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  • 8/11/2019 Kavita Project File




    Working Capital Management









    PALWAL M.D. Un!"#$%& R'%*




    ROLL:NO. MB13016


    MS. NEHA

  • 8/11/2019 Kavita Project File



    The Project entitled +W'#*n, C-% Mn,"/"n% % J.B.M. n BEST WA

    STEEL -!%. L%. deals in this segment. The term of study was kept limited to make the

    title true. The purpose of the report is to get the in depth understanding of the process of

    working capital management. With the growing Indian economy and the liberal

    government policies for infrastructure, the demand for MT!" services is increasing and

    seeing this as an opportunity is under taking many new projects for e#pansion of the

    production which are under implementation for increasing the capacity of the plants.

    $bm.component and best way pvt. "td. world recognised MT!" company so the

    management of working capital consist of different of new techni%ue which is not common

    in Indian MT!" industry.

    The main objective of my research that how $.&.M and &'T W!( pvt.ltd. maintain the

    proper balance between the amount of current assets and the current liabilities in such a

    way that the firm is always able to meet its financial obligations, whenever due. This will

    ensure the smooth working of the unit without any production held ups due to paucity of

    funds and also how $.&.M. and &'T W!( pvt. "td. manage the current assets in such a

    way that the marginal return on investment in these assets is not less than the cost of capital

    ac%uired to finance them. This will ensure the ma#imi)ation of the value of the business


    Working capital management in $.&.M. and &'T W!( pvt. "td. is seem to be different

    and also effective as comparison other metal firms in India. *eason for being different is

    their nature of business and implementation of new techni%ue which help them to smooth

    flow of the fund.

    Performance of $.&.M. and &'T W!( pvt. "td. +orea and India both are affluent. Their

    mi#ed corporate culture and the area of e#pertise in metal processing construction

    contract help them to get succeed in every project


  • 8/11/2019 Kavita Project File



    The or!"#$!%#o" &ro'e% o *+h "!%+re or %h#* *+e**+, o-&,e%#o"

    "ee* oo&er!%#o" !" *+&&or% o &eo&,e. I h!/e ee" or%+"!%e %o e%

    o"*%!"% +#!"e e"o+r!e-e"% ro- -!"2 h#h he,&e -e ! ,o%

    %o e *+e**+, #" !"2 e4or%*. Th#* or-!, !5"o,ee-e"% #,, h!r,2

    e *+#e"% %o e7&re** o"e ee& *e"*e or r!%#%+e %o !,, o %he-.

    A% %he o+%*e%8 I o+, ,#5e %o %h!"5 Mr# D$%&'ant Sing& (Training )

    Pla*ement O+*er, !" o%her -e-er* o %he &,!e-e"% e,, or

    #/#" -e !" o&&or%+"#%2 %o *+e**+,,2 o-&,e%e -2 *+--er

    #"%er"*h#& #" %he#r e*%ee-e or!"#$!%#o".

    A &ro'e% re&or% h!* "e/er ee" %he *!,e &ro+% o %he &er*o" ho*e

    "!-e !&&e!r* o" %he o/er. There !re !,!2* *o-e &eo&,e ho*e

    +#!"e &ro/e* %o e o #--e"*e he,& #" #/#" #%* 9"!, *h!&e. So #% #*

    -2 9r*% +%2 %o e7&re** -2 r!%#%+e %o!r* !,, o %he-.

  • 8/11/2019 Kavita Project File



    I am +avita ,lass M&! -rd 'M of !dvanced Institute of Technology and management

    of Palwal ereby declare that the project entitled /P!*TI!" 01"0I""M2T 30 T

    *41I*M2T /is an 3riginal Work and the same has not been submitted to any other

    institute for the award of any other degree.

    S,n%3#" ' Cn%"


  • 8/11/2019 Kavita Project File


  • 8/11/2019 Kavita Project File


    J.B.M. COMPONENT %.co ,which is incorporated as MT!" company in 1T "td is to provide high

    %uality parts ,drawing ?technical services. The Indian company shall be used as

    knowledge hub and MT!" centre for global needs for above activities.

    The main object of $bm component and best way ltd. India is to carry on all or any of thebusiness to provide develops ,supply and render MT!" and technical services. !nd also

    to carry on the business of providing MT!" ,procurement, maintenance and operation

    service to industrial ,petrochemical ,environmental, gas, energy generation and refinery


    A#" ' "?-"#%$" n /#*"%n, $%#%",&

  • 8/11/2019 Kavita Project File


    The area of e#pertise is MT!" processing construction contract especially for process

    MT!", chemical MT!" ,piping MT!" and instrumental MT!".

    With advent of new millennium, global as well as domestic MT!" a markets are faced

    with uncertainties, creating a whole new environment where only a handful of market

    leaders with global competitiveness can e#pect future.

    $bm component and best way ltd. give priorities to health ,safety and environment.

    Moreover ,under the business principle to provide an economical and optimised manner

    within the fastest possible time, and also focused on building an effective knowledge

    management system, improving corporate efficiencies through continued cost reductionand overall improvement efforts, and building a global standard management basis to

    become a customer @ oriented ,total solution provider.

    0urthermore, with people and technology the critical factors in the MT!" business, $bm

    component and best way ltd. is setting out to establish long term training programs aimed

    at nurturing professional with e#tensive e#periences in the environment and energy sector

    facilitating the arrival of future.

    $bm component and best way ltd. is committed to becoming the most reliable business

    partner, catering the needs with best %uality and seamless services driven by the attitude of

    genuinely caring customer.

    $bm component and best way ltd. India Pvt . ltd will try to provide the best manpower and

    technology for best product and service to customer.

    $bm component and best way ltd. As no 5 mission is generating values to the customers and

    shaping businesses for continuous fulfilment of the client

  • 8/11/2019 Kavita Project File


    $bm component and best way ltd. points clients to success. There numerous successes in

    petrochemical, refinery, gas, industry, environmental plant and infrastructure businesses

    worldwide have served as the basis for success and the power to overcome any difficulties

    and e#plore new opportunities. 1ndisputed capabilities, strong potential and unrivalled

    enthusiasm are the drivers that $bm component and best way ltd. relies on to bring a

    genuine success to their clients.

    R""n% n%"#n%'n -#'"%$

    P"%#'"/ -#'"%

    0or several decades $bm component and best way ltd. has been active in the petrochemical

    industry, initially heading large scale petrochemical plant construction projects in +orea

    for major companies such as 'amsung Petrochemical. 1sing these e#periences as a strong

    foundation, $bm component and best way ltd. has fineBtuned its e#pertise and capabilities

    to successfully e#ecute lump sum turnBkey projects including MT!", procurement,

    construction and commissioning. 0rom the early 5CC7


    $bm component and best way ltd. has steelumulated e#tensive refinery e#perience across

    the globe such as the I3" *efinery Plant in India, &'T 1nleaded =asoline !dditive Plant

    in Thailand, and refinery plants in Thailand and Taiwan. In Me#ico, $bm.component and

    best way ltd. was awarded both the Tula and 'alamanca *efinery from PMG, proving

    the company

  • 8/11/2019 Kavita Project File


    way ltd. is constructing two entral and 'outh !merican projects. They are the PMG

    Minatitlan *efinery Plant in Me#ico and PT*3T*I2 2T ? * Plat former *efinery

    Plant in Trinidad ? Tobago.9776 marks the year $bm.component and best way ltd. was

    awarded a 8T Plant from !*!M3, 'audi !rabia

  • 8/11/2019 Kavita Project File


    In3$%# Pn%$

    #ploring overseas markets and pioneering new products, $bm.component and best way

    ltd. implements a strong growth strategy. Through Industrial projects in the fields of IT,

    energy, automobile, aerospace, food, and sports facilities, $bm.component and best way ltd.

    is demonstrating technological leadership and %uality products through its turnBkey

    services. In particular, $bm.component and best way ltd. is focused on highBtech sectors

    such as display and semiconductors for the purpose of securing top technology. &ased on

    its outstanding project e#ecution ac%uired from the +orean market, $bm.component and

    best way ltd. has strived to focus on overseas markets in !sia, urope, I', the Middle

    ast and "atin !merica. Through such efforts, $bm.component and best way ltd. haspioneered new products such as steel mill plants, power plants, renewable energy plants as

    well as new 8P:8istinct ooling Plants; and logistics centers.

    R""n% n3$%# -n%$ -#'"%


    IT is an important component in the industrial plant sector for $bm.component and best

    way ltd.. With a great track record in IT projects and the steelumulation of the world

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    &ased on its e#tensive e#perience in the food ? beverage industry as well as other

    manufacturing sectors, $bm.component and best way ltd. has successfully completed a

    number of large projects based in +orea, including the +T?= Tobsteelo manufacturing

    Plant, +onkuk 8airy umsung 0acility, the !san, =umi and 2oksan 0acilities of 2ongs

    him, 2amyang 8airy heonan 0acility, $inro ass &eer 0acility and ankook Tire

    Plant.!t the same time, $bm.component and best way ltd. has served as a strategic partner

    with domestic companies to help them enter overseas markets, taking part in 2ongshim

    'hanghai 0acility and ankook Tire Plant in astern urope. $bm.component and best way

    ltd. is also working on a number of fronts to e#pand its business portfolio to include

    8P:8istrict ooling Plants;, and to secure new growth engines for the future.$bm.component and best way ltd. is strengthening its internal competencies through

    constant research and development aimed at =MP:=ood Manufacturing Practices; for

    medical and pharmaceutical devices.



    In the steel sector, $bm.component and best way ltd. secured contracts representing a total

    of 9F million 1'8 in9776 alone. These projects included sinter and &yBproduct =as

    'upply 0acilities for yundai 'teel,P3'3 =" 1tility in Me#ico and a blast furnace

    facility for the '!I" II'3 'teel Plant. Winning the bid for the yundai 'teel Plant was

    particularly significant in that it showed how far $bm.component and best way ltd. has

    progressed within an industry that is known for having high barriers for new contractors.

    This achievement was made possible by $bm.component and best way ltd.

  • 8/11/2019 Kavita Project File


    ombined eat and Power Plant, Incheon 2onhyun 8istrict Integrated nergy Plant, and

    the nergy *ationali)ation 0acility in Mongolia. It has set up a plan to transform overseas

    IPP projects into strategic products for longBterm growth and has madevarious efforts to

    speciali)e in IPP projects in 'outheast !sia. In Thailand, Philippines and Indonesia, it is

    working hard to ac%uire power plant projects including those for PP. &y securing needed

    technologies and e#pertise to undertake medium to large si)ed projects:-77 MW IPP or

    larger;, it has become an important player in IPP overseas markets and is laying a

    foundation for e#ploring new growth engines such as the renewable energy industry.

    En!#'n/"n% 7 In#$%#3%3#"!spiring to become a specialist in environmental ? infrastructure through aggressive

    technology development and business e#pansion. MT!" companys entered the

    environmental sector in the 5C67s and has since been speciali)ing in the environmental and

    infrastructure field. &ased on -L years of e#perience in the water business, it established a

    comprehensive water management system that covers ultra pure water, wastewater reuse

    and highly efficient wastewater treatment, and continues building upon its capabilities in

    the design, construction and operation of related facilities overseas. $bm.component and

    best way ltd. has secured core technologies in other environmentBrelated areas such as the

    reduction of air pollution from IT facilities and municipal waste. 'imultaneously, the

    company is actively engaged in '3:'ocial 3verhead apital; projects in the domestic

    railway market and has successfully operated projects such as the railway depot and

    deployment projects for integrated operation systems. "everaging its e#perience in

    environmental ? infrastructure, MT!" company will continue its growth as a leading

    water specialist and infrastructure construction company.

    R""n% En!#'n/"n% 7 In#$%#3%3#" -#'"%

    W%"# T#"%/"n%


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    $bm.component and best way entered the sewage treatment sector in the 5CC7

  • 8/11/2019 Kavita Project File


    company secure necessary capabilities related to the deployment and trial operation of

    integrated operation systems for urban railways. It plans to be more active in entering

    overseas markets such as the Middle ast while diversifying its business portfolio to

    include system integration of light rail transit ?M and railway ?M, and by nurturing

    this business as a future growth engine.


    MT!" company entered the '3 sector in the 5CC7s, beginning with its construction of

    the 'eogwipo 3utport &reakwater. It has since contributed to the e#pansion of +orea& '/-n&$ R"'#=#"*n, -"#'#/n"

    In 9776, despite the dramatic escalation in oil prices and raw material prices, 'amsung

    ngineering worked diligently to record an allBtime high. 2ew orders rose HF percent to

    +*WJ.L trillion while net profit rose -5 percent to +*W 5FH billion on the back of sales

    rising 59percent to a record +*W 9.9 trillion. The performance of the ydrocarbon Plant

    8ivision was a stellar one, as MT!" companys continuously secured mega projects in

    'audi !rabia, Thailand, and India on the strength of their trusted and respected reputation

    developed through their successful business performance. ! notable milestone for MT!"

    company includes securing 'audi !rabiaietnam meant another e#pansion into a new market and widening their client

    base into the global IT sector. In addition, MT!" company

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    in a buyback of a total of 5 million stocks worth +*WFJ.H billion to stabili)e their share

    prices and enhance shareholder values, simultaneously and effectively maintaining

    shareholderBoriented management for the best interest of their shareholders.

    $bm.component and best way ltd.

  • 8/11/2019 Kavita Project File



    orporate finance is an area of finance dealing with the financial decisions corporations

    make and the tools and analysis used to make these decisions. The primary goal of

    corporate finance is to ma#imi)e corporate value while managing the firms financial risks

    !lthough it is in principle different from managerial finance which studies the financial

    decisions of all firms, rather than corporations alone, the main concepts in the study of

    corporate finance are applicable to the financial problems of all kinds of firms. The

    discipline can be divided into longBterm and shortBterm decisions and techni%ues. apital

    investment decisions are longBterm choices about which projects receive investment,

    whether to finance that investment with e%uity or debt, and when or whether to pay

    dividends to shareholders. 3n the other hand, the short term decisions can be grouped

    under the heading Working capital management. This subject deals with the shortBterm

    balance of current assets and current liabilities the focus here is on managing cash,

    inventories, and shortBterm borrowing and lending.

    D"n%'n ' >'#*n, -%

    The word working capital is made of two words 1.Working and 2. apital. The word working

    means day to day operation of the business, whereas the word capital means monetary value of

    all assets of the business.

    Working capital may be regarded as the life blood of business. Working capital is of major

    importance to internal and e#ternal analysis because of its close relationship with the

    current dayBtoBday operations of a business. very business needs funds for two purposes.

    N "ong term funds are re%uired to create production facilities through purchase of fi#ed

    assets such as plants, machineries, lands, buildings ? etc

    N 'hort term funds are re%uired for the purchase of raw materials, payment of wages, and

    other dayBtoBday e#penses.

    . It is other wise known as revolving or circulating capital


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    It is nothing but the difference between current assets and current liabilities. i.e.

    Working apital O urrent !sset @ urrent "iability.

    &usinesses use capital for construction, renovation, furniture, software, e%uipment, or

    machinery. It is also commonly used to purchase inventory, or to make payroll. apital is

    also used often by businesses to put a down payment down on a piece of commercial real

    estate. Working capital is essential for any business to succeed. It is becoming increasingly

    important to have steeless to more working capital when we need it.

    Working capital typically means the firm

  • 8/11/2019 Kavita Project File


    working capital at a level higher than needed to meet its immediate needs. owever ,the

    relationships among carrying costs , shortage costs , and procurement costs are such the

    most firms will find that the economic level of working capital is no more than a few


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    Working capital, also known as net working capital, is a financial metric which represents

    operating li%uidity available to a business. !long with fi#ed assets such as plant and

    e%uipment, working capital is considered a part of operating capital. It is calculated as

    current assets minus current liabilities. If current assets are less than current liabilities, an

    entity has a working capital deficiency, also called a working capital deficit. ! company

    can be endowed with assets and profitability but short of li%uidity if its assets cannot

    readily be converted into cash. Positive working capital is re%uired to ensure that a firm is

    able to continue its operations and that it has sufficient funds to satisfy both maturing

    shortBterm debt and upcoming operational e#penses. The management of working capital

    involves managing inventories, steelounts receivable and payable and cash.

    C'n"-% ' >'#*n, -%

    =ross Working apital O Total of urrent !sset

    2et Working apital O #cess of urrent !sset over urrent "iability

    C3##"n% A$$"%$ C3##"n% L=%"$

    ash in hand D at bank

    &ills *eceivable

    'undry 8ebtors

    'hort term loans

    InvestorsD stock

    Temporary investment

    Prepaid e#penses

    'teelrued incomes

    &ills Payable

    'undry reditors

    3utstanding e#penses

    'teelrued e#penses

    &ank 3ver draft


  • 8/11/2019 Kavita Project File


    G#'$$ >'#*n, -%B refers to the firm

  • 8/11/2019 Kavita Project File


    of a business . in order to protect their interests, shortBterm creditors always like a company

    to maintain current asset at a higher liability. it is a conventional rule to maintain the level

    of current asset should be considered in determining the level of current asset vis- a- vis

    current liabilities. ! weak li%uidity position poses a threat to the solvency of the

    company and make it unsafe and unsound. ! negative working capital means a negative

    li%uidity and prove to be harmful for the company As reputation. e#cessive li%uidity is

    also bad . it may be due to mismanagement of current assets Therefore ,prompt and timely

    action should be taken by management to prove and correct imbalances in li%uidity

    position of the firm. 2et working capital concept also cover the %uestion of judicious mi#

    long term demand short term fund for financing currents assets.

    0or every firm there is a minimum amount of net working capital is permanent.

    Therefore , a portion of the working capital should be financed through permanent sources

    of fund such as e%uity share capital , debenture , long term, debt, preference share capital ,

    or retained earnings. Management must therefore , decide the e#tent to which current asset

    should be financed with the e%uity and Dor borrowed capital.

    In summary , it may emphasised that both gross and net concepts of working capital are

    e%ually important efficient management of working capital . there is no precise way to

    determine the e#act amount of gross ,or net working capital for any firm . the data and

    problems of each company should be analysed to determine the amount of working

    capital . there is no specific rule as to how current asset should be financed . it is not

    feasible in practise to finance current asset by short tern sources only. keeping view the

    constraints of the individuals company, a judicious mi# long and short term financed

    should be invested in current asset . since current involve cost funds , they should beinvested incurrent assets. 'ince current assets involve costs of funds, they should be put to


    W'#*n, -% n %"#/$ ' !" '/-'n"n%$

    C$ n "3!"n%$ B This most li%uid form of working capital re%uires constant

    supervision. ! good cash budgeting and forecasting system provides answers to key

    %uestions such as Is the cash level ade%uate to meet current e#penses as they come dueQWhat is the timing relationship between cash inflow and outflowQ When will peak cash


  • 8/11/2019 Kavita Project File


    needs occurQ When and how much bank borrowing will be needed to meet any cash

    shortfallsQ When will repayment be e#pected and will the cash flow cover itQ

    S%""'3n%$ #""!=" Many businesses e#tend credit to their customers. If you do, is the

    amount of steelounts receivable reasonable relative to salesQ ow rapidly are receivables

    being collectedQ Which customers are slow to pay and what should be done about themQ

    In!"n%'#& Inventory is often as much as F7 percent of a firms current assets, so

    naturally it re%uires continual scrutiny. Is the inventory level reasonable compared with

    sales and the nature of your businessQ Whats the rate of inventory turnover compared with

    other companies in your type of businessQ

    S%""'3n%$ -&=" 0inancing by suppliers is common in small businessR it is one of the

    major sources of funds for entrepreneurs. Is the amount of money owed suppliers

    reasonable relative to what you purchaseQ What is your firms payment policy doing to

    enhance or detract from your credit ratingQ

    S%""#3" "?-"n$"$ n %?"$ -&=" These are obligations of your company at any

    given time and represent a future outflow of cash.

    C'n"-% ' >'#*n, -%

    &alance sheet concept

    3perating cycle concept

    It goes without saying that the pattern of management will be very largely influenced

    by the approach taken in defining it. Therefore the two concept are discussed

    separately in a nutshell.

    Bn" $""% 'n"-%B there are two interpretation of working capital under the balance

    sheet concept. It is represented by the e#cess of current assets over current liabilities and is

    the amount normally available to finance current operations. &ut some time working

    capital is also synonym for gross or total current assets. In that case , the e#cess of current

    asset over current liabilities is called the net working capital or net current assets. The

    conventional definition of working capital in terms of the difference between the current


  • 8/11/2019 Kavita Project File


    assets and the current liabilities somewhat confusing. Working capital is really what a part

    of long @term finance is locked in and used for supporting activities. It is difficult to say

    whether this is right or wrong. !pparently are warned about tight working capital

    situation , the logic of the above definition would perhaps indicate diversion of long term

    finances for short term finances. 0or if shortB term bank loans were procured to bring in

    cash , under the conventional method working capital evidently remain unchanged.

    "i%uidation of debtor or inventory into cash would also keep the level unchanged.

    O-"#%n, &" 'n"-%B a company operating cycle typically consists of three primary

    activities purchasing resources , producing the product ,and distributing :selling; the

    product. These activities create fund flows that are both unsynchronised and uncertain.

    They are synchronised because cash disbursement :for e#ample ,payments for resources

    purchases; usually take place before cash receipts :for e#ample, payments for resources;.

    They are uncertain because future sales and costs, which generate the respective receipts

    and disbursement ,cannot be forecasted with complete steeluracy. If the firm is to maintain

    li%uidity and function properly, it has to invest funds in various shortBterm assets :working

    capital; during this cycle. It has to maintain a cash balance to pay the bills they come due.

    In addition the company must invest in inventories to fill customer orders promptly. !nd

    finally ,the company invests in steelounts receivable to e#tend credit to its customer. The

    firm /%"# 'n!"#$'n -"#'(RMCP; is the average time period taken to convert raw

    material conversion period is the average time period taken to convert material in to

    workBin @process *MP depends on raw material consumption per day ,and :b; raw

    material inventory. *aw material consumption per day is given by the total raw material

    consumption divided by the number of days in the year :say -H7.the raw ,material

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    conversion period is obtained when raw material inventory is divided by raw material

    inventory is divided by raw material consumption per day. 'imilar calculation can be made

    for other inventories debtors and creditors. The following formula can be used

    *aw material conversion period O*MI G -H7D*M

    W'#* Kn-#'"$$ 'n!"#$'n -"#' (WIPCP; is the average time taken to

    complete the semi @finished or work @inBprocess. It is given by the formula

    Working @inB process conversion periodOWIPI G -H7D3P

    Fn$" ,'' 'n!"#$'n -"#' (FGCP) is the average time taken to sell the

    finished goods. 0=P can be calculated as follows

    0inished goods conversion periodO0=I G -H7D='

    D"=%'#$ 'n!"#$'n -"#'is the average time taken to convert debtors into cash .

    8P represent the average collection period. It is calculated as follows

    8ebtors conversion period:8P;O 8&T3*' G -H7D*8IT '!"'

    C#"%'#$ ""## -"#' is the average time taken by the firm in paying

    suppliers. It can be calculated are as follows

    reditor deferral periodO creditors # -H7 Dcredit purchases

    C$ 'n!"#$'n &" '# n"% '-"#%n, &"

    2et operating cycle :23; is the difference between gross operating cycle and payables

    deferral period.

    2"% '-"#%n, &" (,#'$$ '-"#%n, &" #"%'#$ ""## -"#').

    2et operating cycle is also referred to as cash conversion cycle. 'ome people argued that

    depreciation and profit should be e#cluded in the computation of cash conversion cycle

    since the firm

  • 8/11/2019 Kavita Project File


    to ultimetaly recover total costs and make profitsR therefore the calculation of operating

    cycle should include depreciation and even the profits. !lso, in using the aboveB mentioned

    formulae, average figures for the period may be used.

    [email protected] MATERIAL

    @ORK IN









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    T&-"$ ' W'#*n, C-%

  • 8/11/2019 Kavita Project File



    F%'#$ #"3#n, 'n$"#%'n >" "$%/%n, >'#*n, -%.

    The average credit period e#pected to be allowed by suppliers.

    Total costs incurred on material, wages.

    The length of time for which raw material are to remain in stores before they are

    issued for production.

    The length of the production cycle :or; work in process.

    The length of sales cycle during which finished goods are to be kept waiting for


    The average period of credit allowed to customers


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    The amount of cash re%uired to make advance payment

    I/-'#%n" ' W'#*n, C-% R%'$

    R%' F'#/3" R"$3% In%"#-#"%%'n



    :in days;

    !verage 'tock N


    ost of =oods


    O # days 3n average, you turn over the value of your entire

    stock every # days. (ou may need to break this down

    into product groups for effective stock management.

    3bsolete stock, slow moving lines will e#tend overall

    stock turnover days. 0aster production, fewer product

    lines, just in time ordering will reduce average days.



    :in days;

    8ebtors N -HFD


    O # days It takes you on average # days to collect monies due to

    you. If your official credit terms are JF day and it takes

    you HF days.

    3ne or more large or slow debts can drag out the

    average days. ffective debtor management will

    minimi)e the days.Payables


    :in days;

    reditors N -HFD

    ost of 'ales :or


    O # days 3n average, you pay your suppliers every # days. If

    you negotiate better credit terms this will increase. If

    you pay earlier, say, to get a discount this will decline.

    If you simply defer paying your suppliers :without

    agreement; this will also increase B but your reputation,

    the %uality of service and any fle#ibility provided by

    your suppliers may suffer.



    Total urrent


    Total urrent


    O # times urrent !ssets are assets that you can readily turn in to

    cash or will do so within 59 months in the course of

    business. urrent "iabilities are amount you are due to

    pay within the coming 59 months. 0or e#ample, 5.F

    times means that you should be able to lay your hands

    on 5.F7 for every 5.77 you owe. "ess than 5 times

    e.g. 7.6F means that you could have li%uidity problems

    and be under pressure to generate sufficient cash to

    meet oncoming demands.


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    4uick *atio :Total urrent

    !ssets B


    Total urrent


    O # times 'imilar to the urrent *atio but takes steelount of the

    fact that it may take time to convert inventory into



    apital *atio

    :Inventory S

    *eceivables B



    !s U


    ! high percentage means that working capital needs

    are high relative to your sales.

    *atio analysis can be used by financial e#ecutives to check upon the efficiency with whichworking capital is being used in the enterprise. The following are the important ratios to

    measure the efficiency of working capital. The following, easily calculated, ratios are

    important measures of working capital utili)ation.

    Bn" >'#*n, -% -'$%'n

    The firm should maintain a sound working capital position. It should have ade%uate

    working capital working capital to run its business operations. &oth e#cessive as well as

    inade%uate working capital positions are dangerous for the firm

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    Tendencies of steelumulation inventories tend to make speculative profits grow.

    This may tend to make dividend policy liberal and difficult to cope with in future

    when firm is unable to make speculative profits.

    In"3%" >'#*n, -% $ $' = n $ %" ''>n, n,"#$

    It stagnates growth . it becomes difficult for the firm to undertake profitable

    projects for non availability of working capital working capital funds.

    It becomes difficult to implement operating plans and achieve the firms profit


    3perating inefficiencies creep in when it becomes difficult even to meet dayBday


    0i#ed assets are not efficiently utilised for the lack of working capital funds. Thus


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    D"%"#/nn%$ ' >'#*n, -%

    There are no set rules or formulae to determine the working capital re%uirements of firms.

    ! large number of factors, each having different importance ,influence working capital

    needs of firms. The importance of factors also changes for a firm over time. Therefore , an

    analysis of relevant factors should made in order to determine total investment in working

    capital. The following is the description of factors which generally influence the working

    capital re%uirements of firms.

    N%3#" ' =3$n"$$working capital re%uirements of a firms are basically influenced by

    the nature of its business. Trading and financial firms have a very small investment infi#ed

    assets, but re%uire a large sum of money to be invested in working capital. *etail stores, for

    e#ample, must carry large stock like W!"BM!*T may carry, say 97,777 items. 'ome

    manufacturing businesses, such a tobsteelo manufacturer and construction firms, also

    have to invest substantially in working capital and a nominal amount in fi#ed asset. In

    contrast ,public utilities may have limited need for working capital and have to

    abundantly in fi#ed assets. Their working capital re%uirement are nominal because they

    may have only cash sales and supply services, not products. Thus ,no funds will be tied up

    in debtors and stock:inventories;. 0or the working capital re%uirements most of the

    manufacturing companies will fall between two e#treme re%uirement s of trading firms and

    public utilities. 'uch concerns have to make ade%uate investment in current assets

    depending upon the total assets structure and other variables.

    M#*"% n "/n 'n%'n the working capital needs of a firm are related to its

    sales. owever ,it is difficult to precisely determine the relationship between volume of

    sales and working capital needs. In practice current asset will have to employed before

    takes place. It is, therefore, necessary to make advance planning of working capital for a

    growing firm on a continuous basis.

    =rowing firm may need to invest in fi#ed assets in order to sustain growing production and

    sales. This will , in turn ,increase investment in current assets to support enlarged scale of

    operations. =rowing firms need fund continuously. They use e#ternal sources as well as

    internal sources to meet increasing needs of funds. These firms faces further problems

    when they retain substantial portion of profit, as they will not be able to pay dividends to


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    shareholders. It is therefore imperative that such firms do proper planning to finance their

    increasing needs for working capital.

    'ales depend on demand conditions. "arge number of firms e#perience seasonal and

    cyclical fluctuations in demand for their products and services. These business variation

    affect the working capital re%uirement, specially the temporary working capital

    re%uirement of the firm. When there is a upward swing in the economy , sales will

    increase R correspondingly ,the firm

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    C#"% -'&the credit policy of the firm affects the working capital by influencing the

    level of debtors. The credit terms to be granted to customers may depend upon the norms

    of the industry to which the firm belongs. &ut a firm has the fle#ibility of shaping its credit

    policy within the constraint of industry norms and practices. The firm should use direction

    in granting credit terms to its customers. 8epending upon individual case, different terms

    may be given to different customers. ! liberal credit policy without rating credit worthiness

    of customers , will be detrimental to the firm and will create a problem of collection later

    on. The firm should be prompt in making collections. ! high collection period will mean

    tieBup of large funds in debtors. 'lack collection procedure can increase the chances of bad

    debt. In order to ensure that unnecessary funds are not tied up in debtors, the firm shouldfollow a rationalised credit policy based on credit standing of customers and other relevant

    factors. The should evaluate the credit standing of new customers and periodically review

    the credit worthiness of the e#isting customers. The case of delayed payments should be

    thoroughly investigated.

    A!=%& ' #"% #'/ $3--"#$the working capital re%uirements of a firm are also

    affected by credit terms granted by its suppliers. ! firm will needless working capital if

    liberal credit terms are available to it from suppliers. 'upplier

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    capital re%uirements of the firm. =enerally rising price levels will re%uire a firm to

    maintain higher amount of working capital. 'ame levels of current assets will need

    increased investment when prices are increasing. owever companies that can

    immediately revise their product prices with rising price levels will not face a severe

    working capital problem. 0urther , firms will feel effects of increasing general price

    level differently as prices of individual products move differently. Thus it is possible

    that some companies may not be affected by rising prices while others may be badly


    P'"$ '# nnn, %" 3##"n% $$"%$

    ! firm can adopt different financing policies visBa vis current assets . three types of

    financing may be distinguished

    "ong term financing @ the sources of long term financing include ordinary share

    capital, preference share capital , debenture , long term borrowings from financial

    institution and reserved surplus :retained earning;.

    'hort termB the short term financing is obtained for a period less than one year. It isarranged in advanced from banks and other supplier of short term finance in the

    money market . short @term finances include working capital funds from banks ,

    public deposits commercial paper factoring of receivable etc.

    'pontaneous financingB spontaneous financing refers to the automatic sources of

    short @term fund arising in the normal course of a business. Trade :supplier; credit

    and outstanding e#penses are e#ample of spontaneous financing. There is no

    e#plicit cost of spontaneous financing. ! firm is e#pected to utilise these sources of

    finance to the fullest e#tent. The real choice of financing current asset ,once the

    spontaneous sources of financing have been fully utilised , is between the longB

    term and short sources of finance.

    D"-"nn, 'n %" /? ' $'#% n 'n,%"#/ nnn, %" --#' ''>" =&

    '/-n& /& =" #""##" %' $

    Matching approachBthe firm can adopt a financial plan which matches the e#pected life of

    assets with the e#pected life of the source of funds raised to finance assets with the


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    e#pected life of the sources of fund raised to finance a plant e#pected life of ten years R

    stock of goods to be sold thirty days may be financed with a thirty @ day commercial paper

    or a bank loan. The justification for the e#act matching is that since the purpose of

    financing is to pay for assets, the sources of financing and the asset should relin%uished is

    e#pensive as funds will not be utilised for the full period. 'imilarly , financing will have to

    be made on a continuing basis.

    When the firm follow matching approach :also known as hedging approach;,long term

    financing will be used to finance fi#ed assets and permanent current asset increases, the

    longBterm funds and as level of these assets are financed with long term financing level

    also increases. The temporary or variable current asset are financed with short @term funds

    as their level increases , the level of short term financing also increases. 1nder matching

    plan ,no short term financing will be used if the firm has a fi#ed current assets need only.

    onservative approachB a firm in practice may adopt a conservative approach when it

    depends more on long term fund for financing needs. 1nder conservative plan the firm

    finances its permanent assets and also a part of temporary current assets with long term

    financing. In periods when the firm has no need for temporary current assets, the idle long

    term funds can be invested in the tradeable securities to conserve li%uidity. The

    conservative plan relies heavily on long term financing and therefore , the firm has less risk

    of facing the problem of shortage of funds.

    !ggressive approachB a firm may be aggressive in financing the current asset. !n

    aggressive policy is said to be followed by the firm when it uses more short term financing

    than warranted by the matching plan. 1nder an aggressive policy , the firm finance a part

    of current asset with the short term financing. 'ome e#tremely aggressive firm may

    even finance the a part of their fi#ed asset s with short term financing.

    I$$3"$ n >'#*n, -% /n,"/"n%

    Working capital management refers to administration of all components of working capital

    @ cash , marketable securities, debtor :receivable; and stock :inventories; and creditors

    :payables ;. The financial manager must determine level and composition of current assets.

    It must see the right source tapped to finance current assets, and that current liabilities are

    paid in time.


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    There are many aspect of working capital management which make it an important

    function of the financial manager.

    Time @working capital management re%uires much of the financial manager As


    Investment @working capital represents a large portion of the total investment in


    ritically working capital management has great significance for all firms but it is

    very critical for small firms.

    =rowthB the need for working capital is directly related to firmn, "?/-"

    :in crores;






    'ales 6HF5.5 5J6H.6, L6L9.F, 59-9.-

    Total asset CH77.J 5CC5.C, 567CF.C, LH9.C



    LH75.7 LL9.C 55-CL.J, HFL.J

    !DT! LC.H JJ.- HH.6, 6H.-

    !D'!"' 559.J FC.L 59C.L, F-.J

    MTH COMPONENTB is a large , well diversified ,private sector marketing @cumB

    manufacturing organisation. In 977- the company

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    BEST WA TECHNOLOGis also a diversified company in the private sector.

    In 977- ,its current assets are two thirds of total assets and about a third times of

    sales. OTHERB is a joint sector:joint venture between state of =ujarat and private

    sector; company manufacturing fertili)ers, industrial products:methanol, formic

    acid, nitric acid, ammonium nitrate, li%uid nitrogen etc.; and e%uipment products.

    Its current assets in the year 977- are less than half of total assets and H7 percent of


    '.".2=I2*I2= '.". was started as a large public sector company. its share

    have been partly divested now. It has a dominant position in the power sector. Its

    manufacturing operations are spread into industrial and transportation sectors also.

    ! large number of its products are long productions cycle products. The company

    As main customer are state electricity boards who fail to pay their due on time.

    current asset s in 977F are C7 percent of total asset and 559 percent of sales.

    mpirical observation show that the financial managers have to spend much of their

    time to the daily internal operations, relating to current assets and current liabilities of

    the firms. !s the largest portion of the financial manager

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    There is a direct relationship between a firm ' >'#*n, -% /n,"/"n% n J.B.M. n BEST WA -!%. L%.

    The aim of working capital management is to strike off a balance between nn

    $%=%& n -#'%=%&.$bm.component and best way pvt. "td. working capital

    management maintaining both the factors they have financial stability as well as they

    generate profit for the business. There working capital management %uite different from

    the industry because of their business profile and for the strong financial assistance from

    their parent company. !n e#amination of the components of working capital is helpful at

    this point because of the preoccupation of management with the proper combination of

    assets and ac%uired funds. 0irst , shortBterm ,or current ,liabilities constitute the portion of

    funds which have planned and raised. 'ince there management must be concerned with

    the proper financial structure, these and other funds must be raised judiciously , if we see

    their past performance their deficiency of their fund is very low.

    *ecently in their pani pat project they faced some hindrances because of the cyclone their

    infrastructure has been destroyed but the losses has been adjusted in cost , although they

    reinstall everything actually it is not a loss but cost has been double. &ecause of this

    incident they had impact on their entire working capital management therefore

    reinstallation make their initial cash outflow increased and also their profit margin from

    this milestone has been decreased. In the same project they make a huge tower and

    presume that this tower cannot be install in one process so they adjusted their cost in a such

    manner, if the fail to do so they wont face any loss but beyond every one e#pectation they


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    install it in one take and that adjusted cost add in the profit.business needs to invest in

    current assets to sustain its business operations


    T#" #""!=" /n,"/"n%

    *eceivable management refers to the decision a business makes regarding its overall credit

    and collection politics and the evaluation of individual credit applicants. In formulating

    an operational credit policy , finance manger must analyse the marginal benefits and costs

    associated with change in credit terms ,collection efforts etc. receivable management

    proves for a firm , both, an asset and a problem an asset because of the promise of a future

    cash flow and a problem because of the need to obtain while waiting for the cash flow and

    a problem because of need to obtain financing while waiting for the future cash flow. 0irst

    a company must decide to sell good on credit. !n affirmative answer will necessitate an

    evaluation of the credit . terms which will be consistent with the goal of ma#imi)ing the

    value of the company to its shareholder. 3nce an optimum credit policy is determine , thefinancial manager must ascertain the effect it will have on sthe company As current asset

    re%uirement s.

    'teelount receivable are asset steelounts representing amounts owed to the firm as a result

    of the sale of goods and services in the ordinary course of business . The value of these

    claims is carried on the balance sheet under titles such as steelounts receivable , trade

    receivables or customer receivables. The financial manager can add value to the company

    As share by properly influencing three areas the company As aggregate invest receivables

    its credit term and credit standard . over investment in receivable can costly because the

    investment is typically financed by short term borrowing and because it may signal

    steeleptance of late paying customers. If the credit term :cash discount and period allowed

    for payment;are not competitive when compared to other seller in the same industry or are

    misaligned with the product line profitability , they can also diminish shareholder value.

    'etting credit standard for customer incorrectly can erode shareholder because of lost

    sales:when too stringent;or uncollectible sales: when too lenient ;. When a firm makes an

    ordinary sale of goods or services and does not receive payment the firms grants trade


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    credit and creates steelounts receivable which is collected in the future . this steelount

    receivable represent and e#tension of credit to customers, allowing them a reasonable

    period of time in which to pay for the goods which they have received . receivable are

    significant current assets that must be financed on a continuing basis.

    T" #""!=" /n,"/"n% -#'"$$

    C#"% -'& !#="$

    While analysing the receivable management optimum credit policy is one of the important

    aspect. In establishing the an optimum credit policy ,we should consider the important

    decision variable which influence the level of receivables. !s stated in the preceding

    section ,the major controllable decision variables include the following

    redit standard analysis

    redit terms

    ollection policy and procedure

    C#"% $%n# are the criteria which a firm follows in selecting customers for the

    purpose of credit e#tension. The firm may have tight credit standards that is it may sales

    mostly on cash basis and may e#tend credit only to the most reliable financial strong

    customer .such standards will result in no bab debt losses, and less cost of credit

    administration. &ut the firm may not able to e#pand sales. The profit sacrificed on lost


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    sales may be more than the costs saved by the firm. 3n the contrary if credit standard are

    loose , the firm may have larger sales but the firm will have to carry larger receivable. The

    costs of administering credit and bad debt losses will also increase, thus the choice of

    optimum credit standard involves a trade off between incremental return and incremental


    C#"% %"#/$the stipulation under which the firm sells on credit to customers are called

    credit to customers are called credit terms. These stipulation include :a; credit period and

    :b; the cash discount.

    ollection policy is needed because all customer do not pay the firm

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    milestone they get payment, so that the over dues would not be their and smooth pattern

    would be maintain .

    While discussing about the credit standard they provide a general credit standard to their

    client that is 5FB-7days in ground of major problem although the firm have tight credit

    standard, such credit standard will no result bad debt losses and less cost of credit

    administration, and also they don

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    'teelording to the j.b.m. and best way pvt. "td. regulation if the completion of project get

    delayed ,means the failed to steelomplished their project with in the due date the li%uidity

    damage has been deducted by their client.

    If they steelomplish their project before time they would be awarded by the bonus from

    their client. likewise they done in the petrochemical project of 'audi !rabia ,they got

    *'5Fmillion bonus and most of them had been distributed among their employees and rest

    they treated as retain earning :fi#ed deposit in bank;.while in case of their ongoing pani

    pat project they covered C7U of their milestone means all the installation of machinery

    have been completed only testing are going on and they are doing their working three

    month advance , in this project they will get bonus .

    B'n3$ 3$%/"n%

    If j.b.m. component and best way ltd. got delayed for completion of project then , per week

    .7FU li%uidity damage has been deducted by their client .9U per week has been given as a

    bonus if they done their project in advance means before completion time, a minimum gap

    would be their like in case of three year contract they have to complete minimum three

    month advance. &onus is calculated over and above the contract value and also it is treated

    as a income from other sources in the balance sheet.

    Most of their transaction is transaction but in some special case like they re%uired a

    immediate payment which is not scheduled earlier in such case they prefer to receive in

    cash so that transaction would made more faster, while same thing happen when they are

    making payment to their suppliers.

    A,n, $"3"

    The aging schedule removes one of the limitation of the average collection period. It

    breaks down receivable steelording to the length of time for which they have been out

    standing. While in case of j.b.m.component and best way ltd. they have tight credit

    standard so their average collection period would strictly maintain ,means payment must

    be receive within the 9F to -7 days. $bm.component and best way ltd. gets payment

    L7Uon the same month and 97U in the ne#t month. This process of receiving payment is

    possible because they do heavy and long run project. F!" #"$'n 6>& ' %" =/

    '/-'n"n% n ="$% >& %. !" %,% #"% $%n#


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    ompetition B generally the higher degree of competition ,the more credit granted by

    the firm. however the firm like jbm component and best way ltd. who very less

    competitor not only in India but also in world they wouldn

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    unnecessary investment. ! firm neglecting the management of inventories will be

    jeopardising its longBrun profitability and may fail ultimetaly . it is possible for a

    company to reduce its level of inventories to a considerable degree ,e.g 57to 97 percent

    ,without any adverse effect on production and sales by using simple inventory planning

    and control techni%ues. The reduction in e#cessive inventories carries a favourable impact

    on a companyAs profitability.

    Inventory Management and Inventory ontrol must be designed to meet the dictates of the

    marketplace and support the companys strategic plan. The many changes in market

    demand, new opportunities due to worldwide marketing, global sourcing of materials, and

    new manufacturing technology, means many companies need to change their Inventory

    Management approach and change the process for Inventory ontrol.

    O="%!" ' n!"n%'#"$ /n,"/"n%

    To maintain a large si)e of inventories of raw material and workBinBprogress for

    efficient and smooth production and of finished goods for uninterrupted sales


    To maintain a minimum investment in inventories to ma#imise profitability.

    In!"n%'#& 'n%#' $&$%"/$

    ! firm needs an inventory control system to effectively manage its inventory. There are

    several inventory control systems in vogue in practice. They range from simple systems to

    very complicated systems .the nature of the business and si)e dictate the choice of an

    inventory control system. 0or e#ample , a small firm may operate a twoBbin system .under

    this system , the company maintains two bins. 3nce inventory in one bin used, order is

    placed, and mean while the firm uses inventory in the second bin. 0or a large departmental

    store that sell hundreds of items, this system is %uite unsatisfactory. The departmental

    store will have to maintain a self operating, automatic computer system for tracking the

    inventory position of various items and placing order .

    ABC n!"n%'#& 'n%#' $&$%"/Blarge numbers of firms have to maintain several

    types of inventories. It is not desirable to keep the same degree of control on all the

    items. The firms should pay ma#imum attention to those items whose value is the

    highest. The firm should therefore , classify inventories to identify which items


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    should receive the most effort in controlling. The firm should be selective in its

    approach to control investment in various types of inventories. J3$%n K%/" (%)$&$%"/$B $apanese firms popularised the justBinBtime :jit;system

    in the world. In a $IT system material or the manufactured components and parts

    arrive to the manufacturing sites or stores just few hours before they are put to use.

    The delivery of material is synchronised with the manufacturing cycle and speed.

    $IT system eliminates the necessity of carrying large inventories, and thus saves

    carrying and other related costs to the manufacturer. The system re%uires perfect

    understanding and coordination between the manufacturer and supplier in terms of

    the timing of delivery and %uality of the material. Poor %uality material or

    components could halt the production. The $IT inventory system complements the

    total %uality management. The success of the system depends on how well a

    company manages its suppliers. The system put tremendous pressure on suppliers.

    They will have to develop ade%uate system and procedure to satis factory meet the

    needs of manufacturer. O3%$'3#n,is a system of buying parts and components from outside rather than

    manufacturing internally. Many companies develop a single source of supply , and

    many others help developing small si)e suppliers of components that they re%uire.

    Tata motors has for e#ample developed number of ancillary units around its

    manufacturing sites that supply parts and components to its manufacturing plants. C'/-3%"#$" n!"n%'#& 'n%#' $&$%"/$B a computerised inventory control

    system enables a company to easily tracks large items of inventories. It is an

    automatic system of counting inventories , recording withdrawals and revising the

    balance. There is an inBbuilt system of placing order as a computer notices that the

    reorder point has reached.

    In!"n%'#& /n,"/"n% =& .=./. '/-'n"n% n ="$% >& %.

    Inventory management is concerned with keeping enough product on hand to avoid

    running out while at the same time maintaining a small enough inventory balance to allow

    for a reasonable return on investment. Proper inventory management is important to the

    financial health of the corporation. #cessive level of inventory, however ,results in large

    inventory carrying costs, including the costs of the capital tied up in the inventory

    warehouse fees , insurance etc. while after considering all this factor jbm component and


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    best way ltd. decide to follow justBinBtime techni%ue for managing their inventory. *eason

    for choosing justBinBtime techni%ue are as follows

    While j.b.m. component and best way ltd. usually work on heavy projects and all

    the projects are different in nature so their re%uirements are different from each

    other , that&


    $bm.component and best way ltd. provides industrial service to the refinery , gas ,

    petrochemical plant though all this project are heavy project involvement of fund

    is also very high, that

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    domestic procurement of raw material , for an e#ample there are three party jbm.

    com and best way ltd.8"I,I3" P!2I P!T,?'!I" +3"+!T!, when sail

    despatched the raw material they have to charge sales ta# , if 'amsung would

    receive the raw material and put it in his own warehouse then send to the I3"

    again 'amsung would have to charge sales ta# means same item ta# twice

    automatically cost has been increase. 0or that reason 'amsung took delivery to the

    sail in the middle 'amsung employee endorsed and despatched to the I3" paniB

    pat ,'amsung would not posses any material in his own warehouse like this way

    warehouse e#pense of $bm.component and best way ltd. have been save and also

    they avoid double ta#ation. In case of imported raw material they follow H, S"S" T#n$%'n6 for an e#ample a &ra)ilian supplier in favouring the

    representative of $bm.component and best way ltd. of high sea sale agreement with

    the &ra)ilian company to transfer the ownership to I3". once the material landed

    in Indian port all the ta#es paid by I3".

    !n inventory monitoring cell has been constituted at the corporate offices.

    The purchases were controlled by the materials management group reporting to the

    director of finance .

    Monthly review of total inventory at the level of chief e#ecutive of plants andcorporate management is introduced.

    Inventory control is dovetailed with the budgeting system

    Top 577 inventory items were identified for closer scrutiny and control.

    In!"$%/"n% n n!"n%'#"$

    In managing the inventories, the firmAs objective should be in consonance with

    shareholders wealth ma#imisation principle. To achieve this , the firm should determine the

    optimum level of inventory . fficiently controlled inventories make the firm fle#ible.

    Inefficient inventory control result in unbalanced inventory and infle#ibility @ the firm may

    sometimes run out of stock and sometimes may pile up necessary stock. This increases the

    level of investment and make firm unprofitable.

    To manage inventories efficiency ,answer should be sought to the following two



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    ow much should be orderedQ

    When should it be orderedQ

    While in case of $bm.component and best way ltd. when should it to be ordered considered

    to be more important ,because of uncertainty and is a problem of determining the reBorder

    point. 3ne of the major inventory management problems to be resolved is how much

    inventory is replenished. If the firm is buying raw materials, it has to decide lots in which it

    has to be purchased on replenishment. If the firm is planning a production run , the issue is

    how much production to schedule, these problems are called order %uantity problem.

    8etermining an optimum inventory level involves two types of costs:a;ordering costs:b;

    carrying cost.

    O#"#n, '$% is includes the entire costs of ac%uiring raw material. They include cost

    incurred in ordering , transporting, receiving, inspecting ? storing. In case of jbm.

    omponent and bes tway ltd. ,their transporting costs would be adjusted in material cost

    or they pay separately to their vendor. 3rdering costs increase with the number of ordersR

    thus the more fre%uently inventory ac%uired ,the higher the firms ordering costs.

    $bm.component and best way ltd. placed order steelording to their milestone so it is

    difficult to identify their ordering costs.

    C##&n, '$%$incurred for maintaining a given level of inventory. This include storage

    ,insurance ,ta#es. $bm component and best way ltd. used to paid ta# addition to their

    material cost, they usually pay custom duty, 0&T, service ta#, e#cise duty, vat.

    T#" -&=" /n,"/"n% =& =/. '/-'n"n% n ="$% >& %.

    $bm component and best way ltd. payment system is based on 0I03 basis. !lthough they

    have certain procedure for making payment ,they divide their vendor like international?

    national basis.

    F''>n, $%"- >'3 =" /n%n" =& %" >" /n,n, %#" -&=".

    They familiari)e with their vendors, then they decide the time when actually

    material has been utili)e steelording to that the time of delivery. &ased on material

    re%uired they gave advance to their supplier ,advance would made 57Uto5FU.


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    3nce the material is despatched to the site ,'amsung installed it and commission

    the material after successful installation, they bill to the customer as per the term

    money received by 'amsung that is generally -7to J7 days. In case of their imported material they pay through letter of credit procedure is

    banker given assurance to the vendor then depend upon viability state bank would

    allot letter of credit, it is not necessary that only state bank can issue letter of credit

    but there would be mutual agreement while choosing bank , if they have large

    amount in some bank that bank would gave more preference. In case of domestic

    supplier all the payments would be done on cash.

    While negotiating the prices to the vendors at the beginning the payment term

    generally finali)ed .

    ! recent e#ample of there payment system ,they are making three watch tower in

    pani pat project, they complete their work in scheduled time but they get payment

    for second watch tower then they would make payment to those vendor only who

    supply material to the second watch tower. If they failed to receive the payment for

    first ?third watch tower then the raw material supplier have to wait till the

    payment receive but within -7days $bm.component and best way ltd. have to make

    payment to their supplier and if their client failed to make payment for this specific

    task then they have to pay by their own.

    C$ /n,"/"n%

    ash is a important current asset for the operation of the business. ash is the basic input

    needed to keep the business running on a continuos basis R it is also the ultimate output

    e#pected to be realised by selling the service or product manufactured by the firm. The

    firm should keep sufficient cash, neither more nor less. ash shortage will disrupt the


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    items ,such as marketable securities or bank times deposits ,are also included in cash. The

    basic characteristics of nearBcash assets is that they can readily be converted into cash.

    =enerally , when a firm has e#cess cash ,it invests it in marketable securities. This kind of

    investment contributes some marketable securities. This kind of investment contributes

    some profit to the firm.

    management is concerned with the managing of :5;cash flows into and out of the firms,

    :9;cash balances held by the firm at a point of time by financing deficit or investing surplus

    cash. It can be represented in the cash management cycle.

    C$ Mn,"/"n% C&"

    ash management is also important because it is difficult to predict cash flows steelurately

    ,particularly the inflows ,and there is no perfect coincidence between the inflows and

    outflows of cash. during some periods, cash flow steelurately ,particularly the inflows and

    outflows of cash. 8uring some period ,cash outflows will e#ceed cash inflows ,because

    payment for ta#es ,dividend or seasonal inventory build up. !t other times , cash inflow

    will be more than cash payment because there may be realised in large sums promptly.

    0urther , cash management is significant because there may be large cash sales and

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    debtors may be realised in large sums promptly. 0urther , cash management is significant

    because cash constitutes smallest portion of the total current assets , yet management As

    considerable time is devoted in managing it. In recent past , a number of innovation have

    been done in cash management techni%ues. !n obvious aim of the firm these days is to

    manage its cash affairs in such a way as to keep cash balance at a minimum level and to

    invest the surplus cash in profitable investment opportunities. In order to resolve the

    uncertainty about cash flow prediction and lack of synchronisation between cash receipts

    and payments, the firm should develop appropriate strategies for cash management. The

    firm should evolve strategies regarding the following four facts of cash management.

    C$ -nnn,@ cash inflows and outflows should be planned to project cash

    surplus or deficit for each period of the planning period. ash budget should be

    prepared for this purpose.

    Mn,n, %" $ '>$B the flow of cash should properly managed. The cash

    inflows should be steelelerated while as far as possible , the cash outflows should

    be decelerated .

    O-%/3/ $ "!"l @ the firm should decide about the appropriate level of cash

    balances deficiency should be matched to determine the optimum level of cashbalances.

    In!"$%/"n% ' $3#-3$ [email protected] surplus cash balances should be properly invested

    to earn profits. The firm should decide about the division of such cash balance

    between alternative short term investment opportunities such as bank deposits,

    marketable securities, or interBcorporate leading.

    C$ /n,"/"n% n J=/.'/-'n"n% n ="$% >& %.

    ash is the lifeblood of a business firm, it is needed to ac%uire supplies, resources,

    e%uipment, and other assets used in generating the product and service provided by the

    firm. It is also needed to pay wages and salaries to workers and managers. Ta#es to

    government , interest and 3bjectives to creditors and dividends to shareholders. More

    fundamentally , cash is the medium of e#change which allows management to carry on the

    various activities of the business firm from day to day. ash is a important aspect of

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    business but more is managing it so every company have it own techni%ue . The $bm

    component and best way ltd. strategies regarding the following four facts of cash


    ash planning B $bm component and best way ltd. makes cash planning steelording

    to their projects, like in case of their pani pat project ,they considered it to be long

    term project and cash flow is systematic. !nother project which I took as a

    e#ample is considered to be a scattered project , because it is not a single long term

    project. &asically head office +orea globally participating ,when they are biding

    somewhere they gave order to 'amsung India for to make drawing ? proposal.

    3nce $bm component and best way ltd. korea received order then they gave order

    to the $bm component and best way ltd. India for making further industrial facility

    as per the terms $bm component and best way ltd. India received payment from

    $bm component and best way ltd. +orea. While for further clarity I made the cash

    budgeting for these one project.

    Managing the cash flowB the flow of cash should properly managed. The cash

    inflows should be steelelerated while as far as possible , the cash outflows should

    be decelerated , $bm component and best way ltd. cash flows are %uite fi#ed in

    nature because they prefer to do heavy ?long term project , where payment are

    received steelording to the completion of the work ,usually they divide their work

    in several milestone and steelording to the completion of milestone they receive

    payment from their client. !part from that they get full financial assistance from

    their parent company $bm component and best way ltd. +orea , its help them to

    make their cash flow more viable. In the same they maintain their cash outflow

    ,they prioritise their payment first is statutory payment, second is employeessalaries ,third is administrative e#penses and fourth one is vendors and others. In

    this way the make balance in their outflow they never face cash deficiency because

    of their viable strategies and full support from their parent company.

    Investment of surplus cashB it

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    government norms, and banks are free to take business decisions in granting finance for

    working capital.

    $bm component and best way ltd. follows several techni%ue to finance their working


    !lthough they have viable financial structure ,but when they start new project they

    take initial advance from their customer percentage depend upon the contract value.

    'amsung faced default risk in the situation of any steelident happened in the place

    of work. It may be happen de to the natural calamities or technical fault. 0or that

    particular situation they took loans ?advances from their head %uarter so the flow

    of working capital would be maintain .

    $bm component and best way ltd. take overdraft in rare cases ,when head %uater

    failed to provide them and they re%uire fund in short notice then only take overdraft

    and they never cross their overdraft limit.

    Their fund flow has been planned in centrali)ed manner and that

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    their nature of business and implementation of new techni%ue which help them to smooth

    flow of the fund.

    Performance of $.&.M. and &'T W!( pvt. "td. +orea and India both are affluent. Their

    mi#ed corporate culture and the area of e#pertise in metal processing construction

    contract help them to get succeed in every project.

    Working capital objectives

    $bm component and best way ltd. aims to maintain its position as a worldBclass company,

    devoting their human resources and technology to create superior products and services,

    while contributing to a greater society for everyone. To this end, they share and pursuecore values People, #cellence, hange, Integrity, and oBprosperity. !s part of an effort

    to reali)e these values, they will also adhere to 'amsung

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    O="%!"$ 4 $bm component and best way ltd. care for the environment, health and

    safety. They engage in environmentally friendly management practices. They value

    peoples health and safety.

    O="%!"$ 8 $bm component and best way ltd. are a socially responsible corporate

    citi)en. They actively perform their duties as a corporate citi)en. They respect the

    characteristics of local customs, culture, and society, while striving to prosper alongside

    local communities. They build winBwin relationships with business partners.

    SCOPEworking capital management is very important aspect in running a business

    house successfully ? smoothly on daily basis and on long term basis. 'o in depth

    knowledge of working capital management give us idea how to utilise the funds so that

    cash asset can be utilised in best manner without any obstacles on business operation.

    The study of working capital enable us the recognise the need of future capital ? study

    tells us how to utilise it in best manner. The purpose of the report is to get the in depth

    understanding of the process of working capital management. With the growing Indian

    economy and the liberal government policies for infrastructure, the demand for MT!"

    services is increasing and seeing this as an opportunity is under taking many new projects

    for e#pansion of the production which are under implementation for increasing the

    capacity of the plants. $bm.component and best way pvt. "td. world recognised MT!"

    company so the management of working capital consist of different of new techni%ue

    which is not common in Indian MT!" industry.

    "IMIT!TI32' 30 T 'T18(

    B3$& S"3" ' C'n"#n" E?"3%!"$ The concerned e#ecutives were having very

    busy schedule because of which they were reluctant to give appointment.

    T/"The time duration could not provide ample opportunity to study every detail

    of working capital management of the company.

    Un>#"n"$$ #ecutives were unaware of many terms related to working capital

    study while asking to them.

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    C'n"n% In'#/%'n !s the company on steelount of confidential report has

    not disclosed some figures. Moreover, in some cases separate steelounts of division

    are not separately maintained thereby, leading to restrictions in study.

    'econdary data used This project is completed by using secondary data.

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    Working apital Management is very important aspect of financial management. Working

    capital need on daily basis for smoothly running a business house. so, procurement ?

    proper availability of working capital is very important in every business. >arious studies

    and research has been on this industry by e#perts. ere are the lists of few books that have

    been referred to for the purpose of the study.

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    *esearch methodology consist of mode of data collection or generation and type of

    analysis of data. 8ata collection methods consist of primary collection, secondary

    collection, %ualitative data and %uantitative data. while primary data consist of 3riginal

    data collected for a specific research goal like 4uestionnaire surveysR Interviews formal or

    structured. Then secondary data consist of data originally collected for a different study,

    used again for a new research %uestion like Published statistics , Published te#ts ,

    documents, forms reports.

    !nother part is 4ualitative data and 4uantitative data. While %ualitative 8ata involvingunderstandings of the comple#ity, detail and conte#t of the research subject, often

    consisting of te#ts such as interview transcripts and field notes, but also audiovisual

    material and %uantitative 8ata that can be described in terms of objects, variables and their


    In regarding my research work I was strictly relied upon the primary and secondary

    method of data collection. Primary research consist of collection the financial information

    to the respective individuals of the company, through in depth interview and study of

    different financial statement of the company. While my half of the thesis is relied on the

    primary data collection as my internal guide is a general manager of finance in jbm.

    omponent and best way pvt ltd. so through in depth interview of my guide is one of my

    important source of data collection and in the same way he used to provide all the

    relevant statement of the company which I can follow and make analysis of it.

    While my secondary research consist of collection of data about the brief introduction of

    the company ,their ranking in the market ,condition of their e#isting project from the

    different website ,company brochure, yearly company maga)ine. !part from the

    information about company , I collected information about working capital management,

    how different companies managing their working capital , different aspects of working

    capital management.

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    R"$"# D"$,n

    The research design used in this study is "$#-%!".

    S/-n, P#'"3#" The sampling procedure consists of

    P#'==%& '# #n'/ $/-n, mployees are selected for study using

    probability sampling. It is one in which each and every unit of the population has

    an e%ual chance of being selected into the sample.

    N'n-#'==%& '# n'n#n'/ $/-n,Managers are selected for study using

    2onBprobability sampling. In this the chance of including an elementary unit of

    population in the sample cannot be determined and hence they do not lend

    themselves to a statistical treatment and analysis.


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    'econdary sources of data collection was used for the study of working capital

    management at $bm component and best way pvt. "td.


    8ataobserved or collecteddirectlyfrom firstBhand e#perienceis called primary data.

    'ources to collect Primary data are through

    &y administering the %uestionnaireR

    &y nonB participative observationR

    &y face to face discussions R


    !vailable records

    !nnual reports

    ompany maga)ines, etcX.


    The survey will be conducted at 'amsung limited 0aridabad. This survey is related to study the

    working capital management 'amsung limited 0aridabad. The study is confined to only one

    company so that, it has limited scope for getting more knowledge.


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    .#Amo$nt o/ 0orking *apital in 1i2erent 'ear%.

    Year% 00=0> 00>0? 00?10 01011


    *rore%, 1=1 ;6

    31> >>


    I o+" %h!% #" %he 2e!r 00=0> or5#" !%!, !* 1=1.=>

    rore* h#,e #" 2e!r 01011 #% !* >>.33 rore*.

    5# T'pe o/ 0orking *apital $%e1 in 34m#*omponent

    an1 4e%t 0a' lt1#

    Per-!"e"% Te-&or!r2

    =; 6


    00=0> 00>0? 00?10


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    O+% o %o%!, or5#" !%!, o %he o-&!"28 =; #*&er-!"e"% !" 6 #* %e-&or!r2 or5#" !%!,.

    6# Met&o1 $%e /or Material 1i%pat*&:


    Re*+,% *ho* %h!% -o*% o %he %#-e* o-&!"2 !o&% LEFO

    -e%ho %o #**+e #"/e"%or2. A" or o%her %2er* o-&!"2 !,*o

    +*e FIFO -e%ho . +% *o-e%#-e* o-&!"2 !,*o !&&,2 HIFO

    o%her -e%ho* %o- *+&&,2 #"/e"%or2

    Met&o1 FIFO LIFO HIFO O%her



    1< 0 10 " !" $3"n% >'#*n, -% n n& #/ 6% /*"$ ,'' #"%'n$- >%

    $3--"#$ %#'3, %/"& -&/"n% %' %"/.

    D#/#e" #*%r#+%e* re+,!r,2 e%ee" *h!reho,er*

    #%h e"o+h or5#" !%!,.

    Ie!, or5#" !%!, r!%#o he,&* #" e!*2 ,o!"* ro- !"5*.


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    completion they receive bonus from their client .&onus is calculated over and above the

    contract value and also it is treated as a income from other sources in the balance sheet.

    While their aging sechdule they gets payment L7 percent on the same month and 97U .

    This process of receiving payment is possible because the do heavy and long run

    project.There payment system is based on 0I03 basis. !lthough they have certain

    procedure for making payment ,they divide their vendor like international? national basis.

    &ased on material re%uired they gave advance to their supplier ,advance would made

    57Uto5FU. They used letter of credit for international supplier? for national supplier they

    placed bill as per terms of agreement.

    They follow just @inBtime techni%ue for managing their inventory, and it help them to be

    more cost effective. &ecause of this they have to purchase si)eable imported raw materials

    and compulsory bulk purchases of items like steel and construction item !part from that

    $bm.component and best way derive some new techni%ue under the heading of $IT, which

    is E1 %#n$%'n7 H, $" $".

    ash is a important aspect of business but more is managing it so every company have it

    own techni%ue . The $bm.component and best way strategies regarding the following four

    facts of cash management ash is a important aspect of business but more is managing it

    so every company have it own techni%ue . $bm.component and best way makes cash

    planning steelording to their projects, like in case of their pani pat project ,they considered

    it to be long term project and cash flow is systematic. $bm.component and best way ltd.

    cash flows are %uite fi#ed in nature because they prefer to do heavy ?long term project ,

    where payment are received steelording to the completion of the work ,usually they

    divide their work in several milestone and steelording to the completion of milestone they

    receive payment from their client. while their investment of surplus cash ,they gave

    financial assistance to their parent company and other one is In' -'' $&$%"/.

    $bm.component and best way pvt. "td. finance their working capital by different sources

    likewise when they start new project they take initial advance from their customer

    percentage depend upon the contract value. In case of default risk they take loans and

    advance from their head %uarter so the flow of working capital would be maintain. In rare

    cases they use overdraft ,sometime they re%uire fund in very short notice.


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    If we see the trend year wise then their net working capital is increased in year 9755as

    comparison to year 9757. Then there is continuous rise in the debtors for two years,where

    as it considered to be as a good sign for the business.

    Whereas their cash balance is decreasing because they e#pand their business . ompany is

    utili)ing the fi#ed cash for e#ploding the projects that is good for growth.

    They would not provide any loan and advances to outsider or any supplier. they only give

    loan to their parent company .

    There current liability is also decreasing "ower current liabilities indicate that company is

    not using credit facilities by creditors. I