Dhruvi Project Report On Working Capital Management

REPORT ON WORKING CAPITAL MANAGEMENT
A report submitted in partial fulfillment of the

requirement of
Master of Business Administration Programme of
Sikkim Manipal University.

Submited By :
PATEL DHRUVAL D Page 1

Dhruval DIneshbhai Patel

M.B.A. 4th Sem
Roll NO : 511015639.
Some one has told “Practices makes the man

Perfect”, so that the Practical Knowledge is
fundamental theme. It is a step to bridge the gap
between the theoretical study of management and its
practical application.
It is more applicable in the field of the
management especially a professional course like
M.B.A. Sikkim Manipal University has prescribed 6 to 8
week project report training during the 4th Sem. as a
part of M.B.A programmers my training at the Reliance
Industries Limited is to comply with this requirements
also.. s

I have carried out my report work at “Power Build

Limited” in Vidyanagar. By seeking the things more
ensure to gress and get clean idea about the working
of Financial Department.
The project report on Working Capital Of
Company, which provide perfect direction of invest the
money. The data collections were by annual report of
the different companies, magazines related to the
cement association and discussion with concerned
employees and experts.
I as a student have put my best efforts to

understand the functioning of Financial Department as
mentioned. My Report is prepared on the basis of
information given by the company.
At the end findings and suggestions are reported.
I hope this serves the Purpose.

Industrial Training is not only part of our syllabus,

but it is the Golden Opportunity for our knowledge
enrichment with the great Pleasure here. I make the
opportunity to express any gratitude.
Words are indeed inadequate to convey my deep
sense of gratitude to all those who have helped me in
completing this summer project to the best of my
ability. Being a part of this project has certainly been a
unique and a very productive experience on my part.
I am really thankful to, Mr. Subodh. Shah,
(Finance Manager) for making all kinds of
arrangements to carry the project successfully and for
guiding and helping me to solve all kinds of quarries
regarding the project work. His systematic way of
working and incomparable guidance has inspired the
pace of the project to a great extent.
I would also like to thank my mentor and project –
coordinator, Ms. Chhaya for assigning me a project of

such a great learning experience and acquainting me

with real life project financing and appraisal.
I am very grateful to Mr. Sameer Patel,
principal of Anand Institute of Computer Study
Who has given me the opportunity to do this project in
the Power Build Ltd. and very thankful to all
lecturers of AICS for their useful guidance and
advise.
Last but not least I would like to thank all the
employees of Power Build Ltd. who have directly or
indirectly helped me with their moral support for the
completion of my project.
SR. PARTICULAR PAGE

NO NO
1. INTRODUCTION OF FINANCIAL 6.
MANAGEMENT.

2. CONCEPTUAL FRAMEWORK OF 20.

WORKING CAPITAL
MANAGEMENT.
3. LITTERARURE REVIEW. 51.
4. RESEARCH METHODOLOGY. 56.
5. ABOUT THE GEAR INDUSTRY. 65.
6. INFORMATION ABOUT THE POWER 75.
BUILD LIMITED.
7. ANALYSIS OF OPERATING CYCLE 91.
OF POWER BUILD LIMITED.
8. ANALYSIS OF WORKING CAPITAL 98.
MANAGEMENT OF POWER BUILD
LIMITED
9. FINDINGS. 122.
10. CONCLUSION. 123.
11. BIBLIOGRAPHY. 125.
12. ANNEXURES 127.


Finance is regarded as the life blood of a business enterprise. This

is because of in the modern money-oriented economy. Finance is one of the
basic foundations of all kinds of economic activities.
In General finance may be defined as the provision of money at the
time it is wanted. However, as a management function it has a special
meaning. Finance function may be defined as the procurement of funds and
their effective utilization
DEFINITIONS

“Business finance is that business activity which is concerned with

the acquisition and conversation of capital funds in meeting financial needs
and overall objectives of a business enterprise.”
“Business finance can be broadly defined as the activity concerned
with planning, raising, controlling, and administrative of funds used in the
business.”
Financial Management means the entire gamut of management of
finance both its sources and uses of the enterprise.
According to SOLOMAN “Financial management is concerned
with the efficient use of an important economic resource namely Capital
Funds.”
According to PHILLIPPATUS “Financial Management is concerned
with long-term and short-term credits for the firm.”
Thus, Financial Management is Primarily concerned with the proper
management of funds.
OBJECTIVE OF FINANCE
Traditionally, the basic Objectives of financial management are the
maintenance of liquid assets and maximization of the Profitability of the
firm.
Maintenance of liquid assets means that the firm has adequate cash in
hand to meet its obligations at all times. The firm’s investment and financing
decisions are unavoidable and continuous. In order to make them rationally,
the firm must have a goal. It is generally agreed in theory that the financial
goal of the firm should be the maximization of owners’ economic welfare.

Owners’ economic welfare could be maximized by maximizing the

shareholders’ wealth as reflected in the market value of shares.
Profit Maximization
Profit Maximization means maximizing the rupee income of firms.

Firms produce goods and services. They may function in a market economy,
or in a government controlled economy. In a market economy, prices of
goods and services are determined in competitive markets. Firms in a market
economy are expected to produce goods and services desired by society as
efficiently as possible.
Price system is the most important organ of a market economy
indicating what goods and services society wants. Goods and services in
great demand command higher prices. This results in higher profit for firms;
more of such goods and services are produced. Higher profit opportunities
attract other firms to produce such goods and services. Ultimately, with
intensifying competition an equilibrium price is reached at which demand
and supply match. In the case of goods and services which are not required
by society, their prices and profits fall.
In the economic theory, the behavior of a firm is analyzed in terms of
profit maximization. While maximizing profit, a firm either produces
maximum output for a given amount of output, or uses minimum input for
producing a given output.
Objections to Profit Maximization

The Profit Maximization objection has, however, been criticized in

recent years. It is argued that profit maximization assumes perfect
competition, and in the face of imperfect modern markets, It cannot be a
legitimate objective of the firm. In the new business environment, profit
maximization is regarded as unrealistic, difficult, inappropriate and immoral.
Time value of money: The profit maximization objective does not make a
distinction between returns received in different time periods. It gives no
consideration to the time value of money, and it values benefits received
today and benefits received after a period as the same.
Uncertainty of returns: The streams of benefits may possess different degree
of certainty. Two firms may have same total expected earnings, but if the
earnings of one firm fluctuate considerably as compared to the other, it will
be more risky.
Shareholders Wealth Maximization (SWM)

The objective of shareholders’ wealth maximization is an appropriate
and operationally feasible criterion to choose among the alternative financial
actions. It provides an unambiguous measure of what financial management
should seek to maximize in making investment and financing decisions on
behalf of shareholders.
The objectives of shareholders’ wealth maximization take care of the
questions of the timing and risk of the expected benefits. These problems are
handled by selecting an appropriate rate for discounting the expected flow of
future benefits.
Scope of Financial Management

Financial Management as an academic discipline has undergone

significant changes over years as regards its scope and coverage. As such the
role of finance manager has also undergo fundamental changes over the
years.
The Traditional approaches, which were popular in the early part of
this century, limited the role of financial management to rising and
administering of funds needed by the corporate enterprises to meet their
financial needs.
It broadly covered the following three aspects:-
1. Arrangement of funds from financial institutions.

2. Arrangement of funds through financial instruments viz, shares, bonds,
etc.
3. Looking after the legal & accounting relationship between a corporation
& its sources of funds.
In the later fifties it started to be severely criticized and later abandoned on
account of the following reasons.
➢ Outsider-looking-in approach
➢ Ignored routine problems.
➢ Ignored non-corporate enterprises.
➢ Ignored working capital financing.
➢ No emphasis on allocation of funds.
The Traditional Approach outlived its utility due to changed

Business Situations in sixties made large quantum of information available to

the financial manager, based on which he could make sound decisions. The
scope of financial management increased with the introduction of capital
budgeting techniques.
The Modern Approach is an analytical way of looking at the financial

problems of a firm. These decisions, which can also be termed as functions
outlining the scope of finance management, are being discussed below.
➢ Funds requirements decision.

➢ Financing Decisions.
➢ Investment Decisions.
➢ Dividend Decisions.
Needs of Financial Management:-
The important of financial management cannot be overemphasized. In

every organization, where funds are involved, sound financial management is
necessary.
Sound financial management is essential in both profit and non-profit

organizations. The financial management helps in monitoring the effective
deployment of funds in fixed assets and in working capital. The finance
manager estimates the total requirements of funds, both in the short period
and the long period. The finance manager assesses the financial positions of
the company through the working out of the returns on capital, debt-equity
ration, cost of capital from each sources, etc. and comparison of the capital
structure with that of similar companies.

Financial Management also helps in ascertaining how the company

would perform in future. Sound Financial Management is indispensable for
any organization. It helps in profit planning, capital spending measuring
costs, controlling Inventories, accounts receivable, etc. Financial
Management essentially helps in optimizing the output from a given input of
the funds.
Techniques of Financial Management
Financial Management is concerned with raising financial resources

and their effective utilization towards achieving the organizations goals. This
requires applications of appropriate financial methods or tools. The term
“Financial Method” or “Financial Tools” refers to any logical methods or
techniques to be employed for the purpose of accomplishing the following
two goals;
• Measuring the effectiveness of firm’s actions and decisions.
• Measuring the validity of the decisions regarding accepting to or

rejecting future projects.
• Cost of capital
• Financial leverage or trading on equity.
• Capital Budgeting Appraisal methods.
• ABC analysis, Cash management models, aging schedule of

inventories, Debtor’s turn-over ratio, etc.

• Ratio Analysis.
• Fund Flow Analysis and Cash Flow Analysis.

Principles and Functions
A firm should give proper attention to the structure and organization

of its finance department. It financial data are missing or inaccurate, the firm
may not be in a position to identify the serious problems conforming the firm
in time for necessary corrective action. The role of different finance
executives should be clearly defined in order to avoid conflict and
overlapping of functions.
Organization of the finance function differs from company to

company depending on their respective needs and the financial philosophy.
The titles used to design the key finance official are also different, viz., Vice-
President (Finance), Chief Executives (Finance), General Manager (Finance),
etc.
An Illustrative organization chart of finance function of management

in a large organization is given below:
The below chart shows that the Vice-President (Finance) exercise

His functions through his two deputies known as:
1. Controller or Comptroller
2. Treasurer.

The Controller is concerned with the management and control of

The firm’s assets. His duties include providing information for formulating
the accounting and financial policies, preparation of financial reports,
direction of internal auditing, budgeting, inventory control, taxes, etc.
Board of
Directors
President
Vice- Vice- Vice- Vice-

President President President President
Marketing Production Finance Personnel
Controller Treasurer
Planning General Internal Tax Appraisal

& Accountin Control Administrati &
Budgetin g onnnon Reporting
Provision Investmen Banking & Credit &

of Finance t Custody Collection

While the treasurer is mainly concerned with managing the firm’s funds,
his duties include the following;
 Forecasting the financial needs,

 Administering the flow of cash,
 Managing credit
 Floating needs,
 Administering maintaining relationship with financial institutes and
 Protecting funds and securities.
Functions of Controller
➢ Planning and Control: To establish and administer, as per of

Management, a plan for the control of operations.
.
➢ Reporting and interpreting: To compare actual performance with
operating plans and standards, and to report and interpret the result of
operation to all levels of management and to the owners of business.
➢ Tax administration: to establish and administer tax policies and

procedures.
➢ Government reporting: to supervise or co-ordinate the preparation of

report to government agencies.
➢ Protection of assets: To ensure protection of business assets through

internal control, internal auditing and assuming proper insurance
coverage.
➢ Economic appraisal: To appraise economic and social forces and

government influences and interpret their effect upon business.
Function of Treasurer
➢ Provision of finance: To establish and execute programmes for the

provision of the finance required by the business.
➢ Investor relations: To establish and maintain an adequate market for
the company’s securities and to maintain adequate contact with the
investment community.
➢ Short-term Financing: To maintain adequate sources for the company’s
current borrowings from the money market.
➢ Banking and custody: To maintain banking arrangement to receive,
have custody of and disburse the company’s money and securities and
to be responsible for the financial aspects of real estate transactions.
➢ Credit and Collections: To direct the granting of credit and the
collection of accounts receivables of the company.
➢ Investments: To invest the company’s funds as required and to establish
and coordinate policies for investment in pension and other similar
trusts.
➢ Insurance: To provide insurance coverage as may be required.
Some important function performed b the finance department of Power

Build Ltd. Are as under;
1. Managing new projects & reports.

2. Managing working capital.
3. Taxation work.
4. Managing provident fund scheme.
5. Handling of bank transaction.
6. Sales tax records.
7. Managing E.S.I scheme.
8. Management of inventory.
Finance Function:-
➢ Investment Decision:-
✔ Investment decision or capital budgeting decision invoices, the decision

of allocation of capital or commitment of funds to long-term assets
which yield benefits in future.
✔ Meaning prospective profitability of new investments.
✔ Uncertain future Cash Budget involves risk.
✔ Investment proposals would be evaluated in terms of both expected
return & risk.
➢ Dividend Decision:-

✔ Distribute all profit. Or retain them of distribute a portion & retain the
balance.
✔ Dividend stability bonus shares and cash dividends.
✔ Optimum dividend policy.
➢ Financing Decision:-
✔ It is the second important Function.

✔ When, where and how to acquire funds.
✔ Mix of debt & equity- capital structure.
✔ Central issue- to determine the proportion of equity & debt.
➢ Liquidity Decision:-
✔ Current assets Management.

✔ A proper trade-off- P&L.
✔ Conflict –Profitability/Liquidity – managing cash.
✔ Affects firm’s profitability, liquidity and risk.
Finance Planning
In Power Build Ltd. General manager of finance is responsible for

this function. They try to raise the funds at the minimum cost and they are
used in the profitability and best manner. Some factors are to be kept in mind
while deciding financial planning is as follows:
Cost of Capital
Cash flow ability of the company
Flexibility

Size of the company
In Power Build Ltd. Finance department keeps the monthly records of:
Cash inflow and cash outflow.

Capital expenditure proposals.
Various demands of revenue and costs.
Financial plan.
Organization Structure of Financial Department
Assistant General Manager
Finance Controller

A/C Manger Management of Costing and

Commercial
Executive in A/C Costing Officer

CONCEPTUAL FRAMEWORK OF WORKING

CAPITAL MANAGEMENT

INTRODUCTION:-
Working Capital Management is concerned with the problems that

arise in attempting to manage the Current Assets, the Current Liabilities and
the interrelationship that exists between them. The term Current Assets refers
to those Assets which in the ordinary course of Business can be, or will be,
converted in to cash within one year without undergoing a diminution in
value and without disturbing the operations of the firm. The basic Current
Liabilities are accounts payable, bills payable, bank overdraft and
outstanding expenses.
The Goal of Working Capital Management is to manage the firm’s

Current Assets and Liabilities in such a way that a satisfactory level of work
capital is maintained. This is so because if the firm cannot maintain a

satisfactory level of working capital, it is likely to become insolvent and may

even be forced in to bankruptcy.
Definitions and Meaning of Working Capital Management
Before knowing about working capital management, we must get to

know what working capital is.
Working Capital:-
Working Capital is the Capital which necessary for the smooth working
of the organization. This capital is required for the short term uses and for
day to day expenses.
WORKING CAPITAL MANAGEMENT:-
To manage the Working Capital from different sources is called

Working Capital Management.
MEANING OF WORKING CAPITAL

Capital required for a business can be classified under two main
categories, via.

○ Fixed Capital
○ Working Capital
Every business needs funds for two purposes for its establishment
And to carry out its day-to-day operations. Long term funds are required to
create production facilities through purchase of fixed assets such as plant and
machinery, land, building, furniture, etc. Investments in these assets
represent that part of firm’s capital, which is blocked on permanent of fixed
basis and is called fixed capital. Funds are also needed for short-term
purposes for the purchase of raw-material, payment of wages and other day-
to-day expenses etc.
These funds are known as Working Capital. In simple words,

Working Capital refers to that part of the firm’s Capital which is required for
financing short-term or Current assets such as cash, marketable securities,
debtors and inventories. Funds, thus Invested in current assets keep revolving
fast and are being constantly converted in to cash and this cash flow out
again in exchange for other current assets. Hence, it is also known as
revolving or circulating capital or short term capital.
CONCEPT OF WORKING CAPITAL
There are Two Concepts of Working Capital,
 Gross Working Capital

 Net Working Capital
GROSS WORKING CAPITAL:-

The Gross Working Capital is the Capital invested in the total current
assets of the enterprises. Current assets are those, assets which can convert in
to cash within a short period normally one accounting year.
Constitutes of Current Assets:-
➢ Cash in Hand and Cash at Bank

➢ Bills Receivables
➢ Sundry Debtors
➢ Short term Loans and Advances
➢ Inventories of stocks as;
• Raw Material
• Work in Process
• Stores and Spares
• Finished Goods
➢ Temporary Invest of surplus funds
➢ Prepaid Expenses
➢ Accrued Incomes
➢ Marketable Securities.
NET WORKING CAPITAL:-
Net Working Capital Refers to the difference between current

assets and current liabilities. Current assets are those claims of outsiders
which are expected to mature for payment within an accounting year and

include creditors (account payable), bills payable, and outstanding expenses.

Net working capital can be positive or negative. A positions net working
capital will arise when current assets exceed current liabilities. A negative
net working capital occurs when current liabilities are in excess of current
assets.
Net working capital is that portion of a firm’s current assets which is

financed by long-term funds.
Constitutes of Current Liabilities:-
➢ Accrued or Outstanding expenses

➢ Short term loans, advances and deposits
➢ Dividend payable
➢ Bank Overdraft
➢ Provision for taxation, if it does not amount to application of profit.
➢ Bills Payable
➢ Sundry Creditors.
Net working capital is a qualitative concept. It indicates the

Liquidity positions of the firm and suggest the extent to which working
capital needs may be financed by permanent sources of funds. Current assets
should be sufficiently in excess of current liabilities to constitutes a margin
or buffer for maturing obligations within the ordinary operating cycle of
business.

Net working capital also covers the questions of judicious mix of long-
term and short-term funds for financing. The Gross working capital concept
is financial or going concern concept where as net working capital is an
accounting concept of working capital, both the concepts have their own
merits.
The Gross working capital is sometimes preferred to the concept of

working capital for the following reasons;
1. It enables the enterprise to provide correct amount of working capital
at correct time.
2. Every management is more interested in total current assets with
which it has to operate then the source from where it is made available.
3. It take into consideration of the fact every increase in the funds of the
enterprise would increase its working capital.
4. This concept is also useful in determining the rate of return on
investments in working capital. The net working capital concept,
however, is also important for following reasons;
• It is Qualitative concepts, which indicates the firm’s ability to
meet to its operating expenses and short term liabilities.
• It indicates the margin of protection available to the short term

creditors.
• It is an indicator of the financial soundness of enterprise.
• It suggests the need of financing a part of working capital

requirement out of the permanent sources of funds.

Classification of Working Capital
Working Capital may be classified in to Two ways:,
○ On the basis of concepts
○ On the basis of Time.
On the basis of concepts working capital can be classified as Gross

working capital and Net working capital.
On the basis of Time, Working Capital may be classified as,
○ Permanent or Fixed Working Capital.
○ Temporary or Variable Working Capital.
Permanent or Fixed Working Capital:-

Permanent or Fixed Working Capital is minimum amount which is
required to ensure effective utilization of fixed facilities and for maintaining
the circulation of current assets. Every firm has to maintain a minimum,
work- in- process, finished goods and cash balances. This minimum level of
Current Assets is called permanent or fixed working capital as this part of

working is permanently blocked in Current Assets. As the business grow the
requirements of working capital also increase due to increase in current
assets.
Temporary or Variable Working Capital:-
Temporary or Variable Working capital is the amount of working

Capital which is required to meet the seasonal demands and some
Special exigencies variable working capital can further be classified as
Seasonal need of the enterprise is called seasonal working capital. Special
working capital is that part of working capital which is required to meet
special exigencies such as launching of extensive marketing for conducting
research, etc.
Suppliers of temporary working capital can expect its return during

off season when it is not required by the firm. Hence, temporary working
capital is generally financed from short-term sources of finance such as bank
credit.
The diagram given below illustrates the difference between permanent

and temporary working capital.

Temporary Working Capital different from Permanent Working

Capital in the sense that is required for short periods and cannot be
permanently employed gainfully in the business. The amount of working
capital and amount of current assets that varies with seasonal requirements.
NEED FOR WORKING CAPITAL
The basic objective of financial management is to maximize share

holders wealth. This is possible only when the company earns sufficient
profit. The amount of such profit largely depends up on the magnitude of
sales. However sales do not convert in to cash instantaneously. There is
always a time gap between the sales of goods and receipts of cash. Working
capital is required for this period in order to sustain the sales activity. In case
adequate working capital is not available for this period, the company will
not be in a position to sustain the sales since it may not be in a position to
purchase raw materials, pay wages and other expenses required for
manufacturing the goods to be sold.
Every business needs some amounts of working capital. The need for
working capital arises due to the time gap between production and realization
of cash from sales. There is an operating cycle involved in sales and
realization of cash. There are time gaps in purchase of raw material and
production; production and sales; and realization of cash.
Thus working capital is needed for the following purposes:

○ For the purpose of raw material, components and spares.

○ To pay wages and salaries
○ To incur day-to-day expenses and overload costs such as office
expenses.
○ To meet the selling costs as packing, advertising, etc.
○ To provide credit facilities to the customer.
○ To maintain the inventories of the raw material, work-in-progress,
stores and spares and finished stock.
The requirement of the working capital goes on increasing with the

growth and expensing of the business till it gains maturity. At maturity the
amount of working capital required is called normal working capital.
OPERATING CYCLE:-
From the above, it is clear that Working capital is required because of

the time gap between the sales and their actual realization in cash. This time
gap is technically termed as “Operating Cycle” of the business.
In case of a manufacturing company, the operating cycle is the length
of time necessary to complete the following cycle of events:
a. Conversation of cash into raw materials(RM);
b. Conversation of RM into work-in-process(WIP);
c. Conversation of WIP into Finished goods;
d. Conversation of finished goods into accounts receivables;

e. Conversation of accounts receivable into cash.

This Cycle will be repeated again and again.
In the case of a “Trading firm”, the operating cycle includes the
length of time required to convert,
(1) Cash into inventories,
(2) Inventories into accounts receivables, and
(3) Accounts receivable into cash.
In the case of a “Financing firm”, the operating cycle includes the

length of time taken for;
(1) Conversion of cash into debtors, and
(2) Conversion of debtors into cash.
The operation cycle of manufacturing business can be shown as in

The following charts:

Operating Cycle of a Manufacturing Business.
Each of the components of the operating cycle can be calculated as

follows:-
R= Average stock of raw materials and stores

Average raw materials and stores consumptions per day
W=Average work-in-progress inventory

Average cost of production per day
D=Average book debts

Average credit sales per day
C=Average trade creditors

Average credit purchases per day
After computing the period of one operating cycle, the total number of
operating cycles that can be computed during a year can be computed by
dividing 365 days with number of operating days in a cycle. The total
expenditure in the year when year when divided by the number of operating
cycles in a year will give the average amount of the working capital
requirement.

IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING

CAPITAL
➢ Solvency of business: Adequate working capital helps in maintaining

the solvency of the business by providing uninterrupted of production.
➢ Goodwill: Sufficient amount of working capital enables a firm to
make prompt payments and makes and maintain the goodwill.
➢ Easy loans: Adequate working capital leads to high solvency and
credit standing can arrange loans from banks and other on easy and
favorable terms.
➢ Cash Discounts: Adequate working capital also enables a concern to
avail cash discounts on the purchases and hence reduces cost.
➢ Regular Supply of Raw Material: Sufficient working capital ensures
regular supply of raw material and continuous production.
➢ Regular Payment of Salaries, Wages and Other Day TO Day
Commitments: It leads to the satisfaction of the employees and raises
the morale of its employees, increases their efficiency, reduces
wastage and costs and enhances production and profits.
➢ Exploitation of Favorable Market Conditions: If a firm is having
adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices
are lower and holdings its inventories for higher prices.
➢ Ability to Face Crises: A concern can face the situation during the
depression.

➢ Quick And Regular Return On Investments: Sufficient working capital

enables a concern to pay quick and regular of dividends to its
investors and gains confidence of the investors and can raise more
funds in future.
➢ High Morale: Adequate working capital brings an environment of
securities, confidence, high morale which results in overall efficiency
in a business.
EXCESS OR INADEQUATE WORKING CAPITAL
Every business concern should have adequate amount of working

capital to run its business operations. It should have neither redundant or
excess working capital nor inadequate nor shortages of working capital. Both
excess as well as short working capital positions are bad for any business.
However, it is the inadequate working capital which is more dangerous from
the point of view of the firm.
DISADVANTAGES OR EXCESSIVE WORKING CAPITAL:
1. Excessive working capital means ideal funds which earn no profit for
the firm and business cannot earn the required rate of return on its
investments.
2. Redundant working capital leads to unnecessary purchasing and
accumulation of inventories.
3. Excessive working capital implies excessive debtors and defective
credit policy which causes higher incidence of bad debts.
4. It may reduce the overall efficiency of the business.
5. If a firm is having excessive working capital then the relations with
banks and other financial institution may not be maintained.

6. Due to lower rate of return n investments, the values of shares may

also fall.
7. The redundant working capital gives rise to speculative transactions.
MANAGEMENT OF WORKING CAPITAL:
It has already been indicated earlier that the term “Working Capital
(net)” generally stands for excess of current assets and current liabilities.
Working capital management therefore refers to the administration of both
current assets and current liabilities. In other words, Working Capital
Management is concerned with the problems that arise in attempting to
manage the current assets, the current liabilities and the interrelationship that
exist between them.
The basic objectives of Working Capital Management is to manage

the firm’s current assets and current liabilities in such a way that the
satisfactory level of working capital is maintained, i.e., it is neither
inadequate nor excessive. The current assets should be sufficient enough to
cover current liabilities in order to maintain a reasonable safety margin.
Moreover, different components of working capital are to be properly
balanced.
In the absence of such a situation, the financial position in respect of

the firm’s liquidity may no be satisfactory in spite of satisfactory liquidity
ratio. For example if the proportion of inventories is very high in the total
current assets because of slow moving or obsolete inventory, this cannot
provide the cushion of liquidity. Similarly, if the proportion of the accounts
receivable is very high in the title current assets on accounts of the firm’s
inability to recover money from its debtors, the firm’s liquidity ratio will be
deceptive. Similarly, if a firm is maintaining a higher cash and bank balance,

it also means that the firm is not making profitable use of its resources.
Working Capital management policies have a great effect on firm’s

profitability, liquidity and its structural health. A Finance manager should
therefore, chalk out appropriate working capital management policies in
respect of each of the components of working capital management policies in
respects of each of the components of working capital so as to ensure higher
profitability, proper liquidity and sound structural health of the organization.
Additional capital is required to have uninterrupted business

operations, the amount will be locked up in the current assets like accounts
receivables, stocks etc. this actually happens due to the “Cash Cycle” or
“Operation Cycle”. By the time the cash is converted back to cash [cash to
stock to sales to accounts receivables to cash]. The firm needs extra funds
and hence the need for working capital. If this is not provided, the business
operation will be affected to a greater extent and hence this part of finance
has to be managed well.

Estimating of the amount of different components of working capital

The Procedure for estimating each of the constitutes and the information
required for the purpose is explained below.
1. Inventories:-
The term “Inventories” includes stock of raw-material, work-in-
process and finished goods.
a. Stock of Raw material:- The average amount of raw-material to be
kept in stock will depend upon the quantity of raw-materials
required for production during a particular period and the average
time taken in obtaining a fresh delivery. Suitable adjustment may
have to be made to provide for contingencies.
b. Work-in-process: The cost of work-in-process includes raw-
material, wages and overheads.
c. Finished Goods:- The period for which the finished goods have to
remain in the warehouses before sales is an important factor for
determining the amount locked up in finished goods.
1. Sundry Debtors:-
The amount of funds locked-up in sundry debtors will be
Computed on the basis of credit sales and the time lag in
Connecting payment.
2. Sundry Creditors:-
The lag in payment to suppliers of raw-materials, goods etc.
And the likely credit purchases to be made during the period will
Help in estimating the amount of creditors.
3. Outstanding Expenses:-
The time lag in payment of wages and other expenses will
Help in estimating the amount of creditors.

4. Cash and Bank Balance :-

The amount of money to be kept as cash in hand or cash at
Bank can be estimated on the basis of past experience.
WORKING CAPITAL FORCAST
Estimating of future working capital based on current assets and

current liabilities.
The estimation of future working capital can be made if the amount of
current assets and current liabilities can be estimated as follows:
The various constituents of current assets and current liabilities have a
direct being on the computation of working capital and the operating cycle.
The holding period of various constituents of operating cycle may either
contract or expand the net operating cycle periods; lower capital and vice-
versa.
DETERMINENT OF WORKING CAPITAL
Working capital requirements always very from industry to industry,

firm to firm etc. The following factors influence the working capital
requirement of the firm.
➢ Nature of the business.
➢ Sales and Demand condition
➢ Technology & Manufacturing policy
➢ Credit policy and Production policy
➢ Availability of the credit
➢ Operating Efficiency
➢ Price level changes
➢ Seasonality of operation
➢ Market Condition

➢ Size of the organization

➢ Operating Process cycle.
➢ Inventories
➢ Types of Raw-material require and their procurement sources
➢ Safety stock and lead time
➢ Marketing of the company’s goodwill etc.
APPROACHES FOR DETERMINING THE FINANCING MIX:-
There are three basic approaches for determining the working capital
financing mix.
(i) The Hedging Approach
According to this approach, the maturity of source of funds should

match the nature of assets to be financed.
The approach is, therefore, termed as “Matching approach”.

It divides requirements of total working capital funds into two
categories.
a) Permanent working capital, i.e., funds required for purchase of core

current assets. Such funds do not vary over time.
b) Temporary or seasonal working capital, i.e., funds which fluctuate
over time.
The permanent working capital requirements should be financed by

long-term funds while the seasonal working capital requirements
should be financed out of short-term funds.

(ii) The Conservative Approach
According to this approach all requirements of funds should be met

from long-term sources.
The short-term sources should be used only for emergency requirements.
The conservative approach is less risky, but more costly as compared to
the hedging approach.
In other words conservative approach is “low profit-low risk” (or high
cost, high net working capital) while hedging approach results in high profit-
high risk (or low cost, low net working capital).
(i) Trade-off Between Hedging and Conservative Approach
The hedging and conservative approaches are both on two extremes.
Neither of them can therefore help in efficient working capital

management. A trade-off between these two can give satisfactory results.
The level of such trade-off will differ from case to case depending upon
perception of the risk by the persons involved in financial decision-making.
However, one way of determining the level of trade-off is by finding the
average of the minimum and the maximum requirements of working capital
during a period. The average working capital so obtained may be financed by
long-term funds and the balance by short-term funds.
Management of different components of working capital

Working capital management involves management of different

components of working capital such as cash, inventories, accounts
receivable, creditors, etc.
*MANAGEMENT OF CASH
It is the duty of the finance manager to provide adequate cash to all

segments of the organization. He also has to ensure that no funds are blocked
in idle cash since this will involve cost in terms of interest to the business. A
sound cash management scheme, therefore, maintains the balance between
the twin objectives of liquidity and cost.
Meaning of cash
The term “cash” with reference to cash management is used in two

senses. In a narrower sense it includes coins, currency notes, cheques, bank
drafts held by a firm with it and the demand deposits held by it in banks.
In a broader sense it also includes “near-cash assets” such as,

marketable securities and time deposits with banks. Such securities or
deposits can immediately be sold or converted into cash if the circumstances

require. The term cash management is generally used for management of

both cash and near-cash assets.
Motives for holding cash
A distinguishing feature of cash as an asset, irrespective of the firm in

which it is held, is that it does not earn any substantial return for the
business. In spite of this fact cash is held by the firm with following motives.
1. Transaction motive
A firm enters into a variety of business transactions resulting in both

inflows and outflows. In order to meet the business obligation in such a
situation, it is necessary to maintain adequate cash balance. Thus, cash
balance is kept by the firms with the motive of meeting routine business
payments.
2. Precautionary motive
A firm keeps cash balance to meet unexpected cash needs arising out of
unexpected contingencies such as floods, strikes, presentment of bills for
payment earlier than the expected date, unexpected slowing down of
collection of accounts receivable, sharp increase in prices of raw materials,
etc. The more is the possibility of such contingencies more is the cash kept
by the firm for meeting them.
3. Speculative motive
A firm also keeps cash balance to take advantage of unexpected

opportunities, typically outside the normal course of the business. Such
motive is, therefore, of purely a speculative nature.
For example,

A firm may like to take advantage of an opportunity of purchasing raw

materials at the reduced price on payment of immediate cash or delay
purchase of raw materials in anticipation of decline in prices.
4. Compensation motive
Banks provide certain services to their clients free of charge. They,

therefore, usually require clients to keep minimum cash balance with them,
which help them to earn interest and thus compensate them for the free
services so provided.
Business firms normally do not enter into speculative activities and,

therefore, out of the four motives of holding cash balances, the two most
important motives are the compensation motive.
Objectives of cash management
There are two basic objectives of cash management:
1. To meet the cash disbursement needs as per the payment schedule;
2. To minimize the amount locked up as cash balances.
1. Meeting cash disbursements

The first basic objective of cash management is to meet the payments

Schedule. In other words, the firm should have sufficient cash to meet the
various requirements of the firm at different periods of times. The business
has to make payment for purchase of raw materials, wages, taxes, purchases
of plant, etc. The business activity may come to a grinding halt if the
payment schedule is not maintained. Cash has, therefore, been aptly
described as the “oil to lubricate the ever-turning wheels of the business,
without it the process grinds to a stop.”
3. Minimizing funds locked up as cash balances
The second basic objective of cash management is to minimize the

amount locked up as cash balances. In the process of minimizing the cash
balances, the finance manager is confronted with two conflicting aspects. A
higher cash balance ensures proper payment with all its advantages. But this
will result in a large balance of cash remaining idle. Low level of cash
balance may result in failure of the firm to meet the payment schedule.
*MANAGEMENT OF INVENTORIES
Inventories are good held for eventual sale by a firm. Inventories are
thus one of the major elements, which help the firm in obtaining the desired
level of sales.
Kinds of inventories

Inventories can be classified into three categories.
(i) Raw materials:
These are goods, which have not yet been committed to production in a
manufacturing firm. They may consist of basic raw materials or finished
components.
(ii) Work-in-progress:
This includes those materials, which have been committed to

production process but have not yet been completed.
(iii) Finished goods:
These are completed products awaiting sale. They are the final output
of the production process in a manufacturing firm. In case of wholesalers and
retailers, they are generally referred to as merchandise inventory.
The levels of the above three kinds of inventories differ depending upon the
nature of the business.
Benefits of holding inventories
Holding of inventories helps a firm in separating the process of

purchasing, producing and selling. In case a firm does not hold sufficient
stock of raw materials, finished goods, etc., the purchasing would take place
only when the firm receives the order from a customer. It may result in delay
in executing the order because of difficulties in obtaining/ procuring raw
materials, finished goods, etc. thus inventories provide cushion so that the
purchasing, production and sales functions can proceed at optimum speed.
The specific benefits of holding inventories can be put as follows:
(i) Avoiding losses of sales
If a firm maintains adequate inventories it can avoid losses on account

of losing the customers for non-supply of goods in time.
(ii) Reducing ordering cost
The variable cost associated with individual orders, e.g., typing,

checking, approving and mailing the order, etc., can be reduced if a firm
places a few large orders than numerous small orders.
(iii) Achieving efficient production runs
Maintenance of large inventories helps a firm in reducing the set-up

cost associated with each production run.
Risks and costs associated with inventories

Holding of inventories exposes the firm to a number of risks and
costs. Risk of holding inventories can be put as follows:

(i) Price decline
This may be due to increase in the market supply of the product,

introduction of a new competitive product, price cutting by the competitors,
etc.
(ii) Product deterioration
This may due to holding a product for too long a period or improper
storage conditions.
(iii) Obsolescence
This may be due to change in customers taste, new production

technique, improvements in the product design, specifications, etc.
The costs of holding inventories are as follows:
(i) Materials cost
This includes the cost of purchasing the goods, transportation and

handling charges less any discount allowed by the supplier of the goods.
(ii) Ordering cost
This includes the variable cost associated with placing an order for the
goods. The fewer the orders, the lower will be the ordering costs for the firm.
(iii) Carrying cost
This includes the expenses for storing the goods. It comprises storage
costs, insurance costs, spoilage costs, cost of funds tied up in inventories, etc.

Management of inventory
Inventories often constitute a major element of the total working capital

and hence it has been correctly observed, “good inventory management is
good financial management”.
Inventory management covers a large number of issues including

fixation of minimum and maximum levels; determining the size of the
inventory to be carried; deciding about the issue price policy; setting up
receipt and inspection procedure; determining the economic order quantity;
providing proper storage facilities, keeping check on obsolescence and
setting up effective information system with regard to the inventories.
However, management inventories involve two basic problems:
(i) Maintaining a sufficiently large size of inventory for efficient

and smooth production and sales operations;
(ii) Maintaining a minimum investment in inventories to

minimize the direct-indirect costs associated with holding
inventories to maximize the profitability.
Inventories should neither be excessive nor inadequate. If inventories

are kept at a high level, higher interest and storage costs would be incurred.
On the other hand, a low level of inventories may result in frequent

interruption in the production schedule resulting in underutilization of

capacity and lower sales.
The objective of inventory management is, therefore, to determine and

maintain the optimum level of investment in inventories, which help in
achieving the following objectives:
(i) Ensuring a continuous supply of materials to production

department facilitating uninterrupted production.
(ii) Maintaining sufficient stock of raw material in periods of

short supply.
(iii) Maintaining sufficient stock of finished goods for smooth

sales operations.
(iv) Minimizing the carrying costs.
(v) Keeping investment in inventories at the optimum level.
Techniques of inventory management
Effective inventory requires an effective control over inventories.

Inventory control refers to a system which ensures supply of required
quantity and quality of inventories at the required time and the same time
prevent unnecessary investment in inventories.
The techniques of inventory control/ management are as follows:
1. Determination of Economic Order Quantity (EOQ)

Determination of the quantity for which the order should be placed is

one of the important problems concerned with efficient inventory
management. Economic Order Quantity refers to the size of the order, which
gives maximum economy in purchasing any item of raw material or finished
product. It is fixed mainly taking into account the following costs.
(i) Ordering costs:
It is the cost of placing an order and securing the supplies. It

varies from time to time depending upon the number of orders placed
and the number of items ordered. The more frequently the orders are
placed, and fewer the quantities purchased on each order, the greater
will be the ordering costs and vice versa.
(ii) Inventory carrying cost:
It is the cost of keeping items in stock. It includes interest on

investment, obsolescence losses, store-keeping cost, insurance
premium, etc. The larger the value of inventory, the higher will be the
inventory carrying cost and vice versa.
The former cost may be referred as the “cost of acquiring” while the
latter as the “cost of holding” inventory. The cost of acquiring decreases
while the cost of holding increases with every increase in the quantity of
purchase lot. A balance is, therefore, struck between the two opposing factors
and the economic ordering quantity is determined at a level for which
aggregate of two costs is the minimum.
Formula:
Q= 2U x P

Where,
Q = Economic Ordering Quantity
U = Quantity (units) purchased in a year (month)
P = Cost of placing an order
S = Annual (monthly) cost of storage of one unit.
2. Determination of optimum production quantity

The EOQ model can be extended to production runs to determine the
optimum production quantity.
The two costs involved in this process are:
(i) Set up costs;
(ii) Inventory carrying cost.
The set up cost is of the nature of fixed cost and is to be incurred at the time
of commencement of each production run. Larger the size of the production
run, lower will be the set-up cost per unit.
However, the carrying cost will increase with increase in the size of the
production run.
Thus, there is an inverse relationship between the set-up cost and
inventory carrying cost. The optimum production size is at that level where
the total of the set-up cost and the inventory carrying cost is the minimum.

In other words, at this level the two costs will be equal.

The formula for EOQ can also be used for determining the optimum
production quantity as given below:
E = 2U x P
S
Where, E = Optimum production quantity, U = Annual (monthly) output
P = Set-up cost for each production run
S = Cost of carrying inventory per annum (per month)


LITERATURE REVIEW
Phillippatus has given a more elaborate definition of the term Financial

Management. According to him “Financial Management is concerned with
the managerial decisions that result in the acquisition and financing of long-
term and short-term credits for the firm. As such as it deals with the situation
that requires selection of specific assets, the selection of specific liability as
well as the problem of size and growth of an enterprise. The analysis of these
decisions is based on the expected inflows and outflows of funds and their
effects up on managerial objectives.”

Thus, Financial Management is mainly concerned with the proper

management of funds. Above information I collected from the book
“Financial Management- Principles & Practice” By Dr. S.N.Maheshwari.
The revised and enlarged second edition of the book under review is
exhaustive in every sense and covers a large spectrum of financial
management.
“Financial Management- Principles & Practice” book is written by Dr.

S.N.Maheshwari, and this book is published by sultan chand & sons from
New Delhi. Dr. S.N.Maheshwari is director of Delhi Institute of Advanced
Studies, Delhi.
According to them “Finance is one of the most primarily requisitions

of a business and the modern management obliviously depends largely on the
theory and practice are copiously illustrated with all sorts of anticipated
problems. The whole season is divided in seven sections namely,
Foundations of finance; Financial analysis; Cost analysis; Funds
Management; Miscellaneous; Advanced unsolved problem. All relevant
topics are analyzed in a very lucid and understandable language requires no
further clarification.
- The Management Accountant May 1992.
Having introduced the subject the author moves on to the
various financial tools available such as ration analysis, cash flow analysis,
fund flow analysis etc. and their uses in financial management. His
approaches to the tool of analysis and their application prove his mastery
over the subjects.
- Economic and Social Sciences Review, Vol. 1 no 2.

About three decades ago, the scope of financial management was

confined to the raising of funds, whenever needed, and little significance
used to be attached to financial decision-making and problem solving. As a
consequences, the traditional finance texts were structured around this them
and contained description of the instruments and institutions of raising funds
and of the major events such as promotions, reorganization, readjustment,
merger, consolidation etc. when funds were raised.
In the mid-fifties, the emphasis shifted to the judicious utilization of

funds. The modern thinking in financial management across a far greater
importance to management decision-making and policy.
Today, financial managers do not perform the passive role of score

keepers of financial data and information and arranging funds, whenever
directed to do so. Rather they occupy key positions in top management areas
and play a dynamic role in solving complex management problems. They are
now responsible for shaping the fortunes of the enterprise and are involved in
the most vital management decision of allocation of capital. It is their duties
to ensure that the funds are raised most economically and used in the most
efficient and effective manner. Because of this change in emphasis, the
descriptive treatment of the subject of financial management is being
replaced by grouping analytical content and sound theoretical underpinnings.
Above description and researches explained by I.M.Pandey, in

“Financial Management” in its eight edition. Like in its previous editions
high lights the “modern” approach to financial decision-making. They
discusses the theories, concepts, assumptions, and mechanics underlying
financial decisions, viz. investment, financing, dividends, and working

capital management. It also discusses sources and instruments of short-term
and long-term financers, mergers and acquisitions, international financial
management and the interface between financial and corporate policies.
According to Weston and Brigham, in their edition “Managerial

Finance”, 5th edition. P.153 and Smith, K.V’s edition “Management of
Working Capital”, P.5, Working Capital Management is concerned with the
problems that arise in attempting to manage the current assets, the current
liabilities and the interrelationships that exists between them.
According to them , The basic objectives of working capital

management is to manage the firm’s current assets and current liabilities in
such a way that the satisfactory level of working capital is maintained, i.e., it
is neither inadequate nor excessive. The current assets should be sufficient
enough to cover current liabilities in order to maintain a reasonable safety
margin. Moreover, different components of working capital are to be
properly balanced.
They also mentioned that working capital management policies have a

great effect on firms, profitability, liquidity and its structural health. A
Finance Manager should, therefore, checkout appropriate working capital
management policies in respect of each of the components of working capital
so as to ensure higher profitability, proper liquidity and sound structural
heath of the organization.

According to Horne, James.C.Van in his edition “Financial

Management & Policy, 3rd edition” P.433. Inventories are good held for
eventual sale by a firm. Inventories are thus one of the major elements which
help the firm in obtaining the desired level of sales. Inventories can be
classified in to three categories.
1. Raw-Materials
2. Work-in-Process.
3. Finished Goods.
According to him the level of the above three kinds of inventories

Differ depending up on the nature if the business. For Example,
manufacturers will have levels of while a retailer or a wholesaler will have a
high level of inventories of finished goods but will have no inventories or
work-in-process. More over, depending up on the nature of the business,
inventories may be durable or nondurable, valuable or in expensive,
perishable or non perishable etc.


Meaning of Research:-
Research in Common parlance refers to a search for knowledge. One
can also define research as a scientific and systematic search for pertinent
information on a specific investigation. The advanced learner dictionary of
current English lays down the meaning of research as “a careful investigation
or inquiry especially through search for new facts in any branch of
knowledge.”

Redman and Mory define research as a “systematized effort to gain

new knowledge.”
According to cliford Woody research formulating hypothesis or

suggested solutions; collecting; organization and evaluating data; making
deductions and reaching conclusions; and all last carefully test the
conclusions to determine whether they fit the formulating hypothesis.
D.Slesinger and M.stephenson in the encyclopedia of social sciences

defines research as “the manipulation of things, concepts or symbols for the
purpose of generalizing to extend, correct or verify knowledge, whether that
knowledge aids in construction of theory or in the practice of an art.”
Research is, thus an original contribution to the existing stock of knowledge
making for its advancement.
Research is the pursuit of truth with the help of study, observation,

comparison and experiment. In short, the search for knowledge through
objective and systematic method of finding solution to a problem is research.
The systematic approach concerning generalization and the formulation of a
theory is also research.
However, this is not an exhaustive list of factors motivating

People to undertake research studies. Many more factors such as directives of
government, employment conditions, curiosity about new things, desire to
understood causal relationship, social thinking and awakening, and the like
may as well motivate (or at times compel) people to perform research
operations.
Types of Research
The basic types of research are as follows;

1. Descriptive VS. Analytical
Descriptive research includes survey and fact findings enquiries of

different kinds. The main characteristic of this method is that the researcher
has no control over the variables; he can only report what has happened or
what is happening.
2. Applied VS. Fundamental
Research can either be applied research or fundamental research.

Applied research aims at findings a solution for an immediate problem facing
a society or an industrial organization, where as fundamental research is
mainly concerned with generalization and with the formulation of a theory.
3. Quantitative VS. Qualitative research
Quantitative research is based on the measurement of quantity or

amount. Qualitative research the other hand, is concerned with qualitative
phenomenon.
4. Conceptual VS. Empirical

Conceptual research is that related to some abstract ideas or theory. On
the other hand, empirical research relies on experience or observation alone,
often without due regard for system and theory.

Significance of Research
“All progress is born of inquiry. Doubt is often better than

overconfidence, for it leads to inquiry, and inquiry leads to invention” is a
famous hudson maxim in context of which the significance of research can
well be understood. Increased amounts of research make progress possible.
Research includes scientific and inductive thinking and it promotes the
development of logical habits of thinking & organization.
The role of research in several fields of applied economics, whether

related to business or to the economy as a whole, has greatly increased in
modern times.
Research provides the basis for nearly all government policies in our
economic system. Research has its special significance in solving various
operational and planning problems of business and industry. Operation
research and market research, along with motivational research, are
considered crucial and their results assist, in more than one way, in taking
business decisions.
Research is equally important for social scientific in studying social

relationship and in seeking answers to various social problems. Research is
social science is concerned both with knowledge for its own sake and with
knowledge for what it can contribute to practical concerns.

In addition to what has been stated above, the significance of research

can also be understood keeping in view the following points;
➢ To those students who are to write a master’s or PH.D thesis, research

may mean a careerism or a way to attain a high positions in the social
structure;
➢ To professional in research methodology, research may mean a source

of livelihood.
➢ To philosophers and thinkers, research may mean the outlets for new
ideas and insights.
➢ To literary men and women, research may mean the development of

new styles and creative work;
➢ To analysis and intellectuals, research may mean the generalization of

new theories.
Thus, research is the fountain of knowledge for the sake of

Knowledge and an important source of providing guidelines for solving
different business, governmental and social problems. It is a sort of formal
training which enables one to understand the new developments in one’s
field in a better way.

Research Methodology
Research Methodology is a way to systematically solve the research
problems. It may be understood as a science of studying how research is
done scientifically. In it we study the various steps that are generally adopted
by a researcher in studying his research problems along with the logic behind
them. It is necessary for the researcher to know not only how the research
methods/ techniques but also the methodology.
Research Methodology has many dimensions and research methods do

constitute a part of the research methodology. The scope of research
methodology is wider than that of research methods.
Whether may be the types of research works and studies, one thing that
is important is that they all meet on the common ground of scientific method
employed by them? One expects scientific research to satisfy the following
criteria;
• The purpose of the research should be clearly defined and common

concepts be used.
• The procedure design of the research should be carefully planned to

yield results that are objective as possible.
• The researcher should repeat with complete frankness, flaws in

procedural design and estimate their effects up on the findings.

• Conclusion should be confined to those justified by the data of the

research and limited to those for which the data provide an adequate
basis.
Objectives of Research
➢ Primary Objectives:
The main objective of the research is to find out the working

capital.
➢ Secondary Objectives:
• To study the inventory management control techniques and its

actual implication in the company.
• To know the importance of cash flow statement in cash

management.
• To study on receivable management.
Sources of Data
1. Primary Data

The Primary Data during the project was obtained form the
company officials. The information has been collected by way of
interactions with employees in the organization
2. Secondary Data
The secondary data has been collected form the annual reports
of the company form 2005-06 to 2009-10. Secondary data has also
been collected from Power Build Limited’s website and other records
maintained in the company.
Tools for analysis
The tools for analysis in working capital are ratio bar

diagrams, line graphs etc.
Objectives of the Study
➢ The main objective of the study is to evaluate working capital position

in PBL.
➢ To study liquidity position of PBL.
➢ To evaluate the performance of individual components of working

capital management of PBL.
➢ The project is aimed to learn and gain knowledge of day to day

working of the organization and how the decisions are taken.
➢ To suggest ways and means to improve the working capital

management of PBL.
AIM OF THE STUDY
The main aim of the study is to enhance the knowledge of capital

structure and working capital management. By this study company can get
idea whether it needs changes in its capital structure of to give idea about its
strength and weakness.
By this Study I Want:-
• To get idea of effect of capital structure.
• To know financial and liquidity position of the company by using

analysis.
• To get idea of P&L Account and Balance sheet of the company.



ABOUT THE INDUSTRIES
The Indian Gear Industries is dependent on the Automobile,

Engineering industry and machine tool industry for its production. Gears and
Gear transmission are developed according to the
design/drawing/specifications supplied by the end user industry. This also
depends upon the availability of Gear cutting machines, Finishing machines,
to process the component.
In industrially advanced countries, automated CNC Gear Cutting/

Finishing machines and CAD are increasingly being used in the production
of Gears, resulting in consistent quality and high degree of flexibility in
production.
In India, the Gear manufacturers are very well aware of the world
Developments and technology competence in Indian industry is quite
comparable to other advanced countries within the restraints of capital
investment. Some of the companies are having foreign collaboration for the
manufacture of gears.
Generally the Gear manufacturers are equipped with conventional

type of imported plant and machinery, testing equipments from Germany,
Switzerland, USA, Japan etc. and some of them have CNC Gear Cutting
machines.
WHAT ARE GEARs?

Gear is very important part of a machine and it is most demanding and
playing important usage within various industries like marine, industries,
automotive industries, coal mine industries, Steel plant industries, Paper
Industries, Agriculture and Fertilizer industries and many more. In these
heavy industries these gears are using in so many wide application. Gears are
used in conveyors, Elevators, kilns, cranes, lubrication systems, lifting to
rotating.
Mainly gears play an important part in movement these gears can

increase and decrease rotation speed and increase o decrease of power and
torque. For increasing and reducing the torque a big gear coupled with
smaller gear, for reducing speed and increasing torque a small gear turning
with larger gear, these gears are also used for enhancements for positioning
machines and systems.

Original Gears Manufacturers is not an easy job, where several type

of gears manufacturers for several industries. Gears used in various
industries including heavy machinery gears are categorized into several
types. According to industries, gears are also custom designed and fabricated.
Gears are very old machinery type, first time over 3000 years ago
primitive gears manufacturers used to transmit rotary motion. Slowly
gradually this is part of every machine for managing motor speed and
transmission generation. Now days consumer electronics have driven plastic
gearing, plastic gears are lubricant free, reliable and quiet operation.
To understand the importance of Gears would be in helping oneself to

know how from the times of the primeval human kind to our present
industrial age, the gear has evolved as prime tool of industrialization. Gears
have been used for ages.
Gears have become a critical mechanical element required for operating

a device requiring transfer of motion along with power for rotation. Today
Gears are applied in every sphere where there is any need for power transfer.
It would not be any exaggeration to say that today Gears and its allied sectors
from one of the key constitutes of the Global economy.
Market Segmentation of Gears:-
The Gear market for convenience is often dividend in to four major

divisions. They are automotive, industrial, marine and lastly the aerospace.
Combined together, it is estimated that the global gear market is worth more
than $45 billion.

It is the automotive sector that forms the single largest group when it
comes to gear applications. In fact the automotive sector is almost three times
the size of other three sectors added together. By ranking, industrial gears is
second following automotive sector.
Traditional it is the European countries, North America, and some

regions of Asia that continues to be the market leaders. But things are
changing very fast. The centre is now shifting to previously unknown region
like China, India, and East Europe.
Key Trends and Drivers at the Gear Industry:-
Already the industrial sectors are changing at a rate than one can
imagine at the fore front of such a change is the new state-of-the art
technology. The coming two decades would be very vital for the Gear
Industry. It will impose serious challenges along with tremendous
opportunities. The need of the hour is innovative solutions. Expectations of
the customer would be driven by improved performance, cheaper cost, light
weight, better efficiency, minimal noise, and rapid development. Unless the
gear manufacturers do not respond swiftly to such challenges, they would be
in no time be sidelined.
They must understand the issues in broader context. As under the

increasing trends of globalization national boundaries are fading. The catch
phrase for defining success would be “Compete and Collaborate”.
The following points highlight the major trends and drivers of the Gear
Industry;
Market Trends
Transportation markets
Need for skilled human resources
Product Trends
Time compression and Supply chain integration
Environmental Impacts
Global Pressure
Collaborations
The Gear Industry is a huge, competitive market that has shown steady
growth rate of around 4% p.a worldwide sales of Gears are pegged at U.S
$93 Billion annually.
Gear manufacturing is today a multi billion industry. As the demands

of this industry is growing manufacturer are now increasingly seeking
machining tools and technology that can meet with the tough challenges. As
in this increasingly globalised world order manufacturers need suppliers that
have global resources for delivering state-of-the art machines, tools etc.
Gears are now produced in near net shape, with a cut in production as well as
labour costs and elimination or rejection of wastes. These are also impacting
the gear manufacturers to have greater freedom in the choice of materials.

The Gear manufacturing process is a complex step right from selecting

the right material to finally doing the finishing process for getting an
optimum quality gear. Gear blanks in the beginning are first roughed out and
completely stress relieved this is done to minimize the distortion that has
taken place after carburizing. The blanks subsequently then undergoes the
finishing process. Then the gear cutting process takes place giving allowance
on the tooth flank for grinding. The subsequently
Grinding and other steps take place.
Gears are Power transmission elements. It is the Gears that decide the
torque, speed and direction of rotation of all the driven machine elements.
Broadly speaking, Gear types may be grouped into five major categories.
They are Spur, Helical, Bevel, Hypoid, and Worm. A lot of intricacies are
there in the different types of gears. Actually The choice of gear type is not a
very easy process. It is dependent on a number of considerations. Factors that
go into it are physical space and shaft arrangement, gear ratio, load, accuracy
and quality level.
TECHNOLOGY GAP
The areas where technology import is still required are:

➢ Design and manufacture of shaving cutters, plunge shaving cutters,

involutes spline/special profile full form plug and ring gauges.
➢ Hard gear finishing.
➢ Automated unmanned manufacturing and material handling.
➢ Cold and warm forging technology for automotive application.
➢ On line method of inspecting gears.
Capital Equipments
There is insufficient availability of following equipments:
✔ Gear shaving and rounding machines.
✔ Roof-copping and profile gear grinding machines.
✔ Gear involutes and leads testing machines.
Raw Materials and Components

• Indigenous raw materials lack in consistency. Vacuum degassed alloy

steel with controlled oxygen level and steels with lead addition is not
available.
• Good quality bearings and oil seals for industrial gear box
applications are not available in the country.
R & D FACILITIES
R&D work carried out in the country has been as under:
 Technology absorption and indigenization of design & development.
 Development of cutting tools, shaving and tandem shaping cutters.
 Design evaluation/modification of gear boxes in the existing

vehicles.
FACILITIES IN NATIONAL INSTITUTIONS
The country has three main such institutions. Central Manufacturing

Technology Institute (CMTI) has facilities for design and inspection of gears
and is capable of providing technological support for manufacturing process,
heat treatment and inspection of gears. CMTI has developed ground (DIN
Class 6) as well as commercial (DIN Class 8) gears in the past.

At Automotive Research Association of India (ARAI), the following

facilities are available:
➢ Computer aided gear design
➢ Dynamic analysis of the gear box design for the matching shafts,
bearings and housings.
➢ Design of gear box housing for low noise.
➢ Endurance testing of gear boxes,
Indian Institute of Technology, Bombay (IIT) has facilities for

Computer aided design of gears.
INTERNATIONAL SCENE
In advanced countries, there is an increasing trend in the use of CNC

machines for the development of Gears. This ensures high speed production
and repetitive accuracy. Gleason, Klingelnberg,Hurth and Oerlikon are some
of the leading manufacturers who excel in Gear cutting/finishing machines,
testing & measuring instruments.
There have been numerous developments in the areas of manufacturing

process, material, design and quality control. Some important developments
are Hard Gear Finishing using CNC machines, Cold Rolling of Gears,
Powder Metallurgy process, CAD for optimization, Minimum Weight Gears,
Acoustic Intensity instruments for noise measurement etc.

The gear industry is over 30 years old. The manufacturers are well
equipped, with modern gear cutting facilities as well as testing equipments
imported from world renowned manufacturers e.g. Gleason, Fellow, Magg,
Oerlikon, Reishauer, Hurth, Klingelnberg, Pfauter, Liebherr etc, The industry
has also latest inbuilt facilities to manufacture gear cutting tools for captive
requirement as well as for outside sale. CAD is employed for the design of
gear cutting tools.
In view of the growing concern on vehicle noise pollution, improved

gears need to be developed for vehicle transmissions. Research and
Development is one of the activities in improvement of the existing product.
The R&D units of gear manufacturers must constantly review their
performance against international developments and make suitable
modifications/changes justified on techno-economic ground. Gear
manufacturers must specially concentrate in the following areas:
➢ Design & development of Cutting Tool
➢ Quality improvement
➢ Reduced noise level
➢ Improved process of manufacture
➢ Reduced frictional loss.
Some improvements adopted by manufacturers in developed countries are

given on next page which should be considered by Indian manufacturers:
i. Automated manufacturing & material handling

ii. Automatic Cycle Annealing Process
iii. Online inspection method

iv. Hard shaving Technology
v. Powder Metallurgy Process
vi. Design and manufacturing of Gear cutting Tools

INTRODUCTION
Power Build Limited was a part of Elecon group of Industries and use
established in 1972. It manufactures the wide range of General Motors and
Truck Loaders. It is one of the pioneers and first manufacture of Automobile

Bag feeder and weighting machine. Power Build Limited is situated on

Anand-Sojitra road, Vallabh Vidyanagar.
It also manufactures the product like Gear Motors, Truck loaders and
automatic bag feeder machine. It is the first Indian Company to introduce
“Electric Weighting and Metal Detecting System”.
Power Build Limited is a Company representing a fine blend of

specialized skill and high technologies serving almost all industries.
HISTORY OF ORGANISATION

Power Build Ltd. was registered under Indian Companies Act, 1956
and was incorporated on 15/4/1972, 3 decades ago. PBL manufactures
mechanical power transmission equipments and mechanized material
handling equipment like Gear motors, Truck loaders, Metal detector belt
weighed, etc. using the latest technology under the supervision of
experienced engineers with the use of most modern Industry.
PBL started manufacturing helical gear motors under technical

collaboration from German manufacturer Rudolf Macho KG in 1972. Having
established a name in the market for helical geared motors & to meet the
growing demand, the company introduced geared motors with the
combination of Helical and worm gears as well as Helical and Bevel gears.
The company added various products to meet with growing demand of

the Indian industrial market. These products includes automatic sleighing and
bag feeder machines, automatic truck and wagon loaders, and weigh feeder
and micro processor based belt weighed and weigh feeder, etc.
The company is well accepted in the market during the year company
entered in to a foreign collaboration with Dr. Hans Bolkes gmbhunel co-op.
of the West Germany for manufacturing of the Electronic Belt, Weigh
Feeder, Metal Detector etc. in 1986, the company collaboration with the
Ramsty Engle Controls Pvt. Australia.
PBL has workshop area exceeding 10000 sq. meters. Equipped with the
latest mazak and excel CNC and NC Machines, tools, quality control and
testing equipment for production of reliable material handling power

transmission equipment. It is performing in tandem with work force of 97
employees working in various departments. First 500 numbers
manufacturing milestone achieved in the month of august 2007.
It has also join hands with M/S. Boublen of France for manufacturing
magnetic equipment. The company entered in to a technical Agreement with
Roaol Lenuir, France.
Power Build has covered majority of the core sectors through its
supplier of highly sophisticated equipment becoming ample testimony of the
symbolic mark of Power Build’s unbeatable technology. Nation wide sales
and services at short notice. PBL is registered with registrar of the Gujarat,
Ahmadabad. This is a representing affine blend of specialized skills & high
technology serving almost all industries.
The Company constitutes its Growth the concentrate and consolidates

its position as the most trusted and accepted supplier of quality products by
obtaining technical know-how from industrially. Developed countries and
also in house development of new products. With a view to have more
concentrated and effective capturing of the already competitive geared motor
market, the company introduced new geared , very efficient and compact
drive solutions in the form of ‘M’ , ‘C’ , ‘F’ , and ‘k’ series geared motors
which are assembled from a family of modular kits, thus maximizing
availability in October, 2007.

GENERAL INFORMATION
Company Profile:-
Power Build Ltd., Company has a big contribution to the Industry. It

has a number o the top position of a company in material handling equipment
and has good gear decision too.
The company continues its growth to concentrate and consolidate its

position as the most trusted and accepted supplier of quality products b
obtaining technical know-how from industrially developed countries and also
in huge development of new products through continuous research and
development. The company made drastic improvement in its manufacturing
process and material with innovative design technology.
Power Build Ltd., manufactures a wide spectrum of products for every

application using the latest stage of the art technology. Under the supervision
of experience engineers the most modern machinery including one machine
of latest generator and maintaining uncompromising quality control right
from the incoming raw materials till finished product level the work.
Power Build Ltd., Company has large clientele including NXL, Bhel
etc… and many other bear a testimony of PBL quality under why more and
more user insist on Power Build Products.
Power Build Ltd., Company received the order from their customer per
as their order company received the big order. This order depends for the
customer.

The Raw material is needed and collected some of the raw material or
components used in the company itself and those which are not product are
been purchase from outside. The production process starts and in the
workshop. After the process is over testing of that the buyer is carrying out
manufacturing goods of customers can respect the goods are painted to make
it good looking. Then it is packed and the customers’ executives the goods as
per the requirement.
Name of the Organization : POWER BUILD LIMITED
Form of Organization : Public Limited Company.
Year of Establishment : 15th April, 1972.
Company Registered No : 2065.
Registered Office : Power Build Limited

Anand - Sojitra Road,
Vallabh Vidyanagar,
Pin Code – 388 120.
Gujarat.
Date of Incorporation as : 15th April, 1972.

Joining stock Company

Bankers : State Bank of India, Anand.
Statutory Auditors : J.D. Zatakia & Co.

Chartered Accountants, Mumbai.
Chairman : Shri P.B. Patel.
Whole time Director : D.M. Patel
Directors : Shri P.C. Amin

Smt. K.A. Patel
Size of the Unit : Medium Scale Industry.
ICC NO. : AABCP 2462 K – XM – 001
Correspondence Address : POST BOX NO. 28,

Vitthal Udhyognagar – 388 121,
Vallabh Vidyanagar.
Gujarat,
INDIA.

MISSION OF THE COMPANY
PBL is in the business of design and manufacturing Power transmission

and material handling products. Our Products are known for their reliability,
performance and competitiveness.
In Pursuit of our mission, we shall:
 Upgrade our products to match global benchmarks from time to time.
 Use Latest technology and efficient methods in manufacturing.
 Provide efficient service and support to our customers at all times. By

continually remained focused on our Customer’s needs and
expectations.
 Ensure operations remain cost effective and profitable.
 Bring high growth in our business and an over increasing market share.

 Bring high growth in our business and an ever increasing market share.
 Continuously upgrade our knowledge with multidimensional skills.
 Always remain environment - friendly.
PBL has a role towards the success of Vision and Mission of PBL and
draws inspiration and energy from the opportunity received through active
participation.
VISION OF THE COMPANY
PBL, a pioneer, continues to be the leader in Power Transmission

Products. We provide solutions to the customer by ensuring high quality of
products and services. We are known and trusted as a reliable organization
always an working for customers’ delight.
The high – spirited PBL family has the dynamism and expertise to
innovate and improve products suiting to the ever-changing global needs.
Continuous training and up gradation of skills enable us in creating an

environment of harmony and joy.
We are proud of our contribution to the society and towards protection

of the environment.


Series M inline geared motors and reducers

provide a very efficient and compact drive
solution to meet most requirements up to 90KW
with maximum output torque capacity 11,000
Nm.Units are available with ratios coverage of
1.4:1 to 70:1 in double reduction, up to 250:1 in
triple reduction and up to 16200:1 in combined
units.
RIGHT ANGLED HELICAL WORM GEARED MOTORS

SERIES “C”
Series C right angle helical worm geared

motors and reducers provide a highly efficient
and compact solution to meet most requirements
up to 45 kw with maximum output torque
capacity of 10,000 Nm. Units are available with
ratios coverage of 8:1 to 250:1 in double
reduction, up to 900:1 in triple reduction and up
to 16000:1 in combined units.

IN-LINE SHAFT MOUNTED GEARED MOTORS SERIES “F”

Series F in-line shaft mounted geared
motors offer ratios from 5:1 to 100:1 in double
reduction form and in combined units form up to
20,000:1.Motors are available up to 45 kw
giving a maximum output torque of
7200Nm.The series F geared motors are
primarily designed as a shaft mounted unit
incorporating an integral torque reaction bracket. The units are also available
with bolt-on feet or output flanges and output shafts of single and double
extension. All variants are available either motorized or with output shaft
assembly.
RIGHT ANGLED HELICAL BEVEL GEARED MOTORS

SERIES “K”
Series K right angle drive helical bevel geared

motors offer ratios from 8:1 to 160:1 in three
stages or up to 10000:1 in five stages . Motors
are available up to 90kw and output torque
capacity up to 12,300 Nm. The Series K geared
motor is designed with integral cast feet base or
end mounting and can be offered with single or
double extended output shafts. Units are also available shaft mounted or
with output flanges and are available for mounting horizontally or vertically.
The units can also be offered with a bolt on torque reaction bracket and all
variants are available either motorized or with an input shaft assembly.

HELICAL GEARED MOTOR SERIES “P”

PBL ‘P’ Series Helical gearbox and electric motor are built as one unit to
give coaxial and compact constructions. Helical Gear Reducers have co-
axial input and output shaft that can be driven by any prime mover.
Gearboxes can be supplied with input shaft for connecting to prime mover.
Motor Mount Gearboxes ensures easy fitment of any make of
Motors with B5 mounting as per IEC frame. These are available in 2 & 3
reductions and in 4, 5, & 6 reductions for extremely low output speeds.
These are available in foot, flange, foot-cum-flange and agitator type
construction
Manufacturing Range:
Geared Motors & Reducers - Power: 0.33

HP to 125 HP * Output Speed: 0.4 to 585
RPM * Reduction ratio: up to 3385
Motor Mount Gearboxes - Power: 0.33 HP to 40 HP * output Speed : 0.4 to

585 RPM.
Al-Nu WORM GEARED MOTOR
PBL manufactures worm Geared Motors &

Reducers with hollow input shafts and
aluminum alloy casings. The units are
supplied with factory filled lubricants
avoiding frequent oil changes, the worm

Geared Motors & reducers are available in 635, 805 & 1005 models with
rations ranging from 5:1 to 70:1
“SUPER A” SERIES HELICAL GEARED MOTOR

PBL also manufactures state-of-the-art Helical Geared Motors, Motor Mount
Reducers and Inline Gear Reducers with solid and hollow input shafts, under
the license agreement with a renowned Japanese manufacturer Seiki
Kogyosho Limited (SKK) (now taken over by Sumitomo Heavy Industries).
Foot/flange mounted Geared Motors,
solid input shaft inline Gear Reducers and
Motor Mount Reducers with Hollow Input
Shaft are available in the range of 0.4 kw to
11.0 kw and having ratio from 5:1 to
200:1. The units are suitable to
accommodate “IEC” frame 3-phase, 4 pole
AC induction motors.
ELECTRIC HOIST
PBL electric hoists are designed

in accordance with international
standards and also as per “Rules
for design of serial lifting
equipment” issued by Federation
of European Hoist Manufactures

(FEM). Present manufacturing range includes hoists up to 16 tons lifting

capacity.
PBL hoists incorporate fan cooled crane duty brake motors with class
‘F’ insulation, specially designed rope guide manufactured from
polyethylene or cast iron and hoist barrel with machine-cut grooves made
from seamless tubes with high tensile strength. Gearbox or motor can be
removed independently. PBL Hoists are suitable for monorail and trolley
drive - either for straight beam or curved beam - and double girder.
LOOSE GEARS
PBL manufactures helical and spur gears strictly to customers’
requirement. Accuracy class attainable generally conforms to DIN-6 and
even up to DIN 3 / 4, for precision gears up to diameter 400 mm.
Helical gear wheels and pinions with internal as well as external splines
(both straight & involutes) can be offered. Hardened and ground spur/helical
gears manufactured by PBL are used in printing machines, plastic extrusion
machines, textile machines, air compressors, packing machines and gear
pumps.
HELICAL & SPUR GEAR PINIONS

 Various hardened & ground spur & helical gears manufactured by PBL
used in printing machines, plastic extrusion machines, textile machines
and helical gear reducers.
WORM SHAFT WITH WORM WHEEL

HALICAL GEARS & PINIONS
Hardened & ground spur & Helical gears manufactured by PBL, used
in Gear compressor, packing machine & gear pumps.

ANALYSIS OF OPERATING CYCLE OF

POWER BUILD LIMITED

Calculation of Operating Cycle

1. AVERAGE STOCK OF RAW-MATERIALS : :
Opening Balance + Closing Balance

= 2
110729139 + 76764336
= 2
190493475
= 2
= 95426737.50
2. AVERAGE CONSUMPTION OF RAW-MATERIAL : :

Consumption of Raw-Materials
= 365
30329276
= 365
= 83094
3. AVERAGE WORK IN PROCESS ::

= 2
13605428 + 18748238
= 2 = 16176833.
4. COST OF PRODUCTION ::
Opening Balance of W.I.T = 18748239

Consumption of Raw-Material = + 30329276
Manufacturing & Other Exps. = + 13605428
462476689
5. AVERAGE COST OF PRODUCTION ::
Total Cost of Production

= 365
452191069
= 365
= 1238839.6
6. AVERAGE FINISHED GOODS OF INVENTORY ::

= 2
14027500 + 12802867
= 2
26830367
= 2
= 13415183.50
7. COST OF GOOD SOLD ::
Opening Balance of F.G = 14027500

Cost of Production = + 462476689
490504189
Closing Balance of F.G = 12802867
469701322
8. AVERAGE COST OF GOODS SOLD ::

Cost of Goods Sold

= 365
463701322
= 365
= 1270414.58
9. AVERAGE DEBTORS ::
Opening Debtors + Closing Debtors

= 2
319636536 + 200099457 519735993

= 2 = 2
= 25, 98, 67,996.50
10.AVERAGE CREDIT SALES PER DAY ::
Credit Sales
= 365
842469422
= 365
= 2308135

11.AVERAGE CREDITORS ::
Opening Creditors + Closing Creditors

= 2
214627812 + 167241721
= 2
381869533
= 2
= 190934766.50
12.AVERAGE CREDIT PURCHASE PER DAY::
Total Purchase
= 365
379889893
= 365 = 1040794
CALCULATION OF OPERATING CYCLE OF PBL
(A)RAW-MATERIAL & STORAGE PERIOD ::
Average Stock of Raw-Material

= Average Consumption of Raw-Material

95246738.50
= 83099
= 1146.25
(B)WORK IN PROCESS PERIOD ::
Average Work In Process

= Average Cost of Production
16176833
= 1238879.60
= 13.05
(C)FINISHED GOOD
Average F.G Inventory

= Average Cost of Good Sold
13415183.50
= 1276414.58
= 10.55
(D)DEBTORS COLLECTION PERIOD ::
Average Debtors
= Average Credit Sales per Day

259867996.50
= 230815
= 112.58
(E) CREDIT PAYMENT PERIOD ::
Average Creditor
= Average Credit Purchase per Day
190934766.50
= 1040794
= 183.45
OPERATING CYCLE = A+B+C+D-E
= 1146.25 + 13.05 + 10.55 + 112.58 – 183.45
= 1098.98

ANALYSIS OF WORKING CAPITAL

MANAGEMENT OF THE POWER BUILD
LIMITED

COMPONENTS OF CURRENT ASSETS
Particular 2005-06 2006-07 2007-08 2008-09 2009-10
Inventory 196,251,789 197,109,338 195,200,404 144,280,244 107,397,264
Sundry 289,742,587 343,500,324 485,745,281 319,636,536 200,099,457

Debtors
Cash and 11,577,485 14,923,294 68,43,149 12,987,384 15,124,924
Bank

Balance
Loan and 68,367,490 76,146,979 113,502,521 134,736,151 147,665,674

Advance
Total 565,939,351 631,679,935 801,351,355 609,640,315 470,287,319
INTERPRETATION:-
The trend percentage of current assets shows that there was an increase
in the year 2007-08 over 2009-10. This increase occurs due to increase in the
debtors, inventory, loan and Advances. The increase in the indices is mainly
attributable to substantial increases in Loan and Advances in the gross
working capital of the concern.
COMPONENT OF CURRENT LIABILITIES:
Particular 2005-06 2006-07 2007-08 2008-09 2009-10
Sundry 245,568,817 267,987,965 278,585,783 214,627,812 167,241,721

Creditors
Advanced 11,973,275 13,264,643 60,233,112 14,063,744 2,485,705
received
against
order
Other 16,752,125 18,936,778 21,816,066 19,559,396 17,334,921
Creditors
Provisions 29,835,347 31,633,975 60,737,481 98,257,346 119,900,631
Total 304,129,564 325,823,091 421,372,397 346,508,298 300,747,378
INTERPRETATION::
From the percentage of Current Liabilities, as compared with 2006-07,

in 2007-08 the current liabilities ration is high in all components. This is not
good position of company but in 2008-09 and 2009-10 company improve its
position. All components are less expects the provision.

WORKING CAPITAL MANAGEMENT RELATED RATIO
1. Working Capital Turn Over Ratio.

2. Current Ratio.
3. Liquid Ration.
4. Current Assets Turn Over Ratio.
(1)WORKING CAPITAL TURN OVER RATIO::
A firm may also like to relate net working capital to sales. It

May thus compute net working turnover by dividing sales by net
Working capital turnover
Sales
Working Capital T/O Ratio = Net Working Capital
Years
2005-06 = 504212645 = 2.82 times

178410522
2006-07 = 812039240 = 2.65 times

305856844
2007-08 = 1034232621 = 2.72 times

379978958

2008-09 = 1148956523 = 4.36 times

263132017
2009-10 = 842469422 = 5.17 times

162814347
YEAR WORKING YEAR WORKING
CAPITAL T/O CAPITAL T/O
RATION RATION
2005-06 2.82 2008-09 4.36
2006-07 2.65 2009-10 5.17
2007-08 2.72
INTERPRETATION::
The Working Capital turnover ratio is equal to net sales divided

By Net working capital. The term net working capital means the excess of
current assets over current liabilities.
In the figure 2009-10’s working capital is more than the previous year
(2008-09). The differences of working capital turnover ratio’s is 5.17. Thus
we are show that the working capital turnover ratio is increase in 2009-10.
(2) CURRENT RATIO ::

This is most widely used ratio which shows the proportion of

Current Assets to Current Liabilities. It is obtained by dividing current
Assets by current liabilities.
Current Assets
Current Ratio = Current Liabilities
Years
2005-06 = 408467432 = 1.78:1

230056910
2006-07 = 6316679935 = 1.94:1

325823091
2007-08 = 80135155 = 1.90:1

421372397
2008-09 = 609640315 = 1.75:1

346508298
2009-10 = 470287319 = 1.53:1

307472978
YEAR CURRENT YEAR CURRENT

RATIO RATIO

2005-06 1.78 2008-09 1.75

2006-07 1.94 2009-10 1.53
2007-08 1.90
INTERPRETATION::
The Current Ratio is another test of a company’s financial strength. The

current ratio method is a model for measuring the liquidity of a company by
calculating the ratio between all current assets and all current liabilities.
In following year of Current Ratio is decrease. The 2009-10’s ratio is

1.53:1 is very low than previous year 2008-09’s 1.75:1.
(3)LIQUID RATIO ::
It is a ratio of liquid assets to current liabilities. The true liability refers

to the ability of a firm to pay its short term obligations as and when they
become due.
Liquid Assets
Liquid Ratio = Current Liabilities
Years
2005-06 = 155776496 = 0.67

230056910
2006-07 = 146748361 = 0.44

329823091
2007-08 = 168532754 = 0.39

421372397
2008-09 = 177356292 = 0.51

346508298
2009-10 = 9275213 = 0.30

307472978
YEAR LIQUID YEAR LIQUID

RATIO RATIO
2005-06 0.67 2008-09 0.51
2006-07 0.44 2009-10 0.30
2007-08 0.39

INTERPRETATION::
A Ratio used for assessing the liquidity of a company. Here liquidity

assets divided by total liabilities the ratio of company’s liquid assets such as
cash and securities divided by total liabilities. The liquid ratio is higher in the
2005-06 is 0.59 and 2008-09 is 0.51 in 2009-10 is 0.30.
(4)CURRENT ASSETS TURN OVER RATIO ::
Current Assets turn over ratio shows the firm’s ability in generation
sales from all financial sources committed to current assets. This ratio
expresses the relationships between Current Assets and net Sales or Cost of
good sold.
Sales
Current Assets T/O Ratio = Current Assets

Years
2005-06 = 504212645 = 1.23 times

408467432
2006-07 = 812039240 = 1.29 times

631679935
2007-08 = 1034232621 = 1.29 times

801351355
2008-09 = 1148956523 = 1.88 times

609640315
2009-10 = 84249422 = 1.79 times

470287319

ASSETS T/O ASSETS T/O
RATIO RATIO
2005-06 1.23 2008-09 1.88
2006-07 1.29 2009-10 1.79
2007-08 1.29

INTERPRETATION::
The Current Assets Turn over ratio measures the efficiency of a firm in
managing and utilizing its assets. The higher the turn over the more efficient
is the organization. The current assets turnover of PBL ranged from 1 times
to 2 times. The current assets turnover ratio reflects the efficiency and
capacity of working capital.
INVENTORY RELATED RATIO:
1. Inventory Turnover Ratio.

2. Inventory Handling Period.
(1) INVENTORY TURNOVER RATIO :-

It is a valuable measure of the velocity with which then inventory
is used in the business enterprise. It indicates the effectiveness and efficiency
of the inventory control programmes. It shows how speedily the inventory is
turned into account receivables into sales. To higher the ratio, the more
efficiency of the inventory is said to be.
Cost of Good Sold

Inventory T/O Ratio = Average Inventory
Years
2005-06 = 6726160686 = 3.79

177107115
2006-07 = 773727096 = 3.92

197209338
2007-08 = 966184024 = 4.94

195260404
2008-09 = 1064909428 = 7.48

142280244
2009-10 = 463701322 = 3.45

134151835
RATIO RATIO
2005-06 3.79 2008-09 7.48
2006-07 3.92 2009-10 3.45
2007-08 4.94

INTERPRETATION:
A Ratio showing how many times a company’s inventory is sold and

replaced over a period. The equation for inventory turnover equals the cost of
good sold divided by the average inventory. Here in case of PBL the have
7.48 times in the year 2008-09. Then it decrease to 3.45 in the year 2009-10.
(2)INVENTORY HANDLING PERIOD : :
The ratio estimates how many times the inventory turnover

In a year. This numbers tells how much cash/goods are tired up
Waiting for the process and is a critical measure of process reliability
And effectiveness.
365
Inventory Handling Period = Inventory T/O Ratio
Years
2005-06 = 365 = 96.30

3.79
2006-07 = 365 = 93.11

3.92

2007-08 = 365 = 73.88

4.94
2008-09 = 365 = 48.79

7.48
2009-10 = 365 = 105.79

3.45

RATIO RATIO
2005-06 96.30 2008-09 48.79
2006-07 93.11 2009-10 105.79
2007-08 73.88
INTERPRETATION:
The average inventory period is also referred to as days of Inventory.

The number of days of inventory is also known as average inventory period
and inventory handling period. A high number of days in inventory indicate
that there is a lack of demand for the product being sold.

STATEMENT OF INVENTORY OF PBL
Particular 2005-06 2006-07 2007-08 2008-09 2009-10
Raw- 483,176,84 522,290,50 613,002,53 638,726,60 79,764,336

Material 3 9 8 6
Semi- 28,735,184 32,298,144 48,513,891 48,077,701 13,605,428
Finished
goods
Finished 6,788,058 7,925,016 20,713,764 6,437,474 14,027,500
goods
Total 518,700,08 561,913,66 682,230,19 693,241,78 107,397,264
5 9 3 1
STATEMENT OF RECEIVABLE IN PBL

Particular 2005-06 2006-07 2007-08 2008-09 2009-10
Sundry 18732049 44085225 59491533 59427527 56715402

debtors
exceeding
6 months
Others 204531482 299415099 426253748 260209009 143384055
Total 223263531 3435500324 48745281 314636536 200099457
RECEIVABLE RELATED RATIO:
(1)DEBTORS TURNOVER RATIO :

Debtor’s turnover ratio indicates net credit sales and average
Accounts receivables of the year. This ratio is also known as “Debtor’s
velocity”.
Net Credit Sales
Debtors Turn over Ratio = Average Debtors
Years
2005-06 = 504212645 = 3.07: 1

164200345.05

2006-07 = 821039240 = 2.39:1

343500324
2007-08 = 1034232621 = 2.12:1

485745281
2008-09 = 1148956523 = 3.59:1

319636536
2009-10 = 84246922 = 3.24:1

259867996.
YEAR DEBTORS YEAR DEBTORS T/O

T/O RATIO RATIO
2005-06 3.79 2008-09 7.48
2006-07 3.92 2009-10 3.45
2007-08 4.94
INTERPRETATION:
Debtors’ turnover ratio indicates the velocity of debt collection of a

firm. In simple words it indicates the numbers of time average debtors are

turned over during a year. In the year of 2008-09 ratio is 3.59 is highest and
then 2009-10 ratio is 3.24 is lower then 2008-09.
(2) RECEIVABLE TURNOVER RATIO :
It shows numbers of days of credit allowed to customers. The

Credit policy of PBL is not so liberal.
Debtors
Receivable Turn over Ratio = Sales X 360
Years
2005-06 = 164200345.05 X 360 = 119 days

504212645
2006-07 = 343500324 X 360 = 150 days

821039240
2007-08 = 485745281 X 360 = 169 days

103432621
2008-09 = 319636536 X 360 = 97 days

114895623
2009-10 = 200099457 X 360 = 85 days

842469422
YEAR DEBTORS YEAR DEBTORS T/O

T/O RATIO RATIO
2005-06 119 days 2008-09 97 days
2006-07 150 days 2009-10 85 days
2007-08 169 days
INTERPRETATION:
Receivable Turnover Ratio is one of the accounting activity ratios, a

financial ratio. This ratio is measuring the number of times, on average
receivable are collected during the period. This may effects on operating
cycle also so as per diagram; from 2006-07 to 2009-10 company improve, in
2009-10 only 85 days of receivables.

CASH MANAGEMENT IN PBL
In PBL top management takes decision regarding cash management.

Cash Management is the most important criteria of any business firm. All the
cash transaction finance is completed by the account for finance department
cash is important current assets for the operation of the business.
STATEMENT OF CASH IN PBL
Particular 2005-06 2006-07 2007-08 2008-09 2009-10
Cash on 84,209 419 Nil Nil Nil

Hand
Balance 11,398,566 12,173,988 3,943,149 9,555,798 10,956,511
with
Schedule
bank
Balance 1,657,245 2,748,815 2,900,000 3,431,586 4,168,413
with
Schedule
bank
(Short
term
Deposited)
Total 13,140,020 14,923,294 6,843,149 12,987,384 151,249,224
CASH MANAGEMENT RELATED RATIO
CASH RATIO:
The cash ratio method is a formula for measuring the liabilities of a

company by calculating the ratio between all cash and cash equivalent assets
and all current liabilities.
Cash + Marketable Security

Receivable Turn over Rati = Current Liabilities X 100
Years
2005-06 = 6081099 X 100 = 2.64%

230056910

2006-07 = 14923294 X 100 = 4.58%

325823091
2007-08 = 6843149 X 100 = 1.62%

421372397
2008-09 = 12987384 X 100 = 3.74%

346508298
2009-10 = 15124924 X 100 = 4.92%

307142978
YEAR CASH RATIO YEAR CASH RATIO

2005-06 2.64% 2008-09 3.74%
2006-07 4.58% 2009-10 4.92%
2007-08 1.62%
INTERPRETATION:

Total value of Cash and Marketable Securities divided by current

liabilities. This cash ratio measures the extent to which a corporation or other
entity can quickly liquidate assets and cover short-term liability, and
therefore is of interest to short-term credits.
Power Build Limited is an engineering company situated at Anand-

Sojitra Road. The major findings of Power Build Limited, have been
summarized below;
It is clear that the Working Capital level has been increased

significantly over the least year. The reason behind this is increased in
current assets that in is Inventory, Sundry Debtors, Cash and Bank
Balance.
The liquidity ratio has been increased instead of reducing it.
The company is having very good Debtors Turnover ration.

Company had only issued equity for the long- term. So it is not
having any types of fixed, burden of the payment of interest charges.
Company has taken a loan for their Working Capital need which
shows the Financial Leverages.


CONCLUSION
Power Build Limited is a core company in manufacturing of Gears and

Gears Motors and material handling equipment. The company has latest
technology and large number of machines which NC System. During the
three decades of its existence, PBL has designed and implemented severally
landmark projects in India as well as abroad.
The projects analysis indicates that PBL is managing the all resources
in better way. The trend of working capital, current assets and current
liabilities are in favorable slops. The turnover of the Inventory and Debtors
has improved over years, all these shows the goods or effective Working
Capital Management of the company. As far as my project is concerned, I

find it very useful to analyze and study different dimensions of Working
Capital of PBL.
By studying the Financial Department of the company, I conclude that

the unit is well established and running smoothly not only Finance
Department of the company are working effectively with full adopted all the
modern techniques in their Finance Department. It has a prosperous future.
I am very happy that I had an opportunity to undergo training at Power

Build Limited. Last but not the least, I heartily wish my best luck to PBL for
the continuous process and prosperous future.

Bibliography

The Reference Books Author
Financial Management S.N.Maheshwari
Financial Management I.M.Pandey
Research Methodology C.R.Kothari
Power Build Ltd’s last 5 year annual reports
Websites:-
 www.pbl.co.in
 www.netguru.com
 www.scribd.com
 www.nse.com
 www.bse.com
 www.investopedia.com
 www.tutor24.net


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REPORT ON WORKING CAPITAL MANAGEMENT

A report submitted in partial fulfillment of the

Master of Business Administration Programme of

Sikkim Manipal University.

PATEL DHRUVAL D Page 1

Dhruval DIneshbhai Patel

Some one has told “Practices makes the man

PATEL DHRUVAL D Page 2

I have carried out my report work at “Power Build

I as a student have put my best efforts to

At the end findings and suggestions are reported.

I hope this serves the Purpose.

PATEL DHRUVAL D Page 3

Industrial Training is not only part of our syllabus,

PATEL DHRUVAL D Page 4

such a great learning experience and acquainting me

SR. PARTICULAR PAGE

PATEL DHRUVAL D Page 5

2. CONCEPTUAL FRAMEWORK OF 20.

12. ANNEXURES 127.

PATEL DHRUVAL D Page 6

PATEL DHRUVAL D Page 7

Finance is regarded as the life blood of a business enterprise. This

PATEL DHRUVAL D Page 8

“Business finance is that business activity which is concerned with

PATEL DHRUVAL D Page 9

Owners’ economic welfare could be maximized by maximizing the

Profit Maximization means maximizing the rupee income of firms.

Objections to Profit Maximization

PATEL DHRUVAL D Page 10

The Profit Maximization objection has, however, been criticized in

Shareholders Wealth Maximization (SWM)

Scope of Financial Management

PATEL DHRUVAL D Page 11

Financial Management as an academic discipline has undergone

It broadly covered the following three aspects:-

1. Arrangement of funds from financial institutions.

The Traditional Approach outlived its utility due to changed

Business Situations in sixties made large quantum of information available to

The Modern Approach is an analytical way of looking at the financial

➢ Funds requirements decision.

Needs of Financial Management:-

The important of financial management cannot be overemphasized. In

Sound financial management is essential in both profit and non-profit

PATEL DHRUVAL D Page 13

Financial Management also helps in ascertaining how the company

Financial Management is concerned with raising financial resources

• Measuring the validity of the decisions regarding accepting to or

• Financial leverage or trading on equity.

• Capital Budgeting Appraisal methods.

• ABC analysis, Cash management models, aging schedule of

PATEL DHRUVAL D Page 14

• Fund Flow Analysis and Cash Flow Analysis.

A firm should give proper attention to the structure and organization

Organization of the finance function differs from company to

An Illustrative organization chart of finance function of management

The below chart shows that the Vice-President (Finance) exercise

PATEL DHRUVAL D Page 15

The Controller is concerned with the management and control of

Vice- Vice- Vice- Vice-

Planning General Internal Tax Appraisal

Provision Investmen Banking & Credit &