INTRODUTION

A STUDY ON WORKING CAPITAL MANAGEMENT WITH SPECIAL REFERENCE TO SHAREKHAN LIMITED, CHENNAI

The project report Submitted to the

BHARATHIDASAN UNIVERSITY, TIRUCHIRAPPALI,

In partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

D.KALAIARASAN,(Reg.no. 11290201)

Under the guidance of

Prof.R.VENKATESH,(Asst.Professor, Adaikalamatha Institute of Management)

ADAIKALAMATHA INSTITUTE OF MANAGEMENT

ADAIKALAMATHA COLLEGE

VALLAM, THANJAVUR-6130403.

MARCH-2013

ADAIKALAMATHA INSTITUTE OF MANAGEMENT

ADAIKALAMATHA COLLEGEArun Nagar, Vallam,

Thanjavur- 613 403.

Fax : 04362-266265

Phone: 043632-266265 / 266201

Mr.R.VENKATESH

Date: -03.2013

Asst.Professor, Adaikalamatha Institute of Management.

CERTIFICATE

This is to certify that the project report entitled A STUDY ON WORKING CAPITAL MANAGEMENT WITH SPECIAL REFERENCE TO SHAREKHAN LIMITED, CHENNAI is the bonafide research work done and submitted by D.KALAIARASAN (Reg. No.11290201) under my guidance in partial fulfillment of the requirements for the award of MASTER OF BUSINESS ADMINISTRATION and the project has not previously formed the basis for the award of any degree.

Signature of the Director

Signature of the Guide

Signature of the External Examiner

KALAIARASAN.D, II M.B.A.,

Reg.No.11290201,

Adikalamatha Institute of Management,

Adakalamathacollege,

Vallam, Thanjavur-613403

DECLARATION

I hereby declare that this project report entitled A STUDY ON WORKING CAPITAL MANAGEMENT WITH SPECIAL REFERENCE TO SHAREKHAN.LIMITED, CHENNAI submitted for the M.B.A., degree is my original work and the project report has not formed the basis for award of any other degree.DATE: 03-2013PLACE: VALLAM

(KALAIARASAN.D)

ACKNOWLEDGEMENT

I am deeply indebted to Dr.A.ARUNACHALAM,MA.,M.L.,M.B.A.,Ph.D., Chairman of Adaikalamatha College, Vallam, Thanjavur, for having given me an opportunity to undergo M.B.A., Course in this institution.I express my sincere gratitude to Prof. Dr.A.RAVIKUMAR M.Com., MBA.,Ph.D., Vice Chairman,Adaikalamatha group of Institution,Vallam for his encouragement to pursue this project.

I am happy to thank our Dr.N.SUMATHI B.E., MBA.,Ph.D., Director, Adaikalamatha institute of management, for her inspiring encouragement to take up this project.

I express my sincere and deep sense of gratitude to Prof.S.AROCKIARAJ, M.Sc.,M.Phil., M.Ed., (Ph.D.,) Principal, for having promoted strict discipline and hard work during the period of my study in this college.

I take this opportunity to convey my deep sense of gratitude and respect to my beloved Guide Prof.R.VENKATESH, MBA.,M.com.,M.Phil.,PGDCA.,(Ph.D.,) Adaikalamtha institute of management, Thanjavur for the valuable guidance, without which it would not be possible for me to complete this project report successfully.

My sincere thanks are also due to Mr.M.THIRUMURUGAN, EXCUTIVE-CLIENT ACQSTION, Sharekhan.ltd,Chennai, for scholarly guidance and inspiration. He was kind enough to guide me for collecting data for the project right from the formulation of the problem till its completion, and other members of staff who helped in various ways while completing this work.

Place: Vallam

Date:-03-2013

Signature of the student

INTRODUCTION The working capital of a business enterprise, said to be that portion of its total financial resources which is put to a valuable operative purpose.

Shubin defines working capital is the amount of funds necessary to cover the cost of operating the enterprise.

The facilities that are necessary to carry out the productive activity and represented by fixed asset investment are to be operated by working capital. This working capital is otherwise called operating capital or trading capital.

Working capital is always at a more from one form to another [cash to inventory, inventory to finished goods, finished goods to debtors and finally debtors to cash]. Making a circle during the operating period. It is called circulating capital or revolving capital or floating capital.

CLASSIFICATION OF WORKING CAPTITAL

Working capital can be classified on the basis of forms or investments and the sources resorted for, into gross working capital and net working capital. Another classification is made on the basis of period of investment a time perspective as permanent and temporary working capital.

1. Gross working capital

In a going concern, in the investment point of view, the working capital means gross working capital. Gross working capital a quantitative concept refers to the amount of funds invested in current assets. It is the base of judge profitability since it implies the utilization of working capital.

2. Net working capital

From the point of view of financing, the working capital denotes net working capital. Net working capital, a quantitative concept refers to the difference between the current assets and current liabilities. It may be positive or negative. Positive networking capital occurs when current assets exceed the current liabilities. This indicates the use of long-term capital in financing the current assets.

Negative networking capital is rare but comes only when current liabilities are in excess of current assets. This is otherwise called working capital deficit, which shows the use of short-term funds in financing the fixed assets. Networking capital is a measure of protection and security to the short-term creditors. It is also acting as a proof of short-term solvency, the liquidity. Thus it must better be positive networking capital rather than negative.

3. Permanent working capital

Permanent working capital is the amount of funds required for production of goods and services to satisfy the normal demand. It refers to the irreducible minimum amount necessary for starting the circulation of current assets and to keep it moving. It is perpetually locked up in the business and it is otherwise called fixed or regular working capital. The quantum of the permanent working capital will be increasing whenever the concern adopts growth and expansion.

Permanent working capital is entirely different from net working capital. But it is the same as the core current asset specified by the Tandem committee. Permanent working capital is purely investment aspect and it indicates the amount permanent locked up in the business. Net working capital is purely financial aspect and it denotes the use of long term capital for financing current assets.

4. Temporary working capital

Temporary working capital is the extra working capital needed to support the changes in production and sales activities, and to satisfy the additional or special or seasonal demand. It is otherwise called valuable or fluctuating working capital.

5. Bankers concepts of working capital

For the purpose of Bank finance towards working capital, the total current assets have been classified into chargeable current assets or core current assets [CCA] and other current Assets [OCA]. And total current liabilities.

The total current assets minus other current liabilities have been termed as the working capital Gap [WCG] of the borrower which needs to be bridged. Part of the working capital gap is to be met from long term sources as per longstanding convention and current policies and practice followed by the controller of capital issues and financial institutions. Making borrowings from bank that is bank loan fills the other part.

COMPONENTS OF WORKING CAPITAL

Working capital of current assets and current liabilities. This in other words explains the pattern of investment and pattern of financing.

1. Current assets

Current Assets denotes cash and other assets or resources which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business.It consists of cash and bank balance, market securities, short term investments, bills Receivables, sundry debtors, short term loans and advances, inventories in the form of

(a) Raw materials;

(b) Work in Progress [WIP];

(c) Stores and spares;

(d) Finished goods;

(e) Prepaid Expenses &

(f) Accrued Income.

2. Current liabilities

Current liabilities are those liabilities which are payable within an accounting period and out of current assets or by creating new current liabilities.

It comprises a) trade creditors, b) trade advances, c) Bills payable: d) Borrowing from commercial banks or (e) Commercial financing companies (f) Commercial paper brokers and (g) Provisions.

WORKING CAPITAL MANAGEMENT

Working capital management is concerned with all decisions and acts that influence the size and effectiveness of working capital. It can also be defined as that aspect of financial management, which is concerned with safe guarding and controlling the firms current assets and the planning for sufficient funds to pay current bills.

Working capital management refers to the administration of the pattern of investment and financing. The working capital, which is nothing but the administration of current assets and current liabilities are the integral part of the working capital management.

OBJECTIVES OF THE STUDY

To know the financial performance of the sharekhan limited, Chennai. To study the liquidity position of the study unit.

To analysis the working capital performance of the sharekhan limited, Chennai.

To know the performance of inventory and receivables.

SCOPE OF THE STUDY

A study on working capital management is confined in sharekhan limited, Chennai, this study is covered from 2006-2007 to 2010-2011.NEED FOR THE STUDY

It is the objective of the financial manager in making decisions to maximize the share holders wealth. To achieve this it is necessary to generate sufficient profits.

A successful sales program is necessary for earning profits by an enterprise. However , sales do not convert into cash immediately. There is a time lag between sale of goods and receipt of cash. The financial manager should have the knowledge of ascertaining the level of cash balance and where the idle funds (surplus funds ) are to be temporarily invested.

Therefore, there is a need for management of current assets to deal with the problem arising out of lack of immediate realization of cash against goods sold.

Research Methodology

One of the goals of science is description (other goals include prediction and explanation). Descriptive research methods are pretty much as they sound they describe situations. They do not make accurate predictions, and they do not determine cause and effect.Case Study Method

Case study research involves an in-depth study of an individual or group of individuals. Case studies often lead to testable hypotheses and allow us to study rare phenomena. Case studies should not be used to determine cause and effect, and they have limited use for making accurate predictions.The study depends on both primary and secondary data.

Primary data:

Primary data is collected by interacting with the officials of the company.

Secondary data :

It is collected through company manuals , broachers , journals and reference books and website etc.

LIMITATIONS OF THE STUDY

The report is based entirely on the annual reports published by the company.

Only 5 years data of SHAREKHAN LTD is used.

The confidential matters of the company are not disclosed.

The study is confined to only segment i.e., current assets.CHAPTERIZATION:

Chapter I deals with international and research methodology.

Chapter II deals with review of literature.

Chapter III deals with company profile.

Chapter IV deals with Analysis and interpretation.

Chapter V deals with findings, suggestions and conclusions

Literature of the study

STUDIES ON WORKING CAPITAL MANAGEMENT

SAGAN in his paper (1955), perhaps the first theoretical paper on the theory of working capital management, emphasized the need for management of working capital accounts and warned that it could vitally affect the health of the company. He realized the need to build up a theory of Working capital management. He discussed mainly the role and functions of money manager inefficient working capital management. Sagan pointed out the money managers operations were primarily in the area of cash flows generated in the course of business transactions. However, money manager must be familiar with what is being done with the control of inventories, receivables and payables because all these accounts affect cash position.

WALKER(1964)

Realizing the dearth of pertinent literature on working capital management, Walker in his study (1964) made pioneering effort to develop a theory of working capital management by empirically testing, though partially, three propositions based on risk-return trade-off of working capital management. Walker studied the effect of the change in the level of working capital on the rate of return in nine industries for the year 1961 and found the relationship between the level of working capital and the rate of return to be negative. On the basis of this observation, Walker formulated three following propositions management. Walker studied the effect of the change in the level of working capital on the rate of return in nine industries for the year 1961 and found the relationship between the level of working capital and the rate of return to be negative. On the basis of this observation, Walker formulated three following propositions:

PROPOSITION I

If the amount of working capital is to fixed capital, the amount of risk the firm assumes is also varied and the opportunities for gain or loss are increased. Walker further stated that if a firm wished to reduce its risk to the minimum, it should employ only equity capital for financing of working capital; however by doing so, the firm reduced its opportunities for higher gains on equity capital as it would not be taking advantage of leverage. In fact, the problem is not whether to use debt capital but how much debt capital to use, which would depend on management attitude towards risk and return. On the basis of this, he developed his second proposition.

PROPOSITION II

The type of capital (debt or equity) used to finance working capital directly affects the amount of risk that a firm assumes as well as the opportunities for gain or loss. Walker again suggested that not only the debt-equity ratio, but also the maturity period of debt would affect the risk-return trade-off. The longer the period of debt, the lower be the risk. For, management would have enough opportunity to acquire funds from operations to meet the debt obligations. But at the same time, long-term debt is costlier. On the basis of this, he developed his third proposition

PROPOSITION III

The greater the disparity between the maturities of a firms debt instruments and its flow of internally generated funds, the greater the risk andvice-versa. Thus, Walker tried to build-up a theory of working capital management by developing three prepositions. However, Walker tested empirically the first proposition only.

WESTON AND BRIGHAM (1972)

Further extended the second proposition suggested by Walker by dividing debt into long-term debt and short-term debt. They suggested that short-term debt should Be used in place of long-term debt whenever their use would lower the average cost of capital to the firm. They suggested that a business would hold short-term marketable securities only if there were excess funds after meeting short-term debt obligations. They further suggested that current assets holding should be expanded to the point where marginal returns on increase In these assets would just equal the cost of capital required to finance such increases.

VAN HORNE: in his study (1969) recognizing working capital management as an area largely lacking in theoretical perspective, attempted to develop a framework in terms of probabilistic cash budget for evaluating decisions concerning the level of liquid assets and the maturity composition of debt involving risk-return trade-off. He proposed calculation of different forecasted liquid asset requirements along with their subjective probabilities under different possible assumptions of sales, receivables, payables and other related receipts and disbursements. He suggested preparing a schedule showing, under each alternative of debt maturity, probability distributions of liquid asset balances for future periods, opportunity cost, maximum probability of running out of cash and number of future periods in which there was a chance of cash stock-out. Once the risk and opportunity cost for different alternatives were estimated, the form could determine the best alternative by balancing the risk of running out of cash against the cost of providing a solution to avoid such a possibility depending on managements risk tolerance limits. Thus, Van Horne study presented a risk-return trade-off of working capital management in entirely new perspective by considering some of the variables probabilistically. However, the usefulness of the framework suggested by Van Horne is limited because of the difficulties in obtaining information about the probability distributions of liquid-asset balances, the opportunity cost and the probability of running out of cash for different alternative of debt maturities.

WELTER, in his study (1970), stated that working capital originated because of the global delay between the moment expenditure for purchase of raw material was made and the moment when payment were received for the sale of finished product. Delay center are located throughout the production and marketing functions. The study requires specifying the delay center and working capital tied up in each delay center with the help of information regarding average delay and added value. He recognized that by more rapid and precise information through computers and improved professional ability of management, saving through reduction of working capital could be possible by reducing the length of global delay by rescuing and/or favorable redistribution of this global delay among the different delay centers. However, better information and improved staff involve cost. Therefore, savings through reduction of working capital should be tried till these saving are greater or equal to the cost of these savings. Thus, this study is concerned only with return aspect of working capital management ignoring risk. Enterprises, following this approach, can adversely affect its short-term liquidity position in an attempt to achieve saving through reduction of working capital. Thus, firms should be conscious Of the effect of law current assets on its ability to pay-off current liabilities.

CAMBRIC AND SINGHVI (1979) adopting the working capital cycle approach to the working capital management, also suggested that investment in working capital could be optimized and cash flows could be improved by reducing the time frame of the physical flow from receipt of raw material to shipment of finished goods, i.e. inventory management, and by improving the terms on which firm sells goods as well as receipt of cash. However, the further suggested that working capital investment could be optimized also (1) by improving the terms on which firms bought goods i.e. creditors and payment of cash, and (2) by eliminating the administrative delays i.e. the deficiencies of paper-work flow which tended to extend the time-frame of the movement of goods and cash.

WARREN AND SHELTON (1971) applied financial simulation to simulate future financial statements of a firm, based on a set of simultaneous equations. Financial simulation approach makes it possible to incorporate both the uncertainty of the future and the many interrelationships between current assets, current liabilities and other balance sheet accounts. The strength of simulation as a tool of analysis is that it permits the financial manager to incorporate in his planning both the most likely value of an activity and the margin of error associated with this estimate. Warren and Shelton presented a model in which twenty simultaneous equations were used to forecast future balance sheet of the firm including forecasted current assets and forecasted current liabilities. The current assets and current liabilities were forecasted in aggregate by directly relating to firm sales. However, individual working capital accounts can also be forecasted in a larger simulation system. Moreover, future financial statements can be simulated over a range of different assumptions to portray inherent uncertainty of the future.

DARLING AND LOVELL (1965) modified Metzlers formulation based on simple acceleration principle and obtained, the relationship based on flexible accelerator principle. There are several reasons physical, financial and technical those motivate partial adjustment. The length of such lags is connected with the source of supply, foreign or domestic availability. Import licensing procedures on account of foreign exchange scarcity could cause further delays in adjustment.

Among the financial factors, cost advantages associated with bulk buying and higher procurement costs for speedy delivery are also mentioned. Uncertainties in the market for raw materials and in the demand for final product also play a role in influencing the speed of adjustment. Technically, firms like to make sure that changes in demand are of a permanent character before making full adjustment. The acceleration principle has great relevance in inventory analysis than in the analysis of fixed investment, as there are limits to liquidate fixed capital in the face of declining demand. Other variables influencing inventories have been introduced in the literature in the context of accelerator model. Rate of interest is used as a proxy for the opportunity cost of carrying stocks or as a measure of the cost of funds needed to hold inventories.

It has been found significant in the studies of Hilton (1976) and Irwin (1981). Time-trend is expected to be important because inventories generally accumulate with the expansion of economic activities of the company. Anticipated price changes, measured by changes in wholesale price index of inventories, are taken as an explanatory variable to capture speculative element in inventory. This suggests a positive relationship between price changes and inventory. An increase in sales is expected to increase the demand for stocks to meet orders regularly. An increase in capacity utilization is also expected to increase the demand for stock by increasing the demand for raw materials and increasing the inventories of finished goods. Thus, the variable, capacity utilization, is postulated to have a positive coefficient in the equation.

Current asset management includes :

1. Cash Management

2. Receivables Management

3. Inventory Management

CASH MANAGEMENT :

Cash is the business enterprise may be compared to the blood of the human body, blood gives life and strength to the human body, and cash imparts life and strength profits and solvency to the business organization.

Cash is the important current asset for the operations of the business. Cash is the basic input needed to keep the business running on a continuous basis; it is also the ultimate output expected to be realized by selling the service or produce manufactured by the firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firms manufacturing operation while excessive cash will simply remain idle, without contributing anything towards the firms profitability. Thus a major function of the financial manager is to maintain a sound cash position.

Cash is the money, which a firm can disburse immediately without any restriction. The term cash includes coins, currency and cheques held by the firm, and balances in its bank accounts. Cash is an important liquid assets.

There are three general motives for holding inventories are :

Transaction motive : emphasizes the need to maintain inventories to facilitate smooth production and sales operations.

Precautionary motive : necessities holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors.

Speculative motive : influence the decision to increases or reduce inventory levels to take advantage of price fluctuations.

GOALS OF CASH MANAGEMENT

To satisfy day to day business requirements.

To provide for scheduled major payments.

To face unexpected cash drains.

To meet requirements of bank relationships.

To build image of credit worthiness.

To earn on cash balance.

To build reservoir for net cash inflow till the availability of better users of funds by conscious planning.

To minimize the operating costs of cash management.

OBJECTIVES OF CASH MANAGEMENT

1. TO MAKE CASH PAYMENTS : Very objective of holding cash is to meet the various types of expenditure to be incurred in business operations. Several types of expenditure to be met at different points of time and the firm should be prepared to make such cash payments. The firm should remain liquid to meet the obligations. Otherwise, their business suffers. Thus, one of the basic objectives of cash management is to maintain the image of the organization by making prompt payments to creditor.2. TO MAINTAIN MINIMUM CASH RESERVE :

Another important objective of cash management is to maintain minimum reserve. This means, in the process of meeting obligations on cannot keep the cash idle. Excess cash balance should be made productive that is it should be invested.

IMPORTANCE OF CASH MANAGEMENT

Cash management assumes more importance than other current assets because cash is the most significant and the least productive asset that the firm holds. It is significant because it is used to pay firms holds. It is significant because it is used to pay firms obligations. However , cash is unproductive and as such, the aim of cash management is to maintain adequate cash position to keep the firm sufficiently liquid and to use excess cash in some profitable way.

Management of cash is also important because it is difficult to predict cash inflows accurately and that there is no perfect coincidence between inflows and outflows of cash. Thus , during some periods, cash outflows exceed cash inflows and at other times cash will be more than cash payments or cash outflows.EFFECTIVE CASH MANAGEMENT :

Big corporation with sizeable funds generally display a highly independent management of cash assets. In these firms a responsible fiscal officer is charged with the responsibility of managing working cash balance in relation to needs for payment of obligations. A proper cash management necessitates the development and application of some practical administrative procedures to accelerate the inflow of cash and to improve the utilization of excess funds. These practical administrative procedures include:

1. Planning of cash requirements

2. Effective control of cash flow

3. Productive utilization of excess funds.

1. PLANNING FOR CASH REQUIREMENTS :

In planning its cash requirements and proper use of the funds subsequently generated through its operations management should use two tools : a long range cash projections and a short range forecast of cash position. Two key objectives of modern corporate cash management are maximization of a return on liquid assets and minimization of the cost of financing the assets. The minimization of idle of cash balance is basic to the achievements of these objectives.

2. EFFECTIVE CONTROL OF CASH FLOW :

The inflows and outflows of cash should be properly managed. The inflows of cash should be accelerate while the outflows of cash should be decelerated as far as possible. Thus the twin objective in managing in cash flows should be accelerated or delay cash disbursement as much as possible.

3. PRODUCTIVE UTILIZATION OF EXCESS FUNDS :

The idle cash or precautionary cash balances should by properly invested to earn profit. The firm should decide on the division of such cash balances between back deposits an marketable securities.

ADVANTAGES OF CASH MANAGEMENT

The availability of cash be a matter of life or death. A sufficient of cash can keep and unsuccessful firm going despite losses. Conversely and insufficiency of cash can bring failure in the face of actual or prospective earnings. An efficient cash management through a relevant and timely cash budget may enable a firm to obtain optimum working capital and ease the strains of cash shortage facilitating temporarily investment of cash and providing funds for normal growth.

A. Cash may be set to be like the blood stream in the living body: for it is very much life blood of business. It much lifeblood of business. It must be kept circulating.

B. It helps to avoid uncertainty in the future.

C. Cash budget involves balance sheet changes and other cash flows. That doesnt appear in the profit and loss account , such as capital expenditure.

D. It gives an inventory of the financial reserves , which are available in the event of recession.

E. It yields a plan as integral part of the procedure.

F. It views problems in a dynamic context over a period of time.

DISADVANTAGES OF CASH MANAGEMENT

It may offer a solution of compensation, which is not justified on the basic of a concrete notion, particularly when the business economy operates in a certain world.

It considers an economic recessions as the main sources of uncertainty but ignores technological developments, shift in consumer preference, political changes etc. the cost of holding cash is the profit that could have been earned as the funds been put to another use.

MOTIVES FOR HOLDING CASH

The firms need to hold cash may be attributed to the following three motives :

1) The Transaction motive

2) The Precautionary motive

3) The Speculative motive

1. TRANSACTION MOTIVE:

Firms need cash to meet their transaction needs. The collection of cash ( from the sale of goods and services, sale of assets, and additional financing) should be perfectly synchronized with the disbursement of cash ( for purchase of goods and services, acquisition of capital assets and meeting other obligations).

The need to hold cash arises because cash receipts and cash payments are not perfectly synchronized.

2. PRECAUTIONARY MOTIVE:

Cash is also maintained by the firm and even by individuals to meet unforeseen expenses at a future date. There are uncontrollable factors like governments polices, competition, natural calamities and consumer behavior that will have heavy impact on business operations. In such situations, the firm may require cash to meet additional obligations. Hence , the firm should hold cash to meet such contingencies.

3. SPECULATIVE MOTIVE:

The speculative motive relates to the holding of cash for investing in profit-making opportunities as and when they arise. To make profit may arise when the security prices change. Thus, to make advantage of unexpected opportunities, a firm holds cash for investing in profit-making opportunities.

CASH MANAGEMENT IS CONCERNED WITH THE MANAGING OF:

Cash inflows into and out of the firm.

Cash flows within the firm and

Cash balances held by the firm at a point of time by financing deficit or investing surplus cash.OPERATIONAL DEFINITIONS

CURRENT ASSETS:

Current assets are those which are generally converted into cash within one year without disturbing the operation of the concern. Current assets include ; cash and bank balances investments fixed deposits with banks ( maturing within one year ).

CURRENT LIABILITIES:

Current liabilities are claims of out sides discharged within one year. Current liabilities are : short term borrowings (including bills purchased and discounted from the banks and others).

Unsecured loans maturing within one year.

Public deposits maturing within one year.

Interest and other charges due for payments.

WORKING CAPITAL:

Working capital means net working capital which is different between current assets and the company liabilities working capital represents the total of all current assets in other words it is gross working capital. It is also known as circulating capital or current capital for current assets are rotating in their nature.

Where current liabilities and provisions exceed current assets the difference is referred to as negative working capital.

CASH:

Cash is the most important liquid asset, which is initial importance to the daily operations of the business firms. cash is the basic input needed to keep the business on continuous basis. It is the ultimate output expected to be realized by the selling the service or product manufactured by the firm.

ACCOUNTS RECEIVABLES:

The term accounts receivables refers to the sundry debtors and bills receivables. Receivables and debtors are arises on account of credit sales in the organization. Firms grant trade credit to protect its sales from the competitors and to attract the potential customers to buy its products or services. The basic objective of receivables management is to maximize return of investment in this asset.

CASH MANAGEMENT CYCLE:

Sales generated cash , which has to be disturbing out. The surplus cash has to be invested which deficit has to be borrowed. Cash management seeks to accomplish this cycle at a minimum cost.

INVENTORY MANAGEMENT

DEFINITION OF INVENTORIES:

Inventories are stock of materials of any kind of stored for future use, mainly in the production process. Thus, todays inventory is tomorrows production. However, semi-finished goods awaiting in the next process or finished goods awaiting release for sale are also included in the broad categories of inventories, which are nothing but idle resources. Therefore, inventories are materials or resources of any kind having some economic value, either awaiting conversation or use in future.

A part from these, there are also many indirect materials , such as, maintenance materials, fuels and lubricants, etc, which are used in a manufacturing organization. They are also classified as inventories of materials for future use, buy they differ only in their use and classification from raw and other direct materials. All of them earn nothing, yet they are broadly required to be used as and when the needs arise.

Inventories constitutes about 60 percent current assets of public limited companies in India.

A firm which carries a number of items of inventory that differ in value, can follow a selective control system. A selective control system, such as the A-B-C analysis, classifies inventories into three categories according to the value of items:

A-category consists of highest value items, B- category consists of high values items and C-category consists of lowest values items. More categories of inventories can also be created. Tight control for low-value items.

Large number of companies these days follow the total quality management system which requires companies to adopt just in time and computerized system of inventory management.

THE NEED FOR INVENTORY & CONTROL

Inventories or material are needed by all manufacturing organization big or small. But inventories tend to become big without proper control. Materials and inventories serve some social purpose in industries which from some economic motive.

Broadly , they may be classified under three groups, speculation, transaction ,and precaution. Typically speculative motive which affords ample scope for holding large amount of inventories is not important for purposes of industrial activities.

The other two motives are important here. The transaction motives results from the desire to match inflow and outflow of materials under certain controlled conditions. Precautionary motives arises out of the inability to predict future demands precisely and getting the materials ready in time, with incurring some extra costs. Thus, there also arises the need to maintain some safety or buffer stock on order to maintain the smooth flow of materials without impairing production.

But, more and more stock of materials are held, this not only entails greater investment, but carrying and other associated costs increase pair pass. On the other hand, if minimum inventory is held, with the increase in the frequency of buying the cost of ordering and processing increase. Also the cost of stock-out poses economic problem.TYPES OF INVENTORIES

Inventories are broadly classified into:

RAW MATERIALS AND PRODUCTION INVENTORIES :

These are raw materials and other supplies, parts and components which enter into the product during the production process and generally from part of the product.

IN-PROCESS INVENTORIES:

These are semi-finished, work in progress and partly finished products formed at various stages of production.

MRO INVENTORIES:

Maintenance , Repairs and Operating supplies which are consumed during the production process and generally do not form part of the product itself are referred to as MRO inventories.

FINISHED GOODS INVENTORIES:

These are complete products ready for sale.

OBJECTIVES OF INVENTORY MANAGEMENT

To maintain a large size of inventory for efficient and smooth production and sales operation.

To maintain a minimum investment in inventories to maximize profitability.

To facilitate smooth production and sales operation ( transaction motive).

To guard against the risk of unpredictable changes in usage rate and delivery time (precautionary motive).

To take advantage of price fluctuations ( speculative motive ).

Inventories represent investment of a firms funds. The objective of the inventory management should be the maximization of the value of the firm. The firm should therefore, consider costs return and risk factors in establishing its inventory policy.

BASIC INVENTORY CONTROL SYSTEMS

1. PERIODIC REVIEW SYSTEM :

This a time bound system which requires periodic reviews of the stock levels of all items. Here, period of review is fixed either, 3months, 6months or one year, when requirements of all items are worked out a fresh and the quantity is varied. This system works well for production of raw materials and components for which long lead times are necessary.

2. FIXED ORDER QUANTITY SYSTEM:

Under this system, the order quantity is fixed but the time varied. This system recognizes the fact that each item in inventory possesses its own unique characteristics and optimum order quantity. Designing of this system requires consideration of many factors, such as price, usage rate and other pertinent factors.

Inventories

Inventories are valued at lower of cost or net realizable value. The cost of Raw materials, components, construction Materials, loose tools and stores and spare parts are assigned by using weighted average cost formula.

Goods under inspection and in Transit are valued at cost.

A miscellaneous store is valued at estimated realizable value.

Work-in-progress is shown at cost or realizable value or the evaluated value whichever is less.

Stock in trade is valued at cost or realizable value, whichever is less.

Semi perishable , welfare and miscellaneous equipment are valued at cost and items costing individual Rs. 10, 000/- and below are charged to revenue at the time of issue and those costing above Rs. 10000 /- are charged to revenue in two equal annual installments including the year of issue.

Raw materials , components , construction materials, loose tools and stores and spare parts declared surplus/ unserviceable/ redundant are charged to revenue.

VARIOUS TECHNIQUES

ABC analysis

1) Economic order quantity

2) FSN analysis

3) Inventory turnover ratio

4) Safety stock

GENERAL MOTIVES FOR HOLDING INVENTORIES ARE:

Transaction motive : emphasizes the need to maintain inventories to facilitate smooth production and sales operations.

Precautionary motive: necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors.

Speculative motive : influence the decision to increase or reduce inventory levels to take advantage of price fluctuations.

BENEFITS OF HOLDING INVENTORY:

1) AVOID LOSSES OF PRODUCTION :

Holding inventories are necessary to continue smooth production and sales. For smooth production it is necessary to hold adequate raw materials and spare parts, lubricants etc.

2 . REDUCING ORDERING COSTS:

More the amount of inventory stocked up lesser will be the number of orders placed during the year. By placing a few large orders instead of many orders, variables ordering costs can be saved.MANAGEEMENT OF ACCOUNTS RECEIVABLES

Receivables constitute a substantial portion of current assets of several firms. Accounts receivables are created when a firm sells its products on credit. A firm offers trade credit to protect its sales from the competitor and to attract potential customers. Receivables after inventories, are the major components of current assets.

The three traits of receivables are

1. It involves an element of risk.

2. It is based on economic value.

3. It implies futurity.

ESTABLISHING OPTIMUM CREDIT POLICY

A firms investment in account receivables depends on

1. The volume of credit sales, and

2. The collection period.

Receivables are directly influenced by credit policy of the firm. A firm may follow either lenient credit policy or stringent credit policy depending upon its nature of business and the norms of the industry. Most of the firms follow credit policy ranging between stringent to lenient. The firm will have to evaluate, its policy in terms of both written and cost of additional sales. The cost includes production and selling costs, administration costs and bad debts losses. By cost benefit analysis, the firm has to arrive at its optimum credit policy.

GOALS OF CREDIT POLICY

A firm may follow a lenient or stringent credit policy. The firm following a lenient credit policy tends to sell to credit to customers on very liberal terms and standards. Credits are granted for longer periods even to those customers whose credit worthiness is not fully known or whose financial position is doubtful. In contrast, a firm following stringent credit policy sells on credit on a highly selective basis only to those customers who have proven credit worthiness and who are financially strong. In practice firms follow credit policies ranging between stringent to lenient .

CREDIT POLICY VARIABLES

An optimum credit policy formulation demands the consideration of the important decision variables that influence the level of receivables.

The major controllable decision variables include the following

Credit standards and analysis:

Credit standards are the criteria, which a firm follow in selection customers for the purpose of credit extension. The firm may sell mostly on cash basis and may grant credit to reliable and financially strong customers, on the other hand, it may follow loose credit standards. But each policy will have its own risk and returns. The trade of credit analysis: the quality of the customer is assessed by

The time taken to repay credit obligations.

The default rate

The profitability of default rate can be estimated by considering three C of the customers. They are

Character

Capacity

Condition

Credit terms

There are the rules that the firm follows in its trade credit. They include

Credit period : the length of time for which credit is extended to customers is called the credit period.

Cash discounts : it is a reduction in payment offered to customers to include them to repay within specific period of time. Cash discounts will be less than the normal credit period. It is usually expressed in percentage of sales.

In practice, credit terms would include

Rate of cash discounts

The cash discount period

The net credit periodCollection policy and procedures :

A collection policy is needed because all customers did not pay bills in time. A collection policy should ensured prompt and regular collection it will improve the turnover of working capital and lowers the collection costs and bad debts. The collection policy should pay down clear collection procedures. The responsibility for collection and follow up should be explicitly fixed. The coordination between sales and accounts departments is necessary to ensure prompt and smooth collection.

Credit evaluation

The process of credit evaluations consists of the following steps

1) Credit information : the information regarding the ability to make the payment of customer is known from various sources like

Financial statements

Bank references

Trade references

2) It may consists to give names of such persons / firm with whom the customers has current dealings.

3) Credit investigation and analysis : once the information is obtained the next step is to investigation on the following factors.

Credit file of each customer

Financial relations

4) Credit limit: it refers maximum amount of credit, which the firm will extend at a point of time. It refers the extent of risk taken by the firm by supplying goods on credit to the customer. The credit limit must be reviewed periodically. If the tendencies of slow pain are found, the credit can be revised downward. If profits exceeds costs, the collection period may be extended otherwise not.

5) Collection efforts: the collection procedure of the firm should be clear- cut and well administered. The purpose of collection policy should be to speed up the collection of dues. If collections are delayed, alternative arrangement of finances to sustain production and sales will have to make. The chances of bad debts also increase as the collection is delayed. The firm should developed collection policy, which will enable it to collect in time.

The main purpose of receivables management is as follows :

To obtain best or most favorable volume of sales.

To control the cost of credit and keep it at minimum.

To maintain investment in debtors at a most favorable level.

To keep the track of risk of bad debts minimum.

3.PROFILE OF THE STUDY IN AREA

INDUSTRY PROFILE

Following diagram gives the structure of Indian financial system:

FINANCIAL MARKET

Financial markets are helpful to provide liquidity in the system and for smooth functioning of the system. These markets are the centers that provide facilities for buying and selling of financial claims and services. The financial markets match the demands of investment with the supply of capital from various sources.

According to functional basis financial markets are classified into two types.

They are:

Money markets (short-term)

Capital markets (long-term)

According to institutional basis again classified in to two types. They are

Organized financial market

Non-organized financial market.

The organized market comprises of official market represented by recognized institutions, bank and government (SEBI) registered/controlled activities and intermediaries. The unorganized market is composed of indigenous bankers, moneylenders, individual professional and non-professionals.MONEY MARKET:Money market is a place where we can raise short-term capital.

Again the money market is classified in to

Interbank call money market

Bill market and

Bank loan market Etc.

E.g.; treasury bills, commercial papers, CD's etc.CAPITAL MARKET:

Capital market is a place where we can raise long-term capital.

Again the capital market is classified in to two types and they are

Primary market and

Secondary market.

E.g.: Shares, Debentures, and Loans etc.

PRIMARY MARKET:

Primary market is generally referred to the market of new issues or market for mobilization of resources by the companies and government undertakings, for new projects as also for expansion, modernization, addition, and diversification and up gradation. Primary market is also referred to as New Issue Market. Primary market operations include new issues of shares by new and existing companies, further and right issues to existing shareholders, public offers, and issue of debt instruments such as debentures, bonds, etc.

The primary market is regulated by the Securities and Exchange Board of India (SEBI a government regulated authority).

Function:

The main services of the primary market are origination, underwriting, and distribution. Origination deals with the origin of the new issue. Underwriting contract make the shares predictable and remove the element of uncertainty in the subscription. Distribution refers to the sale of securities to the investors.

The following are the market intermediaries associated with the market:

1. Merchant banker/book building lead manager

2. Registrar and transfer agent

3. Underwriter/broker to the issue

4. Adviser to the issue

5. Banker to the issue

6. Depository

7. Depository participant.Investors protection in the primary market:

To ensure healthy growth of primary market, the investing public should be protected. The term investor protection has a wider meaning in the primary market. The principal ingredients of investors protection are:

Provision of all the relevant information

Provision of accurate information and

Transparent allotment procedures without any bias.

SECONDARY MARKET

The primary market deals with the new issues of securities. Outstanding securities are traded in the secondary market, which is commonly known as stock market or stock exchange. The secondary market is a market where scrips are traded. It is a market place which provides liquidity to the scrips issued in the primary market. Thus, the growth of secondary market depends on the primary market. More the number of companies entering the primary market, the greater are the volume of trade at the secondary market. Trading activities in the secondary market are done through the recognized stock exchanges which are 23 in number including Over the Counter Exchange of India (OTCE), National Stock Exchange of India and Interconnected Stock Exchange of India.

Secondary market operations involve buying and selling of securities on the stock exchange through its members. The companies hitting the primary market are mandatory to list their shares on one or more stock exchanges in India. Listing of scrips provides liquidity and offers an opportunity to the investors to buy or sell the scrips.

The following are the intermediaries in the secondary market:

1. Broker/member of stock exchange buyers broker and sellers broker

2. Portfolio Manager

3. Investment advisor

4. Share transfer agent

5. Depository

STOCK MARKETS IN INDIA:

Stock exchanges are the perfect type of market for securities whether of government and semi-govt bodies or other public bodies as also for shares and debentures issued by the joint-stock companies. In the stock market, purchases and sales of shares are affected in conditions of free competition. Government securities are traded outside the trading ring in the form of over the counter sales or purchase. The bargains that are struck in the trading ring by the members of the stock exchanges are at the fairest prices determined by the basic laws of supply and demand.Definition of a stock exchange:

Stock exchange means anybody or individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities. The securities include:

Shares of public company.

Government securities.

Bonds

History of Stock Exchanges:

The only stock exchanges operating in the 19th century were those of Mumbai setup in 1875 and Ahmadabad set up in 1894. These were organized as voluntary non-profit-marking associations of brokers to regulate and protect their interests. Before the control on securities under the constitution in 1950, it was a state subject and the Bombay securities contracts (control) act of 1925 used to regulate trading in securities. Under this act, the Mumbai stock exchange was recognized in 1927 and Ahmadabad in 1937. During the war boom, a number of stock exchanges were organized. Soon after it became a central subject, central legislation was proposed and a committee headed by A.D.Gorwala went into the bill for securities regulation. On the basis of the committees recommendations and public discussion, the securities contract (regulation) act became law in 1956.

Functions of Stock Exchanges:

Stock exchanges provide liquidity to the listed companies. By giving quotations to the listed companies, they help trading and raise funds from the market. Over the hundred and twenty years during which the stock exchanges have existed in this country and through their medium, the central and state government have raised crores of rupees by floating public loans. Municipal corporations, trust and local bodies have obtained from the public their financial requirements, and industry, trade and commerce- the backbone of the countrys economy-have secured capital of crores or rupees through the issue of stocks, shares and debentures for financing their day-to-day activities, organizing new ventures and completing projects of expansion, diversification and modernization.. The quoted companies with wide public interest have enjoyed some benefits and assets valuation has become easier for tax and other purposes.

Various Stock Exchanges in India:

At present there are 23 stock exchanges recognized under the securities contracts (regulation), Act, 1956. Those are:

Ahmadabad Stock Exchange Association Ltd.

Bangalore Stock Exchange

Bhubaneswar Stock Exchange Association

Calcutta Stock Exchange

Cochin Stock Exchange Ltd.

Coimbatore Stock Exchange

Delhi Stock Exchange Association

Guwahati Stock Exchange Ltd

Hyderabad Stock Exchange Ltd.

Ludhiana Stock Exchange Association Ltd

Madras Stock Exchange

Madhya Pradesh Stock Exchange Ltd.

Magadha Stock Exchange Limited

Meerut Stock Exchange Ltd.

Mumbai Stock Exchange

National Stock Exchange of India

Uttar Pradesh Stock Exchange Association

Vadodara Stock Exchange Ltd.

Out of these major stock exchanges were:NSE

The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000

NSE's mission is setting the agenda for change in the securities markets in India. The NSE was set-up with the main objectives of:

Establishing a nation-wide trading facility for equities and debt instruments.

Ensuring equal access to investors all over the country through an appropriate communication network.

Providing a fair, efficient and transparent securities market to investors using electronic trading systems.

Enabling shorter settlement cycles and book entry settlements systems, and

Meeting the current international standards of securities markets.

The standards set by NSE in terms of market practices and technology, have become industry benchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. It's that force which is guiding the industry towards new horizons and greater opportunities

BSE

The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association". It is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in 1878. It is a voluntary non-profit making Association of Persons (AOP) and is currently engaged in the process of converting itself into demutualized and corporate entity. It has evolved over the years into its present status as the premier Stock Exchange in the country. It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts (Regulation) Act 1956.The Exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the investors and ensures redresses of their grievances whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by conducting investor education programmers and making available to them necessary informative inputs.

A Governing Board having 20 directors is the apex body, which decides the policies and regulates the affairs of the Exchange. The Governing Board consists of 9 elected directors, who are from the broking community (one third of them retire ever year by rotation), three SEBI nominees, six public representatives and an Executive Director & Chief Executive Officer and a Chief Operating Officer

The Executive Director as the Chief Executive Officer is responsible for the day-to-day administration of the Exchange and the Chief Operating Officer and other Heads of Department assist him.

The Exchange has inserted new Rule No.126 A in its Rules, Byelaws pertaining to constitution of the Executive Committee of the Exchange. Accordingly, an Executive Committee, consisting of three elected directors, three SEBI nominees or public representatives, Executive Director & CEO and Chief Operating Officer has been constituted. The Committee considers judicial & quasi matters in which the Governing Board has powers as an Appellate Authority, matters regarding annulment of transactions, admission, continuance and suspension of member-brokers, declaration of a member-broker as defaulter, norms, procedures and other matters relating to arbitration, fees, deposits, margins and other monies payable by the member-brokers to the Exchange, etcRegulatory Frame Work of Stock Exchange

A comprehensive legal framework was provided by the Securities Contract Regulation Act, 1956 and Securities Exchange Board of India 1952. Three tier regulatory structure comprising

Ministry of finance

The Securities And Exchange Board of India

Governing body

Members of the stock exchange:

The securities contract regulation act 1956 has provided uniform regulation for the admission of members in the stock exchanges. The qualifications for becoming a member of a recognized stock exchange are given below:

The minimum age prescribed for the members is 21 years.

He should be an Indian citizen.

He should be neither a bankrupt nor compound with the creditors.

He should not be convicted for fraud or dishonesty.

He should not be engaged in any other business connected with a company.

He should not be a defaulter of any other stock exchange.

The minimum required education is a pass in 12th standard examination.

STOCK EXCHANGE BOARD OF INDIA (SEBI) The securities and exchange board of India was constituted in 1988 under a resolution of government of India. It was later made statutory body by the SEBI act 1992.according to this act, the SEBI shall constitute of a chairman and four other members appointed by the central government.

With the coming into effect of the securities and exchange board of India act, 1992 some of the powers and functions exercised by the central government, in respect of the regulation of stock exchange were transferred to the SEBI.OBJECTIVES AND FUNCTIONS OF SEBI

To protect the interest of investors in securities.

Regulating the business in stock exchanges and any other securities market.

Registering and regulating the working of intermediaries associated with securities market as well as working of mutual funds.

Promoting and regulating self-regulatory organizations.

Prohibiting insider trading in securities.

Regulating substantial acquisition of shares and takeover of companies.

Performing such functions and exercising such powers under the provisions of capital issues (control) act, 1947and the securities to it by the central government. GUIDELINES TO SECONDARY MARKETS: (STOCK EXCHANGES):

Board of Directors of Stock Exchange has to be reconstituted so as to include non-members, public representatives and government representatives to the extent of 50% of total number of members.

Capital adequacy norms have been laid down for the members of various stock exchanges depending upon their turnover of trade and other factors.

All recognized stock exchanges will have to inform about transactions within 24 hrs.TYPES OF ORDERS:

Buy and sell orders placed with members of the stock exchange by the investors. The orders are of different types.

Limit orders: Orders are limited by a fixed price. E.g. buy Reliance Petroleum at Rs.50.Here, the order has clearly indicated the price at which it has to be bought and the investor is not willing to give more than Rs.50.

Best rate order: Here, the buyer or seller gives the freedom to the broker to execute the order at the best possible rate quoted on the particular date for buying. It may be lowest rate for buying and highest rate for selling.

Discretionary order: The investor gives the range of price for purchase and sale. The broker can use his discretion to buy within the specified limit. Generally the approximation price is fixed. The order stands as this buy BRC 100 shares around Rs.40.

Stop loss order: The orders are given to limit the loss due to unfavorable price movement in the market. A particular limit is given for waiting. If the price falls below the limit, the broker is authorized to sell the shares to prevent further loss. E.g. Sell BRC limited at Rs.24, stop loss at Rs.22.

Buying and selling shares:

To buy and sell the shares the investor has to locate register broker or sub broker who render prompt and efficient service to him. The order to buy or sell specifying the number of shares of the company of investors choice is placed with the broker. The order may be of any type. After receiving the order the broker tries to execute the order in his computer terminal. Once matching order is found, the order is executed. The broker then delivers the contract note to the investor. It gives the details regarding the name of the company, number of shares bought, price, brokerage, and the date of delivery of share. In this physical trading form, once the broker gets the share certificate through the clearing houses he delivers the share certificate along with transfer deed to the investor. The investor has to fill the transfer deed and stamp it. If it is bought in the DEMAT form, the broker has to give a matching instruction to his depository participant to transfer shares bought to the investors account. The investor should be account holder in any of the depository participant. In the case of sale of shares on receiving payment from the purchasing broker, the broker effects the payment to the investor.

Share groups:

The scraps traded on the BSE have been classified into A,B1,B2,C,F and Z groups. The A group represents those, which are in the carry forward system. The F group represents the debt market segment (fixed income securities). The Z group scraps are of the blacklisted companies. The C group covers the odd lot securities in A, B1&B2 groups.

ROLLING SETTLEMENT SYSTEM:

Under rolling settlement system, the settlement takes place n days (usually 1, 2, 3 or 5days) after the trading day. The shares bought and sold are paid in for n days after the trading day of the particular transaction. Share settlement is likely to be completed much sooner after the transaction than under the fixed settlement system.

The rolling settlement system is noted by T+N i.e. the settlement period is n days after the trading day. A rolling period which offers a large number of days negates the advantages of the system. Generally longer settlement periods are shortened gradually.

SEBI made RS compulsory for trading in 10 securities selected on the basis of the criteria that they were in compulsory demats list and had daily turnover of about Rs.1 crore or more. Then it was extended to A stocks in Modified Carry Forward Scheme, Automated Lending and Borrowing Mechanism (ALBM) and Borrowing and lending Securities Scheme (BELSS) with effect from Dec 31, 2001.

SEBI has introduced T+5 rolling settlement in equity market from July 2001 and subsequently shortened the cycle to T+3 from April 2002. After the T+3 rolling settlement experience it was further reduced to T+2 to reduce the risk in the market and to protect the interest of the investors from 1st April 2003.Activities on T+1:

Conformation of the institutional trades by the custodian is sent to the stock exchange by 11.00 am. A provision of an exception window would be available for late confirmation.

The exchanges/clearing house/ clearing corporation would process and download the obligation files to the brokers terminals late by 1.30 p.m on T+1. Depository participants accept the instructions for pay in securities by investors in physical form up to 4 p.m and in electronic form up to 6 p.m. the depositories accept from other DPs till 8p.m for same day processing.

Activities on T+2:

The depository permits the download of the paying in files of securities and funds till 10.30 am on T+2 from the brokers pool accounts. The depository processes the pay in requests and transfers the consolidated pay in files to clearing House/clearing Corporation by 11.00am/on T+2. The exchange/clearing house/clearing corporation executes the pay-out of securities and funds latest by 1.30 p.m on T+2 to the depositories and clearing banks. In the demat mode net basis settlement is allowed. The buy and sale positions in the same scrip can be settled and net quantity has to be settled.COMPANY PROFILE Sharekhan is one of the top retail brokerage houses in India with a strong online trading platform. The company provides equity based products (research, equities, derivatives, depository, margin funding, etc.). It has one of the largest networks in the country with 1200+ share shops in 400 cities and Indias premier online trading portal www.sharekhan.com. With their research expertise, customer commitment and superior technology, they provide investors with end-to-end solutions in investments. They provide trade execution services through multiple channels - an Internet platform, telephone and retail outlets.

Sharekhan was established by Morakhia family in 1999-2000 and Morakhia family, continues to remain the largest shareholder. It is the retail broking arm of the Mumbai-based SSKI [SHRIPAL SHEWANTILAL KANTILAL ISWARNATH LIMITED] Group. SSKI which is established in 1930 is the parent company of Sharekhan ltd. With a legacy of more than 80 years in the stock markets, the SSKI group ventured into institutional broking and corporate finance over a decade ago. Presently SSKI is one of the leading players in institutional broking and corporate finance activities. Sharekhan offers its customers a wide range of equity related services including trade execution on BSE, NSE, and Derivatives. Depository services, online trading, Investment advice, Commodities, etc.

Sharekhan Ltd. is a brokerage firm which is established on 8th February 2000 and now it is having all the rights of SSKI. The company was awarded the 2005 Most Preferred Stock Broking Brand by Awaaz Consumer Vote. It is first brokerage Company to go online. The Company's online trading and investment site - www.Sharekhan.com - was also launched on Feb 8, 2000. This site gives access to superior content and transaction facility to retail customers across the country. Known for its jargon-free, investor friendly language and high quality research, the content-rich and research oriented portal has stood out among its contemporaries because of its steadfast dedication to offering customers best-of-breed technology and superior market information.

Sharekhan has one of the best states of art web portal providing fundamental and statistical information across equity, mutual funds and IPOs. One can surf across 5,500 companies for in-depth information, details about more than 1,500 mutual fund schemes and IPO data. One can also access other market related details such as board meetings, result announcements, FII transactions, buying/selling by mutual funds and much more.

Sharekhan's management team is one of the strongest in the sector and has positioned Sharekhan to take advantage of the growing consumer demand for financial services products in India through investments in research, pan-Indian branch network and an outstanding technology platform. Further, Sharekhan's lineage and relationship with SSKI Group provide it a unique position to understand and leverage the growth of the financial services sector. We look forward to providing strategic counsel to Sharekhan's management as they continue their expansion for the benefit of all shareholders.

SSKI Corporate Finance Private Limited (SSKI) is a leading India-based investment bank with strong research-driven focus. Their team members are widely respected for their commitment to transactions and their specialized knowledge in their areas of strength. The team has completed over US$5 billion worth of deals in the last 5 years - making it among the most significant players raising equity in the Indian market. SSKI, a veteran equities solutions company has over 8 decades of experience in the Indian stock markets.

If we experience their language, presentation style, content or for that matter the online trading facility, we'll find a common thread; one that helps us make informed decisions and simplifies investing in stocks. The common thread of empowerment is what Sharekhan's all about.

"Sharekhan has always believed in collaborating with like-minded Corporate into forming strategic associations for mutual benefit relationships" says Jaideep Arora, Director - Sharekhan Limited.

Sharekhan is also about focus. Sharekhan does not claim expertise in too many things. Sharekhan's expertise lies in stocks and that's what he talks about with authority. So when he says that investing in stocks should not be confused with trading in stocks or a portfolio-based strategy is better than betting on a single horse, it is something that is spoken with years of focused learning and experience in the stock markets.

And these beliefs are reflected in everything Sharekhan does for us! Sharekhan is a part of the SSKI group, an Indian financial services power house, with strong presence in Retail equities Institutional equities Investment banking.PROFILE OF THE COMPANY :Name of the company: Sharekhan ltd.

Year of Establishment: 1925Headquarter

: Sharekhan SSKI

A-206 Phoenix House

Phoenix Mills Compound

Lower Parel

Mumbai Maharashtra, INDIA 400013Nature of Business

: Service ProviderServices

: Depository Services, Online Services and Technical

Research.Number of Employees: Over 3500Website

: www.sharekhan.comSlogan

: Your Guide to the Financial Jungle.ACHIEVEMENTS OF SHAREKHAN :

A Rated among the top 20 wired companies along with Reliance, HUJI, Infosys, etc by Business Today, January 2004 edition.

Awarded Top Domestic Brokerage House four times by Euro money and Asia money.

Pioneers of online trading in India amongst the top 3 online trading websites from India. Most preferred financial destination amongst online broking customers.

Winners of Best Financial website award.

Indias most preferred brokers within 5 years. Awaaz customer Award 2005.

VISION

To be the best retail brokering Brand in the retail business of stock market.MISSION

To educate and empower the individual investor to make better investment decisions through quality advice and superior service.Sharekhan is infact-

Among the top 3 branded retail service providers

No. 1 player in online business

Largest network of branded broking outlets in the country serving more than 7,00,000 clients.

All you have to do is walk into any of our 640 share shops across 280 cities in India to get a host of trading related services our friendly customer service staff will also help you with any accounts related queries you may have.SSKI Group Companies-

SSKI Investor Services Ltd (ShareKhan)

S.S. Kantilal Ishwarlal Securities

SSKI Corporate Finance

I Dream Productions

Palm spring estates Pvt Ltd.

Fin flow Investment Pvt Ltd.

I Dream Productions UK Pvt Ltd.

Sharekhan Commodities Pvt Ltd.

Archfund Properties Pvt Ltd.SHAREKHAN LIMITEDS MANAGEMENT TEAM:

Mr. Dinesh Murikya Owner of the company:

The Sharekhan Group of Companies was bought to life by Mr. Dinesh Murikya. He ventured into stock trading with an intention to raise capital for his own independent enterprise.

Mr. Tarun Shah Chief Executive Officer of the company:

Mr. Shankar Vailaya Director (Operations) of the company:

Mr. Jaideep Arora Director (Products & Technology) of the company:

Pathik Gandotra: Head of Research

Rishi Kohli

: Vice President of Equity Derivatives

Nikhil Vora

: Vice President of Research

PRODUCTS AND SERVICES OF SHAREKHAN LIMITED :

The different types of products and services offered by Sharekhan Ltd. are as follows :

Equity and derivatives trading Depository services

Online services

Commodities trading

Dial-n-trade Portfolio management

Fundamental research

Technical researchDATA ANALYSIS AND INTERPRETATIONCLASSIFICATION OF RATIOS

The uses of ratios analysis is not confined to financial manager only. There are different parties interested in the ratio analysis for knowing the financial position of the firm for different purpose. In view of various users of ratios, there are many types of ratio that can be calculated from information given in the financial statements. The particular purpose of the user determines the particular ratio that might be used for financial analysis.

Ratio calculated from accounting data are grouped into various classes according to financial activity or function to be evaluated. The parties interested in financial analysis are short and long term creditor, owners and management. Short term creditors interested is in the liquidity position or the short term solvency.

On the other hand, financial institution ( share holder ) and the management also differ. The share holder are generally interested in the profitability or divided position of the firm(financial condition), while management requires information on almost all the financial aspects and performance of the to enable it to protect the interest of all parties.

In view of the financial management or according to the test satisfied , various ratios have been classified into following:

Liquidity ratios : measures the firms ability to meet current obligations.

Leverage ratios : show the proportions of debt and equity in financing the firms assets. Suppliers of debt capital would like to equity as margin of safety; but owners would borrow to maintain control with limited investment.

Activities ratios: Reflect the firms efficiency in utilizing its assets. The profitability ratios measure the over all performance and effectiveness of the firm as shown by returns generated on sales and investment.

1. Current Ratio :

The current ratio is defined as the relationship between current assets and current liabilities. Current ratio is a general and quick measure of liquidity of a firm. It represents the margin of safety of cushion available to the creditors and other current liabilities. The ratio is most widely used to make the analysis of a short term financial position or liquidity of a firm. It is calculated as:

Current Assets

Current Ratio = -------------------------

Current Liabilities

A current ratio of 2: 1 or more is considered satisfactory.

2. Quick Ratio :

It is also called as Acid test ratio. It establishes a relationship between quick, or liquid, assets and current liabilities. Quick Assets

Quick Ratio = ----------------------------

Current Liabilities

A Quick Ratio of 1 to 1 is considered a satisfactory current financial condition.

3. WORKING CAPITAL RATIO:

Working Capital is difference between current assets and current liabilities, working capital used for daily business operations in short term requirements of cash.

It indicates what extent working funds have been employed in business towards sales.

W.C = SALES / WORKING CAPITAL

4. Inventory turnover ratio :

The inventory turnover / stock turnover ratio shows how rapidly the inventory is into receivables through sales though sales. This ratio is an indicator of the efficiency of the use of investment in stock. It is calculated as

Net Sales

Inventory turnover Ratio = --------------------------------

Average inventoryDays of inventory holdings :

It indicates then inventory stock available with respect to the time in days for days for use in production. It is calculated as

Days in a year

Collection / conversion period = -------------------------------

Inventory turnover5. Debtors turnover ratio :

Debtors turnover indicates the no of times debtors turnover each year / this ratio measures the net credit sales of a firm to the recorded trade debtors there by indicating the rate at which cash is generated by turnover of receivable ( or ) debtors. This is calculated as

Net Sales

Debtors turnover ratio = --------------------------

Total Debtors

Collection / conversion period :

This indicates the extent tom which the debts have been collected in time. It is calculated as

Days in a year

Collection / conversion period = ---------------------

Debtors turnover

6.) DEBT COLLECTION PERIOD :

This indicates the extent tom which the debts have been collected in time. It is calculated as

Debt collection period = months / days in a year

Debtors turnover ratio

TABLE-1

CURRENT RATIO :

The current ratio is defined as the relationship between current assets and current liabilities.

Current assets

Current Ratio = -------------------------

Current Liabilities

YEARCURRENT ASSETSLIABILITIESRATIO

2006-07174416.1135829.91.28

2007-08165556.1121722.71.36

2008-0918607.5140381.71.32

2009-10180484.3134466.31.34

2010-11213328.2167417.81.27

CHART-1CURRENT RATIO

Interpretation :

The current Ratio in 2006-07 was 1.28 and in 07-08 was 1.36 & 08-09 1.32, 09-10 was in 1.34 and 10-11 is 1.27.

TABLE-2 QUICK RATIO :

This ratio establishes a relationship between quick assets and current liabilities.

Quick assets

Quick ratio = ___________________

Current Liabilities

YEARQUICK ASSETSLIABILITIESRATIO

2006-07145259.63135829.881.07

2007-08125094.18121722.741.03

2008-09140622.32140381.71

2009-10146592.59134466.31.09

2010-11169903.62167417.81.01

CHART-2QUICK RATIO

Interpretation :

During the period of the study, it is observed that the Quick Ratio is increasing from 1.07 to 1.09.

TABLE-3 WORKING CAPITAL RATIO:

Working Capital is difference between current assets and current liabilities, working capital used for daily business operations in short term requirements of cash.

It indicates what extent working funds have been employed in business towards sales.

W.C = SALES / WORKING CAPITAL

YEARSALESWORKING CAPITALRATIO

2006-07524312.191.67

2007-08449.19316.211.42

2008-09531.53361.941.46

2009-10433.51371.791.16

2010-11454.38384.961.18

CHART-3WORKING CAPITAL RATIO

Interpretation:

This ratio shows the no. of times working capital used in the firm is able to generate the sales. This ratio measures the efficiency with which the working capital is being used by the company.

The higher the ratio , the lower is the investment in working capital and greater is the efficiency in working capital management. SHAREKHAN LTD is improving its working ratio during the period of study.TABLE-4

INVENTORY TURNOVER RATIO :

The inventory turnover / stock turnover ratio shows how rapidly the inventory is into receivables through sales though sales. This ratio is an indicator of the efficiency of the use of investment in stock. It is calculated as

Net Sales

Inventory turnover Ratio = --------------------------------

Average inventory

YEARSALESINVENTORYRATIO

2006-075240.4535826.541.46

2007-0845097.7138461.91.17

2008-0953153.3145452.651.16

2009-1043351.3133891.71.28

2010-1145438.0243424.591.04

CHART-4

INVENTORY TURNOVER RATIO

Interpretation:

This ratio reveals the no. of times finished stock is turned over during a given accounting period.

Higher the ratio, the better it is because it shows the finished stock is rapidly turned into sales. On the other hand, a low stock turnover not desirable because it reveals accumulation of stock.

TABLE-5DEBTORS TURNOVER RATIO :

Debtors turnover indicates the no of times debtors turnover each year / this ratio measures the net credit sales of a firm to the recorded trade debtors there by indicating the rate at which cash is generated by turnover of receivable ( or ) debtors. This is calculated as

Net Sales

Debtors turnover ratio = --------------------------

Total Debtors

YEARSALESDEBTORRATIO

2006-075241493.440.35

2007-08450.982417.040.18

2008-09531.531387.330.38

2009-10433.511951.410.22

2010-11454.382154.20.21

CHART-5DEBTORS TURNOVER RATIO

Interpretation:

During the year 2006-07 the debtors turnover ratio decreased from .35 to .21.

TABLE-6DEBT COLLECTION PERIOD :

This indicates the extent tom which the debts have been collected in time. It is calculated as

Debt collection period = months / days in a year

Debtors turnover ratio

YEARDTORNO.OF DAYSCOLLECTION PERIOD

2006-070.35312891.42

2007-080.183121733.33

2008-090.38312821.05

2009-100.223121418.18

2010-110.213121485.71

CHART-6DEBT COLLECTION PERIOD

INTERPRETATION:

The debt collection period has increased from 891.42 to 1485.71 there implies that firm is not able to collect the receivables in time. High debit collection on period is not a satisfactory sign.

TABLE-7

Statement Showing changes in working capital for the year

2002-2003 and 2003-2004

PARTICULARSPREVIOUS YEAR

(2002-2003)CURRENT YEAR

(2003-2004)INCREASEDECREASE

A) CURRENT ASSETS

Inventories

34292.4935826.541534.05 -

Sundry Debtors

504.601493.44988.84 -

Cash & Bank balances

136431.09116738.78 -19692.31

Loans & Advances

23493.6120357.33 -3136.28

Total Current Assets

194721.79174416.09

B) CURRENT LIABILITIES

Sundry Creditors

9621.538458.101163.43 -

Advances from Government

143736.60120541.1623195.44 -

Other Advances

3022.752912.38110.37 -

Deposits

87.26199.10 -111.84

Other liabilities

2557.093719.14 -1162.05

Total Current Liabilities

159025.23135829.88

Net Working Capital(A-B)

35696.5638586.21

Increase in Working Capital

2889.65 -

2889.65

38586.21

38586.2126992.1326992.13

TABLE-8Statement showing changes in working capital for the years

2003-2004 and 2004-2005

PARTICULARSPREVIOUS YEAR

(2003-2004)CURRENT YEAR

(2004-2005)INCREASEDEGREASE

A) CURRENT ASSETS

Inventories

35826.5438461.902635.36 -

Sundry Debtors

1493.442417.04923.60 -

Cash & Bank balances

116738.78100127.94 -16610.84

Loans & Advances

20357.3322549.202191.87 -

Total Current Assets

174416.09163556.08

B) CURRENT LIABILITIES

Sundry Creditors

8458.109122.54 - 664.44

Advances from Government

120541.16105490.5715050.59 -

Other Advances

2912.382572.36340.02 -

Deposits

199.10255.32 -56.22

Other liabilities

3719.144331.95 -612.81

Total Current Liabilities

135829.88121772.74

Net Working Capital(A-B)

38586.2141783.34

Increase in Working Capital

3197.13

41783.34

41783.3421141.4421141.44

TABLE-9Statement showing changes in