Professional Documents
Culture Documents
SUBMITTED BY
MMS I
SEMESTER II
PROJECT GUIDE
SUBMITTED TO:
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Working capital Management
Student’s Declaration
I further certify that I have no objection and grant the rights to H K Institute
of Management Studies and Research to publish any chapter/ project if they
deem fit in Journals/Magazines and newspapers etc. without my permission.
Place : Mumbai
Date : 30th June
Name : Pratik Desai
Class : MMS I Sem. – II
Roll No. : 5
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Certificate
This is to certify that the dissertation submitted in partial fulfillment for the
award of Master in Management Studies of H K Institute of Management
Studies and Research is a result of the bonafied research work carried out by
Mr.Pratik Desai under my supervision and guidance, no part of this report
has been submitted for award of any other degree, diploma, fellowship or
other similar titles or prizes. The work has also not been published in any
Journals/Magazines.
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ACKNOWLEDGEMENT
I would like to give our vote of thanks first and foremost to Dr. Prof. K C
Pandey, Director HKIMSR, for giving me an opportunity to work on the
project and giving me full support in completing this project.
Last but not the least; I would like to thank my parents & my friends for
their full Corporation & continuous support during the course of this
assignment.
(Pratik Desai)
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: 2.2 Objectives 20
: 2.2 Methodology 21
: 4.2 Bibliography 37
CHAPTER 1
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As every business concern irrespective of its size, nature and age need fund
to carry out business operations such as purchase of raw material, payment
of wages and other day to day expenses, working capital become an
important and integral part of business. Working capital is the life blood and
never center of any business because no business can run successfully
without an adequate amount of it. Unless organization learn to manage its
working capital, success, will be elusive. Thus, the effectiveness of an
organization depends on the strength of its working capital management as it
is core to the whole system.
I have conducted this project to analyze and understand the working capital
management Of Hotel industry for the period of five years. The data which I
have collected for this project is secondary data and working capital analysis
has been prepared through analysis for the period of five years.
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CHAPTER: 2
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2.1 INTRODUCTION
2.1.1 CAPITAL
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The term working capital is commonly used for the capital required for
day-to-day operations of a business. Generally, two concepts of working
capital are the gross working capital and the net working capital. Gross
refers to the firm's total investment in the current assets. Net supports the
view that working capital is the difference of current assets and current
liabilities. Net working capital may be positive or negative, although
gross working capital is always positive. According to the other school of
thought (Net concept), the working capital refers to the difference
between current assets and current liabilities. It is the excess of current
assets over current liabilities. Current liabilities refer to the claims of
outsiders which are expected to mature for payment within an accounting
year and include creditors for goods, bills payable, bank overdraft,
accrued expenses, etc. A positive net working capital arises when current
assets exceed current liabilities and a negative net working capital arises
when current liabilities exceed current assets. Both aspects have equal
importance for management – the first focuses the attention on the
optimum investment in and financing of the current assets whereas the
second indicates the liquidity position of the firm and suggests the extent
to which working capital needs may be finance by permanent sources of
funds.
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Once again, the cash will be used for the purchase of materials and/or
payment to suppliers and the whole cycle termed as working capital or
operating cycle repeats itself. This process also indicates the dependence
of each stage or component of working capital on its previous stage or
component.
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provide more liberal credit period and/or relax its existing credit
standards which will increase sundry debtors. In situations of greater need
for cash even providing cash discount as part of the credit terms for sale
which is likely to boost the cash resources, may have to be resorted to.
In such cases, the relative benefits and costs may have to be taken into
consideration before taking decisions.
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Trade Credit
An arrangement to buy goods or services on account, that is, without
making immediate cash payment ,For many businesses, trade credit is an
essential tool for financing growth. Trade credit is the credit extended by
suppliers who let us buy now and pay later. Any time a business man
takes delivery of materials, equipment or other valuables without paying
cash on the spot, you're using trade credit. Effective use of trade credit
requires intelligent planning to avoid unnecessary costs through forfeiture
of cash discounts
or the incurring of delinquency penalties. But every business should take
full advantage of trade that is available without additional cost in order to
reduce its need for capital from other sources.
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INDUSTRY
Hotels have a very long history, but not as we know today, way
back in the 6 th century BC when the first inn in and around the
city of London began to develop. The first catered to travelers and
provided them with a mere roof to stay under. This condition of the inns
prevailed for a long time, until the industrial revolution in
England, which brought about new ideas and progress in the business at
inn keeping. The invention of the steam engine made traveling
even more prominent. Which had to more and more people traveling
not only for business but also for leisure reasons. This lead to the actual
development of the hotel industry as we know it today. Hotel today not
only cater to the basic needs of the guest like food and
shelter provide much more than that, like personalized services etc.
Hotels today are a “Home away from home”.
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The Tata Group is one of the India’s oldest, largest and most respected
business conglomerates. The Group’s business are spread over seven
business sectors.
-Services
-Information Systems & Communications
-Engineering
-Materials
-Consumer Products
-Energy
-Chemicals
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Jamshetji Tata founded the Group in the mid 19 th century. Today the Tata
Group is rapidly growing business based in India with significant
international operations. The Tata name has been respected in India for
140 years for its adherence to strong values and business ethics. The
Group’s 28th publicly listed enterprises have a combined market
capitalization of some 98.86 billion$, among the highest among Indian
business houses and a shareholder base of 3.5 million.
The history of Mumbai and The Taj Mahal Palace are dramatically
intertwined. The Hotel is Mumbai’s first harbor landmark (built 21 years
before The Gateway of India) and the sight of the first license bar in the
city. For more than a century the Taj has played an intrinsic part in the life
of the city, hosting Maharajas, dignitaries and eminent personalities from
across the globe. Today it is a Leading Hotel of the World and favorite
destination for discerning business travelers.
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VALUES
People- Diversity, Integrity & Respect- People are our greatest asset and
a key to our success. We respect diversity of people, idea, cultures and
honor the value of individuals in a team.
Passion for Excellence- We believe in perfection to achieve excellence.
We continuously improve processes to surpass global benchmarks.
Exceed Expectation- By exceeding expectation of all stakeholders and
protecting the interest of our shareholders and playing by the rules.
Innovation- We encourage innovation, embrace change growth through
knowledge and learning.
Sense of urgency and accountability- We accept responsibility and
deliver on promises with sense of urgency and agility.
Social Responsibility- We commit to improve the quality of life of the
communities we serve and our concern for environment by returning to
society what we earn.
Joy at work- We recognize and respect each other in all interactions and
set the example for our guests, busine4ss associates and colleagues. We
encourage a fair environment that supports equal opportunity to attract,
develop and retain the best talent and Endeavour to have fun too.
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GAME PLAN
The Indian hotels company limited is the largest Hotel, leisure and
hospitality company in south Asia.
The company’s hotel business emphasizes the global operation of hotels
and resorts in the luxury, upper-upscale and economy segments .The
Company’s brand names include Taj hotel resorts and palaces, Vivanta by
Taj hotels and resorts ,the gateway hotels and resorts and ginger hotels.
Dedicated to the highest standards of hospitality, services and continuous
innovation for over a hundred years, the Taj group includes owned, leased
and managed hotels totaling 108 hotels, in 12 countries, on 5 continents
with 12913 rooms.
Our aim is to be recognized as one of the top global hotel groups
providing exceptional customer satisfaction in each of our hotels.
The growth strategy of or group is to operate 20,000 Rooms, in 25 major
destinations around the world and achieve a group Turnover of US$
2billion, with 33% share from international operations, by 2014.
2.2 OBJECTIVES
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2.3 METHODOLOGY
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The project is based on secondary data. Past five years data has
been taken for the analysis of Taj Mahal Palace and Oberoi Hotel.
Data has been collected from various sources like internet, Annual
report etc.
Further charts, graphs, tables and working capital ratios has been
taken for the analysis
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2.4 LIMITATION
Chapter 3
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Below are the ratios of 2 Hotels (Taj Mahal Palace and Oberoi hotel) for
the period of 5 years:
Current Ratio:
The current Ratio is the ratio of current liabilities it is calculated as: -
Current Ratio = Current assets
Current Liabilities
The current assets include cash and Bank Balance, Marketable securities,
Bills Receivable, Inventories, Loans and advances, Advances Payment
and prepaid expenses.
The current ratio measures the ability of the firm to meet its current
liabilities. The current assets get converted into cash into the operational
cycle of the firm and provide the fund needed to pay current liabilities
.
Table 1
Current Ratio
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Diagram 1
Interpretation:
If we analyze the five year data and graph from table 1 and table 1, Taj
hotel has shown good trend compare to Oberoi. In 2006 the ratio 0.67
which shows that the current ratio is approximately not equal to 2:1, it
indicates the unnecessarily investment in the current assets in the form of
debtors and cash balance. From 2007 the ratio of Taj hotel has shown
adown trend and has maintained not more than 1
QUICK RATIO
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The Quick Ratio is sometimes called the "acid-test" ratio and is one of the
best measures of liquidity. It is figured as shown below:
Quick Ratio establish the relationship between quick or liquid assets and
liabilities. An asset is liquid if it can be converted into cash immediately
or reasonable soon without loss of value. Cash is the most liquid asset.
Other assets which are considered to be relatively liquid and include in
liquid assets are debtors and bill receivable and marketable securities.
The Quick Ratio is a much more exacting measure than the Current
Ratio. By excluding inventories, it concentrates on the really liquid
assets, with value that is fairly certain.
An acid-test of 1:1 is considered satisfactory unless the majority of "quick
assets" are in accounts receivable, and the pattern of accounts receivable
collection lags behind the schedule for paying current liabilities.
Table : 2
Quick ratio
2007 2008 2009 2010 2011
Taj
0.6 0.74 0.33 0.49 0.6
hotels
oberoi 0.38 0.35 0.19 0.23 0.28
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Interpretation:
From table 2 and diagram 2 it is clear that Taj Hotel and Oberoi does not
meet the standard ratio of 1:1 and the company has insufficient balance of
payment of current liability.
This ratio tells the story by which stock is converted into sales. Usually, a
high inventory turnover ratio revels the liquidity of the inventory, i.e. how
many times on an average; inventory is sold during the year. Needless to
say that if a firm maintains minimum stock level in order to maximum
sales by quick rotation of inventory; no doubt, the profit will be
maximum since the holding cost of inventory will be minimum.
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Table : 3
Inventory Turnover Ratio
2007 2008 2009 2010 2011
Taj Hotel 34.39 33.08 25.26 24.69 28.59
Oberoi 21.63 22.9 19.4 20.98 23.43
Diagram :3
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Efficiency ratio
Table: 4
Working capital turnover ratio
2007 2008 2009 2010 2011
Taj
51.72 8.01 2.63 6.67 -5.27
Hotel
Oberoi 5.58 11.59 9.74 8.31 15.45
Diagram : 4
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Interpretation: From the table 4 and diagram 4 it is clear that Taj Hotel
limited have a huge working capital ratio in 2007 then there is huge fall in
trend to 8.01 and even went negative in 2011. While Oberoi performance
is fluctuating.
Table : 5
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Daigram : 5
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The ratio shows the firm ability in generating sales from all financial
sources committed to total assets.
Total Assets Turnover Ratios = Sales
Total assets
Table 6
Total assets turnover ratio
2007 2008 2009 2010 2011
Taj
0.34 0.29 0.19 0.2 0.22
Hotel
Oberoi 0.42 0.49 0.44 0.42 0.51
Diagram 6
Interpretation: The above table 6 and diagram 6, indicates that Taj hotel
ratio has been decreased from 2007 to 2010 which indicates that the
company is making insufficient utilization and its efficiency is
decreasing. The ratio reveals idle capacity.
The ratio of Oberoi has been increased from 2007 to 2011 is more or
less consistent which indicates that oberoi hotels are able to utilized their
assets.
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The ratio shows the relation describing the lender contribution for
each rupee of owner’s contribution.
Debts equity ratio is those calculated to know the extent of outsider fund
and shareholder funds used in acquiring the assets for a firm in other
words, it is calculated to measure the relative claim of outsiders and share
holder against the assets of a firm. It is also called as external – internal
equity ratio or debt to net worth ratio.
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Table 7
Total debt/equity ratio
2007 2008 2009 2010 2011
Taj
0.73 0.77 0.49 0.62 0.57
Hotel
Oberoi 1.62 1.94 1.65 1.56 1.77
Diagram 7
Interpretation: From table 7 and diagram 7, The ratio of Taj is less than
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1 which indicates
that the companies are exposing themselves to large amount of equity.
The above graph indicates that the ratio of Oberoi from
financial year 2007 to 2011 is high and it also means that the company is
in risky position especially if interest rates are on the rise and it has been
aggressive in financing its growth with debt.
4.1 CONCLUSION
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Study the working capital management of Taj Mahal Palace and Oberoi
Hotel and to study the liquidity position of both the hotels through
various working capital related ratios.Taj is better than oberoi in many of
the factors which is been taken into consideration from above ratios.
BIBLIOGRAPHY
Books and Magazine-
I.M Pandey – Financial Management
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Websites-
www.indiainfoline.com
www.sify.com
www.moneycontrol.com
www.scribd.com
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