specialized. finance can be differentiated from accounting and economics. among people involving in a society. The financial tools help the management. among people involving goods and services with or without the exchange of money. Determine which sources offer the lowest cost of funds and which activities will provide the greatest return on invested capital. Profitability of the firm. bank.. It studies transaction. In competitive market place. etc. Accounting is concerned with the recording. Liquidity. Economies are concerned with analyzing the allocation of resources in a society. Finance concerns itself with the actual flows of money. As a business discipline. The important goals of financial management are: Wealth maximization of shareholders. The term “Finance” can be defined as the management of the flows of money through as organization whether it is a corporation. where as finance uses the information provided by the accounting system to make decision to help organizations to achieve their objectives. reporting and measuring of business transaction. businessman must actively manage their funds to achieve their goals. 39 . The financial manager performs certain tasks that help to achieve its operating objective. It studies transactions. functional field under the general classification of business administration. agency. Govt. A successful business manager for enterprise uses a goal oriented financial structure. marketing and other functions. Liquidity or short term asset mix decision. the financial manager should strive to maximize the market value of shares. Let us note that outset that share holders are made better off by a finance decision. yet the functions themselves can be readily identified. which increase value of their shares. Financing or capital mix decision Dividend or profit allocation decision. control and exception of a firm’s activities. The functions of raising funds. 40 .FUNCTIONS OF FINANCIAL MANAGEMENT Although it may be difficult to separate the finance functions from production. shareholders respectively known as financing. investment and dividend decision. investing in assets and distributing returns earned from assets. a firm attempts to balance cash inflows and cash outflows. Investment or long-term asset mix decision. They do not necessarily occur in a sequence. A firm performs finance functions simultaneously and continuously in the normal course of the business. Thus while performing the finance functions. While performing these functions. Finance function call for skillful planning. This is called liquidity decision and we add it to the list of important finance decisions or functions. or distribute a portion and retain the balance. Broadly. the 41 . capital budgeting decision involves risk. Its one very significant aspect is the task of measuring the prospective profitability of new investments. FINANCING DECISION Financing decision is the second important function to be performed by the financial manager.INVESTMENT DECISION Investment decision or capital budgeting involves the decision of allocation of capital or commitment of funds to long-term assets. capital budgeting also involves decision of recommitting funds when an asset becomes less productive or non profitable. benefits in future. therefore be evaluated in terms of both expected return and risk. he must decide when. Like the Debt policy. besides the decision to commit funds in new investment proposal. which would yield. The financial manager must strive to obtain the best financing mix or the optimum capital structure for this firm. The financial manager must decide whether the firm should distribute of all profits. the central issue before him is to determine the proportion of equity and debt. The mix of debt and equity is known as the firm’s capital structure. DIVIDEND DECISION Dividend decision is the third major financial decision. Future benefits are difficult future. or retain them. where and how to acquire funds to meet the firm’s investment needs. Investment proposals should. Thus. But it would lose profitability. A conflict exists between profitability and liquidity while managing current assets. as idle current assets would not earn anything. the financial manager should develop sound techniques of managing current assets and make sure that funds would be made available. which maximizes the market value of the firm’s shares. investment in current asset affects firm’s profitability. the financial manager must determine the optimum dividendpay out ratio. In order to ensure that neither insufficient nor unnecessary funds are invested in current assets. is yet another important finances function. The optimum dividend policy is one. If the firm does not invest sufficient funds in current assets. Against the dangers of insolvency. Thus. it may become illiquid. 42 . Current assets should be managed efficiently for safeguarding the firm. liquidity and risk. in addition to the management of longterm assets. LIQUIDITY DECISION Current assets management.dividend policy should be determined in terms of its impact on the shareholders value. which affects a firm’s liquidity. a proper trade-off must be achieved between profitability and liquidity. if shareholders are not in different to the firm’s dividend policy. Working capital is also revolving or circulating capital or short-term capital. _ GENESTEN BERG 43 . -I. Working capital is also called as revolving and short-term capital”. Net cash inflow defines as the excess of current liabilities over current assets. DEFINITIONS “Working capital is defined as the difference between current assets and current liabilities”. The goal of working capital management is to manage the firm’s current assets and current liabilities in such a way that a satisfactory level of working capital is maintained.WORKING CAPITAL MANAGEMENT INTRODUCTION Every business needs funds for two purposes for its establishment and to carry out its day-to-day operations. inventories to B/R. which is required for financing short term or current assets such as cash. Working capital refers to that part of the firm’s capital.PANDEY “Working capital is the amount of funds necessary to cover the cost of operating the enterprise”. –SHUBIN “Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another as for example. Working capital is the difference between the inflow and outflow of funds. B/R to cash. marketable securities. cash to inventories.M. debtors and inventories. These activities create funds flows that are both unsynchronized and uncertain. RAW MATERIALS → WORK-IN-PROGRESS → FINISHEDGOODS → SALES → DEBTORS → CASH → RAW MATERIALS The operating cycle is equal to the length of the inventory and receivables conversion periods. cannot be forecasted with complete accuracy.OPERATING CYCLE CONCEPT A company operating cycle typically consists of three primary activities purchasing resources. OPERATING CYCLE Inventory conversion period + Receivables conversion period. They are uncertain because future sales and costs. the company must invest in inventories to fill customer orders promptly and finally the company invests in accounts receivables to extend to its customers. It has to maintain a cash balance to pay the bills as they come due. producing the product and distributing (selling) the product. Inventory conversion period = Average inventory cost of sales / 365. If the firm is to maintain liquidity and function properly it has to invest funds in various short-term assets (working capital) during this cycle. which generate the respective receipts and disbursement. In addition. The receivable conversion period or average collection period represents the length of time required to collect the sales receipts it is calculated as follows. The inventory conversion period is the length of time required to produce and sell the products it is defined as follows. 44 . DEBTORS SALES FINISHED GOODS CASH RAW MATERIA WORK-INPROGRESS Receivables conversion period = Account receivable Account receivable = Annual Credit sales / 365. 45 . expenses) / 365 Finally. benefits and payroll &taxes payable. It is calculated as follows cash conversion cycle operating cycle-payables deferral period. the cash conversion cycle represents the net time interval between the collections of cash receipts from product sales and the cash payments for the companies various receipts purchases. and taxes) equation is used to calculate the payables deferral period. The payables deferred period is of the time the firm is able to differ payment on its various resource purchases (For example materials. (Cost of sales + selling general and administration. wages. Payables deferral period = A/C’s payable + salaries. concept of 46 . MEASURING THE WORKING CAPITAL Working capital is very essential to maintain the smooth running of a business. Net working capital = Total of current assets – Total of current Liabilities. and not an end. • Net working capital. A negative working capital occurs when current liabilities are in excess of current assets. it must also be noted that working capital is a means to run the business smoothly and profitably. Gross working capital = total current assets. Net working capital This refers to the difference between current assets and current liabilities. Thus. A positive net working will arise when current assets exceed current liabilities. However.TYPES OF WORKING CAPITAL • Gross working capital. Thus. No business can run successfully without an adequate amount of working capital. Gross working capital It is the broad sense the term working capital refers to the gross working capital and represents the amount of funds invested in the current assets. Net working capital can be either positive or negative. invested in total current assets of the enterprise which in the ordinary course of business can be converted into cash within a short period of time. the gross working capital is the capita. Capital Budgeting. Provision taxation. The analysis of working capital can be conducted through a number of devices. Bank overdraft. Prepaid expenses. Short term loans. 47 . Cash at bank. Sundry creditors. Accrued income. such as Ratio Analysis. Dividends payable. Funds flow analysis. Current Liabilities: Bills payable. Bills receivables Sundry debtors Stock. LIST OF CURRENT ASSETS AND CURRENT LIABILITIES: Current Assets: Cash in hand. Short-term investment.working capital has its own importance in a going concern. Accrued expenses. SOURCE OF WORKING CAPITAL There are two sources of working capital they are: Permanent or Fixed working capital The fixed proportion of working capital should be generally financed from the fixed capital sources like: Shares. power and office expenses. etc. To provide credit facilities to the customers. advertising. To incur day-to-day expenses and overheads costs such as fuel. 48 . To maintain the inventories of raw materials. Loans from financed institutions. To meet the selling costs as packing. The need for working capital arises due to the time gap between production and realization of cash from sales. work-in-progress. store and spares and finished stock.OBJECTIVES OF WORKING CAPITAL The need for working capital cannot be over emphasized. For the purchase of raw materials. components and spares. Plugging back of profits. debentures Public deposits. etc. Every business needs some amount of working capital. To pay wages and salaries. Trade creditors. Accounts receivables. 49 . Advances. Accrued expenses Commercial papers. USES OF WORKING CAPITAL Losses from business operations. Redemption of debentures and / or preference shares.Temporary or Variable working capital Variable or temporary working capital requirements of a concern may be met from the short-term sources of capital like: Commercial bankers. Purchases on non-current assets. Indigenous bankers. CLASSIFICATION OF WORKING CAPITAL Working capital may be classified in two ways: On the basis of concept. Permanent or Fixed working capital. Special working capital. 50 . Seasonal working capital. B. Reserve working capital. ON THE BASIS OF CONCEPT • • Gross working capital. Regular Working Capital. Net working capital ON THE BASIS OF TIME A. On the basis of time. Temporary or Variable working capital. The credit terms to be granted to customers may depend upon the norms of the industry to which the firm belongs. (Ex: public utility organization) These are the institutions. He should anticipate the effect of price level changes on working capital. 51 .) Manufacturing cycle The manufacturing comprises as a purchase and use of raw materials and the production of finished goods. larger will be the firm’s working capital requirements. Firms’ credit policy The credit policy of the firm affects the working capital by influencing the level of debtors. Price level changes The increasing shifts in price level make functions of financial manager difficult.DETERMINANTS OF WORKING CAPITAL Nature of size of business These kinds of institutions require limited working capital to produce goods and services. which require of working capital turnover. (Ex: trading concerns) This kind of institutions issues shares into orders to moderate the capital (Ex: manufacturing concern. In 1991 India’s position in market level will face inflation. Estimating working capital needs The most appropriate method of calculating the working capital needs of a firm is the concept of operating cycle. 4. 2. Rate of stock turnover Stock turnover depends upon size and growth business expansion. Earning capacity and dividend policy Earning capacity more in quality and monopoly conditions operates high working capital. which have been successfully applied in practice. 3.REQUIREMENTS OF THE FIRM 1. If small size organization requires little working capital. it is efficient in controlling operating cost and utilizing current assets. The firm will be effectively contributing in keeping the working capital investment at a lower level. 52 . Business Cycle In case of boom requires low capital. Operating efficiency The operating efficiency of the firm relates to the optimum utilization of resources at minimum cost. in case of depression requires high capital. if it is larger size requires high working capital. high profits in it have required influencing dividend policy. However we shall illustrate here three approaches. 53 . Rate of fixed investment To estimate working capital requirements as percentage of fixed investments. A conservative current assets financing policy relies less on short term bank financing and more on long-term sources such as debentures and internal sources like reserves and surpluses. Ratio of sales To estimate working capital requirements as ratio of sales on the assumption that current assets change with sales. The highly conservative policy may seek to replace even long-term debt by equity. Financing of working capital The current assets of the firm are supported by spontaneous current liabilities (trade creditors and provisions others etc) short-term bank financing and long-term sources of finance (mainly debentures and equity) the working capital policy of the firm has to decide between two alternatives. Conservative Aggressive current assets financing policy. This method is essentially based on operating cycle concept.Current assets holding period To estimate the working capital requirements on the basis of average holding period of current assets and relating them to cost based on the companies experience in the previous years. Current asset financing policy. An aggressive current asset financing policy relies on short-term bank finance and seeks to reduce dependence on long-term financing. The working capital policy adopted by a firm can be broadly conservative. But it may result in enhanced cost of financing as the long-term sources finances debt and equity have an associated with them. The choice of overall working capital policy depends on the risk disposition of the management. moderate or aggressive with conservative or aggressive current asset financing policy. 54 . it exposes the firm to higher of risk but minimizes the average cost financing. An aggressive current asset financing on the other hand may have opposite effects.The consequence of those policies is that the conservative current asset financing policy reduces the risk of the firm from being unable to repay or replace its short-term debt periodically. There may be operating losses or decreased retained earnings. It enabled a business firm to withstand in periods of depression smoothly. There may be an unwise dividend policy.ADEQUACY OF WORKING CAPITAL Working capital should be adequate for the following reasons. business of credit difficulties. It ensures to greater extent the maintenance of a company’s credit standings & provides for such emergencies like strike floods etc. There may be excessive non-operating or extraordinary loses. It permits the carrying of inventories at a level that would enable a business to serve satisfactory. It is possible to pay all the current obligations promptly and to take advantage of cash discounts. It enables a company to extend factorable credit terms to customers. The management may fail to obtain funds from other sources for purpose of extension. Current funds may be invested in non-current assets. It protects the business from the adverse effects of shrinkage in the value of current assets. 55 . It enables a company to operate its business more efficiently become there is no delay in obtaining materials etc. A company may not be able to take advantage of profitable business opportunities. 56 . Its low liquidity may head to low profitability in the same way as low profitability leads to low liquidity. A company may have to borrow funds at excessive rate of interest. Low liquidity would positively threaten the solvency of the business. The modernization of equipment and even routine repairs and maintains facilities may be difficult to administer A company will not be able to pay its dividend because of the nonavailability of funds.DANGER OF INADEQUATE WORKING CAPITAL It is not possible for it to utilize production facilities fully for want of working capital. A company is considered illiquid where it is unable to pay its debts on maturity. A company may not be able to take advantage of cash discount facilities. A company cannot afford to increase its credit sales and may have to restrict its activity to cash sales. A company may be tempted to over trade and lose heavily. A company may enjoy high liquidity and at the some time suffer from low profitability. 57 . Excessive working capital raises the following problems. There may be an imbalance between liquidity and profitability. A company may keep very big inventories and tie up its funds unnecessarily.DANGERS OF EXCESSIVE WORKING CAPITAL Too much working capital is dangerous as too little of it. 58 .ISSUES IN WORKING CAPITAL MANAGEMENT The financial manager must determine the levels and composition of current assets. Time Investment Criticality Growth Time Working capital management requires much of the financial manager’s time. Growth The need for working capital is directly related to the firm’s growth. He must see that right resources are tapped to finance the current assets and current liabilities are paid in time. There are many aspects of working capital management can be which make it an important function of financial manager. Investment Working capital management requires the large portion of total investments in assets Criticality Working capital management has great significance for all firms but it is very critical for small firms. The absolute accounting figures reported in the financial statements do not provide a meaningful understanding of the performance and financial position of a firm. expressed mathematically. is known as “financial Ratio” NATURE OF RATIO ANALYSIS A Ratio is known as “the indicated quotient of two mathematical expressions”. which exist among various accounting data. the relationship between two accounting figures. An accounting figure conveys meaning when it is related to some other relevant information. Ratio analysis is a powerful tool of financial analysis. Ratio is a numerical or arithmetic relationship between two figures.RATIO ANALYSIS One of the techniques of analysis of financial statements is to calculate ratios. Accounting ratios show inter-relationships. 59 . It is expressed when one figure is divided by another. In financial analysis. When relationships among various accounting data supplied by financial statements are worked out. DEFINITION OF RATIO According to Webster “A Ratio shows the relationship between two or more things”. a ratio is used as a benchmark for evaluating the financial position and performance of firm. Absolute figures are valuable but they standing alone convey no meaning unless compared with another. they are known as accounting ratios. questionable or poor.to be formed about the firm’s ability to meet its current obligations. It measured about the firm’s liquidity. profitability or efficiency is showing and upward or downward trend analysis of ratio involves two types of comparisons.Ratio help to summaries large quantities of financial data and make quantitative judgment about the firm’s financial performance for example. SIGNIFICANCE OF RATIO ANALYSIS Ratios are significant both in vertical and horizontal analysis. The point to note is that a ratio reflecting a quantitative relationship helps to form a quantitative judgment-such is the nature of all financial ratios. consider current ratio.a qualified judgment. 60 . Likewise. It is calculated by dividing current asset by current liabilities. The vertical analysis. the greater the firms liquidity and vice verse. the ratio indicates a relationship. ratios help the analyst to form a judgment whether performance of the corporation at a point of time is good. use of ratios in horizontal analysis indicates whether the financial condition of the corporation is improving or deteriorating and whether the cost. The greater the ratio. It is the ratio of current assets to current liabilities. which generally undertake financial analysis. CURRENT RATIO This ratio is most widely used ratio. Financial ratios. It shows a firm’s ability to cover its current liabilities with its current assets. Coverage ratios. Profitability ratios. are short and long-term creditors. If the ratio is less than two.e. owners and management. Turnover ratios. The most common ratios are. label grouped into various classes according to the financial activity or function to be evaluated. Several ratios calculated from the accounting data. current assets should be twice of the current liabilities. Leverage ratios. difficulty may be experienced in the payment of current liabilities and day-to-day operations of 61 . It is expressed as follows: Current ratio=current assets/current liabilities Generally 2:1 is considered ideal for concern i.CLASSIFICATION OF RATIOS Ratios may be classified in a number of ways keeping in view the particular purpose. The parties. a financial analyst may examine cash ratio and its equivalent to current liabilities. Quick ratio = current assets - (inventories+prepaid expenses)/current liabilities 1:1 ratio is considered ideal ratio for a concern because it is wise to keep the liquid assets at least equal to the liquid liabilities at all times.the business may suffer. it is very comfortable for the creditors but for the concern. Cash is the most liquid asset other assets. are book debts marketable securities. 62 . Dividing the total of the quick assets by total current liabilities forms the quick ratio. it is indicator of idle funds and a lack of enthusiasm for work. they may be included in the computation of cash ratio. Trade investment or marketable securities are equivalent of cash. If the ratio is higher than two. which are considered to be relatives liquid and included in quick assets. CASH RATIO Since cash is the most liquid asset. QUICK RATIO This ratio establishes a relation ship between quick or liquid assets and current liabilities and current assets is liquid if it can be converted into cash immediately or reasonably soon without a loss of value. Inventories are considered to be less liquid. therefore. Receivables turnover ratio=sales/receivables 63 . Inventory turnover ratio = sales/inventory NET WORKING CAPITAL RATIO The difference between current assets and current Liabilities is called Net working capital. Net working capital measures the firm’s potential reserving of funds. INVENTORY TURNOVER RATIO This ratio indicates the efficiency of the firm in selling its product. It is calculated by dividing the cost of goods sold by the average inventory. the more efficient the marketing of inventories and vice versa.Cash + Marketable security Cash Ratio = -----------------------------------------------Current liabilities. It can be related assets or capital employed. Networking Capital Networking ratio = ------------------------------Net Asset. Networking capital is used as a measure of a firm’s liquidity. The higher the ratio. RECEIVABLES TURNOVER RATIO Receivables (or) debtors constitute an important constitute of current assets and therefore the quality of receivables to a great extent determines the firm’s liquidity. 34 3373.03 1751. Finally there is increase in working capital.17 7690.7 INCREASE DECREASE 377.03 729.89 3215.THE FOLLOWING TABLE IS A STATEMENT SHOWING NET WORKING CAPITAL OF THE SUJALA PIPES FOR THE YEAR 2005 & 2006 ASSETS Inventory Debtors Cash & Bank balance Loans & Advances Total Current Assets LIABILITIES Current Liabilities Provision Total Current Liabilities Working Capital (CA – CL) Increase in Working Capital NET WORKING CAPITAL 8419.14 4.37 3530. Debtors and loans & advance have been decreased.80 156.34 729.26 11635.55 1031.44 2716.45 715.29 11220. 64 .77 343.03 499.03 INTERPRETATION Inventory and cash & bank balance has been increased in 2005.01 5564.61 2006 3443.92 8419.81 674.56 6238.78 657.02 881.78 8419.21 885.41 1747. Current liabilities have been decrease.78 1751.52 2005 3065. 03 538.64 615.01 5564. Finally there is decrease in working capital.THE FOLLOWING TABLE IS A STATEMENT SHOWING NET WORKING CAPITAL OF SUJALA PIPES FOR THE YEAR 2006 & 2007 PARTICULARS ASSETS Inventory Debtors Cash & Bank balance Loans & Advances Total Current Assets LIABILITIES Current Liabilities Provision Total Current Liabilities Working Capital (CA – CL) Decrease in Working Capital NET WORKING CAPITAL 2716.47 1017.98 6581.78 615.78 3862.26 3316.72 4248.38 64.02 881.92 8419.33 2006 2007 INCREASE DECREASE 11635. 65 .03 499.17 1146.7 12052.78 8419.57 385.89 3215.79 1208.41 1747.54 3443.29 7804.21 126.14 8419.14 1810. where debtors and loans & advances have been increased therefore current liabilities have increased.9 114.9 1810.93 INTERPRETATION There is decrease in inventory and cash & bank balances.69 945. The working capital position has been increased when compared to previous table.91 2007 2008 INCREASE DECREASE 12052.67 6156.72 4248.THE FOLLOWING TABLE IS A STATEMENT SHOWING NET WORKING CAPITAL OF THE SUJALA PIPES FOR THE YEAR 2007 & 2008 PARTICULARS ASSETS Inventory Debtors Cash & Bank balance Loans & Advances total current assets LIABILITIES Current Liabilities Provision Total Current Liabilities Working Capital (CA – CL) Increase in Working Capital 3862.57 385.The current liabilities have been increased.47 5318.69 945.67 484.73 11502.79 1208.51 30.98 6581. 66 .3 1238.18 1809.1 98.11 NET WORKING CAPITAL 12993.77 7097.29 7804.13 7097.95 3316.75 4920. Finally there is increase in working capital.01 144.18 5189.7 1090.64 5189.38 2001.77 12993.13 5671.77 INTERPRETATION The current assets have been increased in the year of 2007 .34 12993.93 19150. 67 484.11 24976.34 6491.11 820.7 1090.THE FOLLOWING TABLE IS A STATEMENT SHOWING NET WORKING CAPITAL OF SUJALA PIPES FOR THE YEAR 2008& 2009 PARTICULARS ASSETS Inventory Debtors Cash & Bank balance Loans & Advances total current assets LIABILITIES Current Liabilities Provision Total Current Liabilities Working Capital (CA – CL) Decrease in Working Capital 5671. 67 .3 1238.92 13834.81 7232.97 12993.04 1233.91 1740.77 INTERPRETATION The current assets and current liabilities have been increased in 2008 than 2007 so there are fewer requirements for source of working capital hence there is decrease in working capital.77 11252.34 2471.14 6747.86 1740.67 6156.77 - NET WORKING CAPITAL 12993.97 1449.59 2008 2009 INCREASE DECREASE 19150.04 812.91 7567.63 5318.30 13724.73 11502.77 12993.74 1902.19 2332.77 7567.38 6767. 11:1 1.5 0 2005 11220.93 19150.5 2 1.92 4248.5 1 0.17 3215.84:1 3. By 2008 it has reduced to 1.97 3.61 11635.11 24976.18:1 3.82:1 Current Ratio 2006 2007 2008 2009 Interpretation There is fluctuation in year by year. In 2005 is best as the whole. 68 from 3.5 3 2.34 13724.29 6156.7 12052.62:1 2.18 .11 CURRENT RATIO 2005 2006 2007 2008 2009 4 3. 82.CURRENT RATIO Current Ratio = Current Assets Current Liabilities YEAR CURRENT ASSETS CURRENT LIABILITIES 3530. 5 2 1.06:1 2.25:1 1.QUICK RATIO Quick Ratio = Current Assets . Generally quick ratio is in the form of 1:1 69 . It is found that the company is maintaining the quick ratio more than 1 for last five years.33:1 3 2.5 1 0.Inventory Current Liabilities YEAR 2005 2006 2007 2008 2009 QUICK RATIO 2.55:1 2.5 0 2005 2006 2007 2008 2009 QUICK RATIO Interpretation Quick ratio establishes relationship between quick assets & current liabilities.31:1 2. 70 . SUJALA PIPES net working capital was 11252.64 12993.86 14000 12000 10000 8000 6000 4000 2000 0 2005 2006 2007 2008 2009 QUICK RATIO Interpretation The net working capital shows the result positively. The net working capital has been increased slowly and decreased at the end of 2008.44 8419.86 where current assets are more than current liabilities. At the end of 2008.78 7806.77 11252.NET WORKING CAPITAL Net Working Capital = Current Assets – Current Liabilities YEAR 2005 2006 2007 2008 2009 NET WORKING CAPITAL 7690. 66 37092.56 3443.01 3316.11 3065.69 17111.INVENTORY TURNOVER RATIO: Inventory Turnover Ratio = Sales / Inventory Year Sales Inventory InventoryTurnover Ratio 2005 2006 2007 2008 2009 15213.73 6767.38 5.9 4.5 5. In inventory turnover it is reflecting growth stage.48 5.97 5.19 5. 71 .98 5318.3 5.7 2005 2006 2007 2008 2009 Inventory Turnover Interpretation: The inventory turnover ratio is showing positive results.8 4.34 28598.49 17760.1 5 4.92 4.16 5.2 5.4 5. 5 3 2.49 17760.60 2.DEBTORS TURNOVER RATIO: Debtors Turnover Ratio = Sales / Debtors YEAR Sales Debtors Debtors Turnover Ratio 2004 2005 2006 2007 2008 15213.44 3.66 37092.11 6238.68 in the last five years.5 2 1. 72 .5 1 0.34 2.55 5564.44 to 2.68 3.79 11502.5 0 2005 2006 2007 2008 2009 Debtors tunover Ratio Interpretation Debtors Turnover Ratio has been increased from 2.19 2.69 17111.41 6581.34 28598. The ratio was very high during the year of 2005.3 13834.49 2. To protect the firm against uncertainties characterizing its cash flows. cheques. Currency not. Here are two main reasons for a firm hold cash: 1. Meaning of Cash: The term ‘cash’ is used in two senses. Hence. Cash is the most liquid asset. its efficiency management is crucial to the solvency of the business because in a very important sense cash is the focal point of hand in business. The liquidity provided by cash holding is at the expense of profits sacrificed by foregoing alternative opportunities. While cash serves these functions. Every activity in an enterprise revolves round the cash. While the proportion of corporate assets held in the form of cash is very small often in between 1% to 3%. In a broader sense it also includes near cash assets such marketable securities and time deposits with bank. desirable that available cash must be management properly. To me needs of day-to-day transactions. In a narrower sense it includes coins. In view of its importance. is of vital importance to the daily operations of the business. 2. it is can idle resource which has an opportunity cost. It is therefore. It is also the most important current assets for the operation of the business. Since cash is limited in every enterprise and it cannot be raised as and when required. 73 . bank drafts held by a firm with it and the demand deposits held by it in banks.Cash Management: Cash is the most important factor in financial management. it is generally referred to as the lifeblood of a business enterprise. the finance manager should carefully plan and control cash. The three motives of holding cash are • Transaction motive • Precautionary motive • Speculative motive 74 . the finance manager is confronted with two conflicting aspects.e. the first basic objective of cash management is to meet the payments schedule. To meet the cash disbursement need as per the payment schedule i. but it does not earn any substantial return for the business. Nobody earns any income on the cash balance or currently being maintained however some interest income may be earned on short-term deposits but still everybody and every firm maintain some cash balance.Objectives of Cash Management: There are two basic objectives of cash management. In the process of minimizing the cash balances. A higher cash balance ensures proper payment will all its advantages. Motives for holding cash: Cash is the most liquid asset. 1. 2. But this will result in a large balance of cash in failure of the firm to meet the payment schedule. The second basic objective of cash management is to minimize the amount locked up as cash balances. In other words the firm should have sufficient cash to meet the various requirements of the firm at different period of time. Cash Management Basic Problems: The problems associated with the cash management are: 1. • Precautionary motive: It is the need to hold cash to meet contingencies in the future. The precautionary amount of cash depends upon the predictability of cash flows. 75 . The opportunity to make profit may arise when the security process change. • Unpredictable discrepancies. It provides a cushion (or) buffer to withstand some unexpected emergency. • Sources of funds-external as well as internal • Relations with banks. • Speculative motive: The Speculative motive relates to the holding of cash for investing in profit making opportunities us and when they arise. Control ‘0’ level of cash: Level of cash can be fixed by taking into account the following considerations: • Predictable discrepancies through the technique of cash budget.• Transaction motive: Business firms as well as individuals keep cash because they require it for meeting demand for cash flow arising out of day-to-day transactions. Fraudulent diversion can be controlled by internal check system. float and accruals should be taken recourse. 4. centralized payments. avoidance of early payments. In taking investment decisions. Controlling outflow of Cash: Controlling of outflow of cash is equally important. Speedily collection of receipts may be arranged through. 3. • Lock box system and • Regional offices of the company. Investment of Surplus Cash: Investment of surplus cash available with the company depends upon the discretion of the executive of the company.2. Investment made on Temporary basis and on Permanent basis. Controlling inflow of Cash: It is necessary to check the fraudulent diversion of cash receipts and to collect the receipts speedily. Security Liquidity Yield Maturity 76 . For this purpose. Following points are usually given weightage. Cash plans are very crucial in developing the overall plans of the firm. “Cash planning is a technique to plan for and control the use of cash”. Cash planning may be done on daily. • Maintenance of goodwill. 77 . Cash Planning: Cash inflows and outflows should be planned to project ash surplus or deficit for each period of planning period. • Encouragement to new investment. Factors of Cash Management: The following are the four factors of cash management 1.Advantages of Ample Cash Funds: Firms having ample cash reserves may derive the following advantages: • A shield for technical inefficiency. Cash budget is prepared for this purpose. • Availing of cash discount. • Overcoming abnormal financial situations. • Good bank – relations. • Exploitation of business opportunities. • Increase in efficiency. weekly or monthly basis. 78 . Tool of Cash Planning: These include methods. Investment Surplus Cash: The surplus cash balance should be properly invested to earn profits. which plots out. 3. Managing the Cash Flows: The flow of cash should be properly managed for efficient use of cash. on the basis of estimate inflow of cash. expenditure or cash inflow is planned. marketable securities and corporate lending. as far as possible decelerating the cash outflows. • Adjusted earning method. 4.2. 1. Optimum Cash Level: The firm should decide about the appropriate level of cash balance. estimated receipts and payments. • Cash flow method. Net Cash Forecast: Forecast of net cash means forecast of cash inflows and outflows for a given period. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balances. which establish the future level in a firm. The firm should decide about the division of such cash balance between bond deposits. There are two methods of forecasting cash position. The cash inflows should be accelerated while. personnel etc. policies regarding other functions such as sales. • Profit and loss adjustment method. from non-estimated likewise. The assets which firms store as inventory are: 79 . Forecasting on Overall Working Capital Position: Forecast of the overall working capital position is also an important tool of cash planning. are taken into consideration.2. Cash Budget: Cash budget is the second toll of cash planning. 2. Receipt and payments method: Cash budget is divided in two parts showing cash receipts and cash payments. • Balance sheet method. It is a systematic forecast of cash requirements i. The term inventory refers to the stock pile of the product. marketing. Total cash receipts are estimated taking into account the cash received from business operations.. Method of Preparing Cash Budget: 1. forecast or cash inflows and outflows and thus shows the probable surplus or deficiency of cash.e. in preparing cash budget total receipts are added to and disbursements deducted from the opening cash balance. Inventory Management: Inventories constitute the most significant part of current assets of a large majority of companies in India. production. Working capital analysis forecast the value of current assets and current liabilities to know the cash position of business. In forecasting the cash flow. Need to hold inventories: There are three general motives for holding inventories • The Transaction Motive: Which emphasis the need to maintain inventories to facilitate smooth production and sales operation. 80 . • Finished goods: Goods which are completely manufactured products and/or ready for sale.• Raw materials: Inputs that are converted into finished products through manufacturing process. • The Speculative Motive: Which influences the decision to increase or reduce inventory level to take advantage of price fluctuation. • The Precaution Motive: Which necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. • Work in progress: Semi finished products that require more work before they are for sale. Which has become as essential marketing tool in modern business. Meaning of Receivable: Receivable are asset accounts representing amounts owned to the firm as a result of sale of goods or services in the ordinary course of business. Characteristics of Maintaining Receivables: • • • • • • Expansion of Sales Increased Profit Financing Receivables Administrative Expenses Cost of Collection Bad 81 debt . greater the level of debt and greater the strain on the liquidity of the company. on the other hand the longer the period of credit. resulting in greater sales as higher profits. The problem of management of receivables is basically a problem of balancing profitability and liquidity. However.Receivable Management: Account receivable constitutes a significance portion of the total current assets of the business. Soft credit terms are attraction for higher sales and hence longer the time a company allows its customers to pay. the greater the risk. which will result in maximizing the overall return on the investment of the firm. Meaning of Receivables Management: It may be define as the process of making decision relating to the investment of fund on this aspect. They are direct consequences of “trade credit”. SUMMARY Proper allocation of funds in current asset is necessary to increase the productivity and to achieve the target sales. In Sujala Pipes the working capital position is good. 82 . Working capital is needed for its day-to-day workings in business without any breakouts. The company overall financial performance both in long run and short run is adequate and acceptable. 83 . Debtor turnover ratio was in the peak during the year 2005 due to high sales and decreased debtors in the year 2005. The current ratio is more than one in five financial years. Profit of SUJALA PIPES is increasing it indicate that company is working with high performance and better management. Working capital management of SUJALA PIPES is increased in every year. the firm is satisfactory regarding the position of working capital. so current assets are high compared to current liabilities.FINDINGS In financial year 2006. SUGGESTIONS As the firms networking capital increase or decrease in relation to sales value. There is need to concentrate on control over current assets and current liabilities. The company overall financial performance both in long and short run is acceptable Current ratio of the company has been fluctuating this is due to change in liability. net working capital shows increasing trend. 84 . In SUJALA PIPES. BIBLOGRAPHY REFERENCE AUTHORS FINANCIAL MANAGEMENT I.M.COM 85 .COM WWW.NANDIPIPES.SUJALAPIPES.C.PANDEY FINANCIAL MANAGEMENT PRASANNA CHANDRA RESEARCH METHODOLOGY R.KOTHARI WEBSITES: WWW. 29 6156.11 24976.03 8177.92 4248.87 8404.BALANCE SHEET OF SUJALA PIPES PRIVATE LIMITED AS ON 31ST MARCH Particulars 2005 2006 2007 2008 2009 sources Share holders funds Share capital 2007.55 5564.23 Reserves & surplus 6993.34 1328.81 Deferred tax Deferred income tax 244.53 1812.45 671.13 2153.89 385.65 12353.23 2007.21 1747.76 16955.72 484.41 9672.58 86 . loans & advances Inventory 3065.94 progress Current assets.88 Capital works in 690.24 7422.47 1090.76 23572.11 2575.5 9283.61 Loan funds Secured loans 5087.87 5704.92 Debtors 6238.78 807.3 13834.13 33605.11 Net Current Assets 7690.89 16996.7 2471.74 Loans & advances 885.76 23572.34 Cash & Bank 1031.7 12052.79 9554.53 3803.29 502.03 3862.22 TOTAL 15277.23 2007.81 Provisions 156.8 2716.02 1208.75 16955.47 (-)depreciation 1675.04 159.26 945.69 1238.23 2007.16 33805.73 1245.89 16996.67 6491.61 11635.17 1938.38 1902.46 16822.23 2007.53 2095.15 4964.37 499.85 expenses TOTAL 15277.98 10980.78 7804.97 TOTAL 11220.77 17752.17 3215.79 11562.3 TOTAL 3530.01 3316.26 12693.85 Welfare revenue 212.41 6581.93 19210.73 6767.18 16157.34 7224.29 881.59 Net fixed assets 6346.57 5671.56 Application of funds Fixed assets 8021.23 11852.44 8419.98 107.67 732.56 7726.47 3138.4 763.97 (-)Current liabilities & Provisions Current Liabilities 3373.69 Unsecured loans 944.77 9517.64 13053.91 55.56 3443.08 766.5 314 478.98 5318.