PROJECT REPORT ON WORKING CAPITAL MANAGEMENT

CONTENTSSr.No.Name Of The TopicPage No.

1.Introduction3

A] Company Profile13

B] Details of Promoters22

2.Objective Of The Study27

3.Research Methodology28

A] Primary Data41

B] Secondary Data41

4.Data Analysis And Interpretation44

5.Limitation of Study61

6.Findings62

7.Recommendations / Suggestions64

8.Bibliography65

Executive summaryNirlep Appliances Ltd. was incorporated in 1968 by Mr.Nilkanth Bhogale. In the beginning it is the company which used to deal in hospital & laboratory equipment (1960).Nirlep Appliances Ltd. is the pioneer in India in manufacturing of Non-stick Cookware. It has about 40% of market share in Non-stick Cookware.The topic of the project undertaken was Working Capital Management. The idea behind selection of this project was mainly due to its nature and importance in the overall financial management of organization.

The important of working capital management is reflected in the fact that financial managers spend a great deal of time in managing current assets and current liabilities. Arranging short term financial, negotiating favourable credit term, controlling cash movement managing accounts receivable and monitoring Investment in inventories consumes a great deal of time of finance manager.

Working Capital means excess of current assets over current liabilities. It refers to all aspects of the administration of both current liabilities. The basic objective of working Capital Management is to manage the firm's current assets and current liabilities in such a way that the satisfactory level of working capital is maintained. Organizations are spending corers of rupees on working capital requirement each year disproportionately for buying large amount of current assets.The need of working capital Arise from the cash/operating cycle of the firm. Efficiency of operations accelerates the pace of cash cycle and improves the working capital turnover resulting in reduced requirement of working capital. A firm should have adequate working capital to support its budgeted level of activity in terms of production/sales. It should have neither more nor less working capital than required.

The Finance Manager also has to calculate the firms risk taking and debt serving capacity for compounding the funds. The ratio analysis is done to know the performance of the organization. The rationale of ratio analysis lies in the fact that it makes related information comparable. Comparison with related facts is, therefore, on the basis of ratio analysis. Analysis of financial statements is of interest to lenders (short-term as well as long-term), investors, security analysts, managers and others. If properly analyzed and interpreted, financial statements can provide valuable insights into a firms performance.

This project is based on analysis and interpretation. The researcher has alternative solution and suggestions to give to the organization. Lastly at the end of report, contains bibliography.

INTRODUCTION

Working Capital (Meaning and Definition):Working capital is defined as Excess of current asset over current liabilities and provisions It is the capital which is required for the daily working of the business. Working capital is also called as circulation capital.

Definition:Working capital is the amount of funds necessary to cover the cost of operating the enterprise

Concept of working capital:

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

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 external analysis because of its close relationship with the current day to-day operations of a business. Every business needs funds for two purposes.

Long term funds are required to create production facilities through purchase of fixed assets such as plants, machineries, lands, buildings & etc

Short term funds are required for the purchase of raw materials, payment of wages, and other day-to-day expenses. It is otherwise known as revolving or circulating capital. It is nothing but the difference between current assets and current liabilities.

Working Capital = Current Asset Current Liability

Businesses use capital for construction, renovation, furniture, software, equipment, or machinery. It is also commonly used to purchase inventory, or to make payroll. Capital 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 access to more working capital when we need it.

Components of working capital

Current Asset- Current assets are the assets which can be converted into cash within an accounting year.

Current Liabilities- Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year.Current Liabilities

Current Assets

Bills Payable

Sundry Creditors

Outstanding expenses

Accrued expenses

Bank Over draft

Cash in hand / at bank

Bills Receivable

Sundry Debtors

Short term loans

Investors/ stock

Temporary investment

Prepaid expenses

Accrued incomes

Classification of working capital

Working capital may be classified in to ways:o On the basis of concept.

o On the basis of time/ Periodicity of RequirementsOn the basis of concept

On the basis of concept working capital can be classified as gross working capital and net working capital.1. Gross working capital2. Net working capital

Gross Working Capital = Total of Current Asset

Net Working Capital = Excess of Current Asset over Current LiabilityOn the basis of time On the basis of time, working capital may be classified as:

1. Permanent or fixed working capital.2. Temporary or variable working capital

OPERATING CYCLE:The working capital requirement of a firm depends, to a great extent upon the operating cycle of the firm. The operating cycle is defined as the time duration starting from the procurement of goods or raw materials and ending with the sales realization. The length and nature of the operating cycle differs from one firm to another depending upon the size and nature of the firm.

A companys operating cycle typically consists of three primary activities: 1. Purchasing resources, 2. Producing the product and 3. Selling the product.These activities create funds flow that is both unsynchronized and uncertain. This is unsynchronized because cash disbursements usually take place before cash receipts. This is uncertain because future sales and costs, which generate the respective receipts and disbursements, cannot be forecasted with complete accuracy.

The concept of operating cycle is useful in controlling as well as forecasting working capital needs. Longer the operating cycle the more working capital funds the firm needs, while shorter operating cycle period indicates that there is no locking up of funds in current assets. Thus the operating cycle of a firm consists of the time required for the completion of the chronological sequence of the following:

i. Procurement of raw materials and services.

ii. Conversion of raw materials into work-in-progress.iii. Conversion of work-in-progress into finished goods.

iv. Sale of finished goods (cash or credit).

v. Conversion of receivables into cash.The segments of the operating cycle include raw material storage period, conversion period, finished goods storage period and average collection period before getting back cash along with profit. The total duration of all the segments mentioned above is known as gross operating cycle period. When the average payment period of the company to its suppliers is deducted from the gross operating cycle period the resultant period is called the net operating cycle period or the operating cycle period.

Need for adequate working capital:

The need and importance of adequate working capital for day to day operation can hardly be underestimated. Every firm must maintain a sound working capital position otherwise; its business activities may be adversely affected. Thus every firm must have adequate working capital.

The excess working capital, when the investment in working capital is more than the required level, may result in-

a). Unnecessary accumulation of inventories resulting in wastage, theft, damage etc.

b). Delay in collection of receivables resulting in more liberal credit terms to customers than warranted by the market conditions.

c). Adverse influence on the performance of the management.

On the other hand, inadequate working capital situation is not good for the firm. Such a situation may have following consequences:

i. The fixed asset may not be optimally used.

ii. Firms growth may stagnate.

iii. Interruptions in production schedule may occur ultimately resulting in lowering of the profit of the firm.

iv. The firm may not be able to take benefit of an opportunity.

v. Firms goodwill in the market is affected if it is not in a position to meet its liabilities on time.

Thus taking in to consideration these consequences, financial manager must establish:

1. Well defined working capital policy,

2. Self decision of working capital management system.

Below are some types of policies in working capital management:1. Moderate policy, in which value of current asset increases in proportion with sales level.

2. Conservative policy, in which value of current asset increases more rapidly than sales level. Such a policy tends to reduce the risk of shortage of working capital by increasing the safety component of current asset. The conservative policy also reduces the risk of non-payment to liability.

3. Aggressive type of policy, sales level increases more in percentage than increase in current assets.

This type of aggressive policy has many implications. These implications are as under:

i. The risk of insolvency of the firm increases as it maintains low liquidity.

ii. The firm is exposed to greater risk as it may not be able to face unexpected changes in market.

iii. Reduced investment in current asset will result in increase in profitability of the firm.

SIGNIFICANCE OF WORKING CAPITAL:

INDUSTRY PROFILENon-stick cookware products are popular in the urban households because it helps to cook food easily and save our time. The non-stickiness property helps to clean and maintain the cooking utensils easily. There are many brands of non-stick cookware products available in India. Here, we have listed out the most popular non-stick cookware brands in India.

Nirlep:Nirlepis the most preferred name in the Indian market which was established in the year 1968 and it has lot of experience in cookware manufacturing sector. It is the first company to produce non-stick cookware items in India. Apart from supplying quality cookware products in India, it also exports professional non-stick pans to European markets. With many domestic and international certifications, Nirlep plays an important role to provide innovative cookware in Indian homes. In the year 2011, Nirlep launched a new product calledAspa.

The features of Aspa includes,

1. Four layered non-stick coating

2. Requires less fuel and oil

3. Easy to clean and maintainTTK Prestige:TTK prestigeoffers various kitchen appliances for Indian homes. It is the first kitchenware company in India to receive the ISO 9001 Certification and the PED/CE Certification by TUV, Germany. The design and durability are always the first class type in the Prestige cookware models. It deals with almost all types of cooking products. Hawkins:Hawkinshas the experience of more than 40 years in kitchenware products. Futura non-stick cookware from Hawkins is the most famous one. The products are thermal efficient and long-lasting. The sales and services provided by this company are usually excellent.

Pigeon:Pigeon is a well known kitchen appliance brand that provides top quality non-stick cookware to Indian customers.

Alda:Alda produce wide range of kitchen products in India. Alda uses latest innovation and technological advancement to manufacture the products. TheAlda non-stick cookwareuses unique Daikin non-stick coating from Japan which gives the most resistant non-stick surface for long-lasting usage.Usha:Usha Shriram enterpriseswas established in the year 1983. At present, it provides wide range of home appliances and consumer durable products. The non-stick cooking equipments from this company includes Tawa, Dosa tawa, Grill pan, Kadai and Frying pan.

Crystal:Crystal fulfills each and every household needs in India since 1971. In the year 2007, it launchedHigh end 3 coat platinum Teflon coated non-stick cookware. Crystal is also a certified licensee of DuPont USA. Concave griddle, Flat griddle, Fry pan, Kadai, Appachatti are thenon-stick productsof this company.

Premier:Premier provides quality kitchen products in India since 1974. It has diverse branches at all parts of India and customer service centres at many parts of the globe. Therefore the cookware products are also available outside India. As it has vast network, it was awarded the National best exporter award for the year 2009 2010. ThePremier non-stick cookware productsare modern, user-friendly and consume less amount of oil for cooking. Apart from ordinary non-stick products, it also provides some unique products such asNon-stick Appam panand Paniyara pan for south Indian cooking.COMPANY PROFILE

Company Nirlep was established in 1968 by a visionary businessman Mr.Nilkanth Bhogale who used to have interest in trading laboratory and X-ray related equipments. This was the period when stainless steel was not freely available in India; it was only available on quota basis. As such there was a great deal of undersupply of laboratory related equipments in India.

Mr.Bhogale who realised then, the necessity for an alternative to stainless steel equipments & manufactured the Utensils coated with poly tetra fluoro ethylene (PTEE). He thus pioneered the concept of non-stick cookware in India.

The first Nirlep product was launched in Mumbai. It was a fry pan with code name F.P. 24. It was received suspicious. It was not surprising because Indian housewife had never seen anything similar to it before.

In the initial stage Nirlep had just one distributer in Mumbai. But today the company is having a wide distribution network of about 85 distributers across the country coupled with a strong and dedicated field force to ensure sales and services at around 9000 retail outlets.

Today, company is pioneer and leader with the market share of 35% in the non-stick cookware segment in the country. The company exports its products to countries like Saudi Araobia, Dubai, Maldives & Sri Lanka. The company is accredited with the quality certification ISO 9001:2000 of AS/NZS. The company is having dedicated employees strength of about 225.

The company is having six manufacturing plants out of which three are devoted to the cookware business; namely Nirlep Appliances Ltd., Amulet Industries Pvt. Ltd., & Bhogale Coatings Pvt. Ltd. The company has also undertaken several turnkey projects for setting up manufacturing plants for the non-stick cookware in Middle East & Africa. The other three plants are located in Waluj Industrial area, Aurangabad namely Marathwada Auto compo. Pvt. Ltd., Umasons Steelfeb Pvt. Ltd.

One & half year back the company entered into a strategic technology tie up with Smaltriva, an Italian company which is world leader in industrial bake ware coatings. The industrial bake ware coating system (called the SBS coating) denotes the most advanced non-stick coating systems used by the most important food and bakery industries in the world. The SBS coating system can be applied only by the most experienced licensed applicators and Nirlep is proud to be one among them.

The companys fully integrated manufacturing setup for non-stick manufactures high quality kitchenware such as non-stick fry pans, Tawas, Kadhais, Appam Chatty, Appe Patra, sandwich maker, pots and more.

The company strongly believes in three basic tents Integrity In Business, Quality and Fair Price.

The company is having the current capacity of manufacturing 1.2 Million kitchenware pans every year and now poised to have ambitious growth plan of achieving the target of 1.8 Million kitchenware pans. The management is taking conscious efforts to invest heavily not only in technological advancement but in its human capital as well. A Dedicated & focused efforts of all the employees will make this successful.HISTORY OF THE COMPANY:

In 1960, Mr.Nilkanth Bhogale (Father of our MD, Mr.Mukund Bhogale) had a company which used to deal in hospital & laboratory equipment. At that time Mr.Yashwant Bhogale (Brother of Mr.Nilkanth Bhogale) had a cookware shop in Dadar, now known as Nirleponline.com.

Mr. Mr.Nilkanth Bhogale had ordered a shipment of PTFE (Polytetra Flora Ethelyn), which was to be used in manufacturing on hospital & laboratory equipment. By the time the shipment reach Mumbai, there was no use of it. Since PTFE was very expensive the overheads were very high. Since PTFE has non-stick properties, the idea was struck to manufacture Non-Stick cookware.

In 1964, Mr.Nilkanth Bhogale moved from Mumbai to Aurangabad and Started production. The 1st Pan was manufactured for Rs. 80, whereas the normal pans available then used to cost Rs. 8. To sell these cook wares, promotions were done by live demonstrations at social clubs, Women gatherings etc. Soon other big cities also started souring Non-stick tawa. The key challenges faced by the company were Logistics, Raw Materials, Labour Intensive, production, quality etc.

Slowly the production started increasing & the network got bigger. In 1972, 1st Consignment was sent to Poland, and for this we got recognition from the Indian Government. In 1974, 1stpress advertisement was released and now the company would increase its market network & product capacity. In 1980, new plant was set up at Jalna.

In 1978, 1st TV commercial was aired, due to which all non-stick tawa of Nirlep were bought away in no time.

There were a few business enquires that came from Dubai, Ghana & Sri Lanka. Nirlep had set up non-stick cookware plants for them. Now the company not only exported products but also exported technology and this made them the market leaders.

Since 1980, field staffs were employed who acted as Liaison officers between the customers retailer distributors company. From time to time the senior team at Aurangabad visited the markets to get 1st hand information. This year, markets opened and new competitors came into picture. Pressure cooker companies and thermo ware companies also entered Non-stick cookware business.

In 1997, Nirlep offered sales promotion scheme to its retailers. Sell X number of pans and get a foreign trip free. The company then started doing sales via door to door, sales via exhibitions, institution sales, product tie-ups and exports. During Dot Com boom, Nirlep also sold its products on online portals. Its own website www.nirlep.com has been developed..

In 1985, Nirlep had shifted its marketing HQ from Mumbai to Aurangabad. The idea was increase the interface between the marketing team and manufacturing team.

Earlier there were 3 separate companies

1. Silver Light

2. Dura ware Ltd Jalna &

3. Nirlep Distributors, which is now one entity Nirlep Appliances Ltd.

NIRLEP continues to be a strong market leader in the Indian non-stick cookware with a market share of around 40%. NIRLEP products are manufactured at Aurangabad. The factory is semi-automatic and are equipped with state of the art machinery like automatic spray guns, automatic digressing plant, spiral grooving machines, hydraulic press, base grooving machines and stud welding machines etc.

Quality is taken very seriously at NIRLEP and each and every piece goes through a Quality Control Check at every stage of manufacturing. The Company is owned by Technocrat Engineers who are deeply involved in day to day operations of the organization and have a wide knowledge in manufacturing non-stick.

Nirlep group is pioneer to launch non-stick cooking pots and pans in Indian market. The company makes the finest quality of Non-stick cook-wares for domestic and European market. Nirlep Group of companies comprises six major and three minor companies and firms with total annual sales of $ 40 million.Other group companies:

1. Marathwada Auto Compo Pvt. Ltd. 2. Umasons Auto Compo Pvt. Ltd. 3. Bhogale Coatings and Paints. 4. Amulet Coatings Pvt. Ltd. 5. Amulet Industries Pvt. Ltd.

NATURE OF THE BUSINESS CARRIED

Nirlep Group of companies is a family owned business with well diversified areas of working. The business activities are mainly categorized in three work areas.The business group has done backward and forward integration of processes to achieve ease in material requirement. The group has aluminium processing facility to cater its captive requirement of aluminium.

1.Auto Component Manufacturing DivisionOriginal Equipment supply for Indian, American, European and Japanese Automobile manufacturers.

2.Surface Finishing Division

Manufacturing of Industrial paints and coatings and application of surface treatment for Automobile components and engineering purpose.

3.Consumer Durable Goods DivisionThis business is involved in manufacturing of a well known brand NIRLEP non-stick cookware. Nirlep group is pioneer to launch non-stick cooking pots n pans in Indian market. The company makes the finest quality of non stick cook-wares for domestic and European market.

Joint venture

It recently formed a joint venture with Italy-based Pardini SRL to market the latter's products in India.

The joint venture Nova Italia Food Services Pvt Ltd is essentially a marketing company that will bring to India Pardini's products, which are available in the European market, said Mr Bhogale.

VISION: 1.To move beyond boundries

2.To continually challenge and overcome limitations encounter in self and company growth

3.Providing customer satisfaction,offering reliable products and services at compitative prices

4.Providing an environment,conductive to the development,growth and satisfaction of employees while fulfilling their reasonable aspirations.

MISSION:

NIRLEP aims to manufacture and market a wide range of high quality products,services and systems of world class technology to the total satisfaction of customer in domestic and overseas markets....

PRODUCT/SERVICES PROFILEThe fort line product of Nirlep is the non stick cookware. Besides this Nirlep also markets other products like Nirlep Enamelware. A whole new range of stock and serve enamel coated utensils.

The products in these ranges are made from pure aluminium and have spiral groves carved on their bottom. The spiral groves help in quick and uniform transfer of heat and thus help in saving fuel.

Besides, these products require little oil for cooking. Cooking in Nirlep products thus has 3 main advantages:-

1.Health- In Nirlep products the food doesnt stick of the utensil and this helps in lowering the consumption of oil and thus the consumption of fats and cholesterol.

2.Taste- Nirlep products help inpreserving all the essentials ingrediants of food in their entirely. It also consumes less oil and helps in cooking healthy yet tasty food.

3.Economy- As cooking in Nirlep consumes less oil due to its non-stick property and less fuel due to the spiral grooving on the bootom economy is achieved by saving on fuel and oil.NIRLEP PRODUCTS Nonstick Cookware Enamel Cookware Pressure Cooker Hard Anodised Cookware Induction Cooktop Gas Lighter Kitchen Gas Top Nonstick Snackmaker Cookware Gift Set Induction Compatible Cookware

DETAILS OF PROMOTERS

BOARD OF DIRECTORS

Ramchandra N. Bhogale, Director Mukund N. Bhogale, Managing Director

Nityanand J. Bhogale, Director

Vinayak M. Jogalekar, Director

Mukesh Sehgal, Director

Sanjay P. Sathe, Director

Team of Nirlep consists of following members: Production managers

Skilled & semi-skilled laborer

Quality analyzers

Warehousing and packaging experts

Sales & marketing executives

Administrative staff

COMPETITORS OF NIRLEP

NIRALI

TTK PRESTIGE

HAWKINS

USHA

TVS

PREMIER

CRYSTAL

ALDA

PIGEON

INFRASTRUCTURE FACILITIESOffice and Building Premise

FACILITIES

They have Canteen with hygienic food.

There is smoke detector.

They have maintained their campus very clean with good environment.

They provide computers.

They provide special cloths who work in manufacturing department.

FINANCIAL CONDITION

Turnover:

YEAR VALUE (Rs. In Lacs)

2013-20146544.26

2012-20135727.22

2011-2012

5333.32

2010-20114983.00

Interpretaion:

From the above chart companys turnover is goes on increasing in each year. So it shows the company is in profitable conditionACHIVEMENT AWARDS

OBJECTIVE OF THE STUDY

1. To understand the Working Capital structure of NIRLEP APPLIANCES. Ltd. 2. To study the ratio analysis related to Working Capital so as to know the financial position of the company.3. To study the operating cycle .RESEARCH METHODOLOGY

Review of Literature:

Working Capital

Working capital is defined as Excess of current asset over current liabilities and provisions It is the capital which is required for the daily working of the business. Working capital is also called as circulation capital.Working capital may be regarded as the life blood of business. Working capital is of major importance to internal and external analysis because of its close relationship with the current day to-day operations of a business.It is nothing but the difference between current assets and current liabilities.

Working Capital = Current Asset Current Liability

Concept of working capital

Current Asset- Current assets are the assets which can be converted into cash within an accounting year.

Current Liabilities- Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year.Current Liabilities

Current Assets

Bills Payable

Sundry Creditors

Outstanding expenses

Accrued expenses

Bank Over draft

Cash in hand / at bank

Bills Receivable

Sundry Debtors

Short term loans

Investors/ stock

Temporary investment

Prepaid expenses

Accrued incomes

Classification of working capital

Working capital may be classified in two ways:

o On the basis of concept.

o On the basis of time/ Periodicity of RequirementsOn the basis of concept

On the basis of concept working capital can be classified as gross working capital and net working capital.1. Gross working capital2. Net working capital

Gross Working Capital = Total of Current Asset

Net Working Capital = Excess of Current Asset over Current Liability1.Gross working capital: It refers to the firms investment in current assets. The sum of the current assets is the working capital of the business. The sum of the current assets is a quantitative aspect of working capital. Which emphasizes more on quantity than its quality, but it fails to reveal the true financial position of the firm because every increase in current liabilities will decrease the gross working capital.Gross Working Capital focuses on two main Aspect

1. Optimum Investment in Current Asset2. Financing of Current Asset Optimum investment in current assets:Excessive investments impairs firm s profitability, as idle investment earns nothing. Inadequate working capital can threaten solvency of the firm because of its inability to meet its current obligations. Therefore there should be adequate investment in current assets. Financing of current assets:

Whenever the need for working capital funds arises, agreement should be made quickly. If surplus funds are available they should be invested in short term securities.

2.Net working capital: It is the difference between current assets and current liabilities or the excess of total current assets over total current liabilities.Net working capital = current assets - current liabilities. It also can be defined as that part of a firms current assets which is financed with long term funds. It may be either positive or negative. When the current assets exceed the current liability, the working capital is positive and vice versa.On the basis of time

On the basis of time, working capital may be classified as:

1. Permanent or fixed working capital.

2. Temporary or variable working capital

1. PERMANENT OR FIXED WORKING CAPITALPermanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of raw material, work- in-process, finished goods and cash balance. This minimum level of current assets is called permanent or fixed working capital as this part of working is permanently blocked in current assets. As the business grow the requirements of working capital also increases due to increase in current assets.2. TEMPORARY OR VARIABLE WORKING CAPITALTemporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc.OPERATING CYCLE:

The working capital requirement of a firm depends, to a great extent upon the operating cycle of the firm. The operating cycle is defined as the time duration starting from the procurement of goods or raw materials and ending with the sales realization. The length and nature of the operating cycle differs from one firm to another depending upon the size and nature of the firm.

A companys operating cycle typically consists of three primary activities:

1. Purchasing resources,

2. Producing the product and

3. Selling the product.These activities create funds flow that is both unsynchronized and uncertain. This is unsynchronized because cash disbursements usually take place before cash receipts. This is uncertain because future sales and costs, which generate the respective receipts and disbursements, cannot be forecasted with complete accuracy.

The concept of operating cycle is useful in controlling as well as forecasting working capital needs. Longer the operating cycle the more working capital funds the firm needs, while shorter operating cycle period indicates that there is no locking up of funds in current assets.

Thus the operating cycle of a firm consists of the time required for the completion of the chronological sequence of the following:

1. Procurement of raw materials and services.

2. Conversion of raw materials into work-in-progress.

3. Conversion of work-in-progress into finished goods.

4. Sale of finished goods (cash or credit).

5. Conversion of receivables into cash.

The segments of the operating cycle include raw material storage period, conversion period, finished goods storage period and average collection period before getting back cash along with profit.

The total duration of all the segments mentioned above is known as gross operating cycle period. When the average payment period of the company to its suppliers is deducted from the gross operating cycle period the resultant period is called the net operating cycle period or the operating cycle period.

Need for adequate working capital:

Every firm must maintain a sound working capital position otherwise; its business activities may be adversely affected. Thus every firm must have adequate working capital. Cash Discount- If raw material purchased in bulk at that time will get cash discount. It creates a feeling of security & Confidence- need not worry for payment of Business Expenditure or creditor Sense of security,Sense of confidence, Loyalty among its customer, creditor& Business Associates

Must for Maintaining Solvency & Continuing Production- Adequate Working Capital helps in Cut throat competition Sound Goodwill- Increase debt Capacity of Business, firm can raise funds from the Market purchase goods on credit, Borrow short terms funds from banks

Easy loans from banks- Borrow Unsecured loans from banks, Banks favor in granting seasonal loans.

Exploitation of good Opportunities - Company may make off season purchases resulting substantial savings, it can fetch big supply orders

The excess working capital, when the investment in working capital is more than the required level, may result in-

a). Unnecessary accumulation of inventories resulting in wastage, theft, damage etc.

b). Delay in collection of receivables resulting in more liberal credit terms to customers than warranted by the market conditions.

c). Adverse influence on the performance of the management. Impact of Inadequate Working Capital

The fixed asset may not be optimally used.

Firms growth may stagnate.

Interruptions in production schedule may occur ultimately resulting

in lowering of the profit of the firm.

The firm may not be able to take benefit of an opportunity.

Firms goodwill in the market is affected if it is not in a position to meet its liabilities on time.

Thus taking in to consideration these consequences, financial manager must establish:

1. Well defined working capital policy,

2. Self decision of working capital management system.

Below are some types of policies in working capital management:1. Moderate policy, in which value of current asset increases in proportion with sales level.

2. Conservative policy, in which value of current asset increases more rapidly than sales level. Such a policy tends to reduce the risk of shortage of working capital by increasing the safety component of current asset. The conservative policy also reduces the risk of non-payment to liability.

3. Aggressive type of policy, sales level increases more in percentage than increase in current assets.

This type of aggressive policy has many implications. These implications are as under:iv. The risk of insolvency of the firm increases as it maintains low liquidity.

v. The firm is exposed to greater risk as it may not be able to face unexpected changes in market.

vi. Reduced investment in current asset will result in increase in profitability of the firm. FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS:

1. NATURE OF BUSINESS: The requirements of working is very limited in public utility undertakings such as electricity, water supply and railways because they offer cash sale only and supply services not products, and no funds are tied up in inventories and receivables.

2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement of working capital.3. PRODUCTION POLICY: If the policy is to keep production steady by accumulating inventories it will require higher working capital.4. LENGTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw material and other supplies have to be carried for a longer in the process with progressive increment of labour and service costs before the final product is obtained. So working capital is directly proportional to the length of the manufacturing process.5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires larger working capital than in slack season.

6. WORKING CAPITAL CYCLE: The speed with which the working cycle completes one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital.

7.RATE OF STOCK TURNOVER: There is an inverse co-relationship between the question of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover wuill needs lower amt. of working capital as compared to a firm having a low rate of turnover. 8. CREDIT POLICY: A concern that purchases its requirements on credit and sales its product / services on cash requires lesser amt. of working capital and vice-versa.9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need for larger amt. of working capital due to rise in sales, rise in prices, optimistic expansion of business, etc. On the contrary in time of depression, the business contracts, sales decline, difficulties are faced in collection from debtor and the firm may have a large amt. of working capital.10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require large amt. of working capital.11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning capacity than other due to quality of their products, monopoly conditions, etc. Such firms may generate cash profits from operations and contribute to their working capital. The dividend policy also affects the requirement of working capital12. PRICE LEVEL CHANGES: Changes in the price level also affect the working capital requirements. Generally rise in prices leads to increase in working capital.MANAGEMENT OF WORKING CAPITAL:-

Management of working capital is concerned with the problem that arises in attempting to manage the current assets, current liabilities. The basic goal of working capital management is to manage the current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained, i.e. it is neither adequate nor excessive as both the situations are bad for any firm. There should be no shortage of funds and also no working capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES of a firm has a great on its probability, liquidity and structural health of the organization. So working capital management is three dimensional in nature as

1. It concerned with the formulation of policies with regard to profitability, liquidity and risk.2. It is concerned with the decision about the composition and level of current assets.3. It is concerned with the decision about the composition and level of current liabilities.

WORKING CAPITAL ANALYSIS:-As we know working capital is the life blood and the centre of a business. Adequate amount of working capital is very much essential for the smooth running of the business. And the most important part is the efficient management of working capital in right time. The liquidity position of the firm is totally effected by the management of working capital. So, a study of changes in the uses and sources of working capital is necessary to evaluate the efficiency with which the working capital is employed in a business. This involves the need of working capital analysis.

The analysis of working capital can be conducted through Ratio analysis.

RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The technique of ratio analysis can be employed for measuring short-term liquidity or working capital position of a firm. The following ratios can be calculated for these purposes:1. Current ratio.

2. Quick ratio

3. Absolute liquid ratio

4. Inventory turnover ratio.

5. Debtors turnover ratio.

6. Creditors turnover ratio.

7. Working capital turnover ratio.

METHODS OF DATA COLLECTION

Primary data: -

Personal interview was the main tool for the collection of primary data and information. This study has brought in use very little primary data in relation with the elements of working capital.

Secondary data: -

Since the study is based on the financial aspects of the company so the Annual report of the organization, Balance Sheet, Profit and Loss accounts of the company brought in use. Besides the above data, the company profile and theoretical aspects are taken from the secondary sources.

ANALYSIS OF FINANCIAL STATEMENTS:

Financial statement is a collection of data organized according to logical and consistent accounting procedure to convey an under-standing of some financial aspects of a business firm. It may show position at a moment in time, as in the case of balance sheet or may reveal a series of activities over a given period of time, as in the case of an income statement. Thus, the term financial statements generally refers to the two statements:

(1) The position statement or Balance sheet.

(2) The income statement or the profit and loss Account.

BALANCE SHEET OF LAST FOUR YEARSMar-1112 mthsMar-1212 mthsMar-1312 mthsMar-1412 mths

I]Sources of funds

1.Shareholders funds:

a) Share capital1.601.872.643.64

b)Reserve and surplus3.254.415.568.25

2.Loan Funds:

a)Secured loan11.1512.5116.8330.47

b)Unsecured loan2.922.682.762.37

c)Deferred tax liability0.01

Total 18.9321.4827.8144.76

II]Application of Funds

1.Fixed Assets:

a)Gross block11.5214.2918.6537.72

b)Less: Depreciation6.907.959.2711.30

c)Net block4.616.339.3726.41

2.Investments0.310.230.290.34

3.Current Assets,Loan & Advances:

a)Inventories7.407.978.5411.34

b)Sundry debtors12.3414.3512.0611.51

c)Cash and bank Balance0.290.100.330.34

d)Other current assets0.040.04--

e)Loans and Advances & deposits3.383.928.466.89

23.4826.4029.4230.09

Less:Current liabilities & provision9.7211.4911.2712.09

Net current assets 13.7514.9118.1418.00

Miscellaneous Expenditure0.240.01--

Total18.9321.4827.8144.76

PROFIT & LOSS ACCOUNT OF LAST FOUR YEARSMar-1112 mthsMar-1212 mthsMar-1312 mthsMar-1412 mths

A]Income

Sales 49.8353.2957.2765.44

Other receipts0.190.470.230.28

Total A50.0253.7757.5065.73

B]Expenditure

Finished goods consumed13.9713.5315.0411.21

Raw material consumed19.2320.6519.8028.69

Manufacturing expenses2.613.653.965.47

Manpower expenses3.474.054.605.59

Administration expenses2.182.372.933.75

Advertising & sales promotion exp4.965.236.746.55

Interest1.441.571.412.19

Preliminary expenses written off0.210.210.010

Depreciation0.861.051.422.02

Total B48.9652.3455.9565.50

Profit before tax(A-B)1.051.421.550.22

Provision for income tax0.310.480.650.03

Provision for freigne benefit tax0.050.06--

Provision for dividend0.080.090.020.02

Dividend tax paid0.010.010.03

Profit after tax0.590.770.650.17

DATA ANALYSIS AND INTERPRETATION 1. CURRENT RATIOCurrent Ratio, also known as working capital ratio is a measure of general liquidity and its most widely used to make the analysis of short-term financial position or liquidity of a firm. It is defined as the relation between current assets and current liabilities. Thus,

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITES

The two components of this ratio are:

1) CURRENT ASSETS

2) CURRENT LIABILITES

Current assets include cash, marketable securities, bill receivables, sundry debtors, inventories and work-in-progresses. Current liabilities include outstanding expenses, bill payable, dividend payable etc.A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time. On the hand a low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is considered to be satisfactory.CALCULATION OF CURRENT RATIO(Rupees in crore)

Year2011

201220132014

Current Assets23.4826.4029.4230.09

Current Liabilities9.7311.4911.2712.09

Current Ratio2.41:12.29:12.61:12.48:1

Interpretation:

As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of the company for last four years it has standard ratio from 2011 to 2014. This shows that companys liquidity position is sound. Its current assets are more than its current liabilities.2. QUICK RATIOQuick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities. An asset is said to be liquid if it can be converted into cash with a short period without loss of value. It measures the firms capacity to pay off current obligations immediately.

QUICK RATIO = QUICK ASSETS CURRENT LIABILITES

Where Quick Assets are:1) Marketable Securities

2) Cash in hand and Cash at bank.

3) Debtors.

A high ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time and on the other hand a low quick ratio represents that the firms liquidity position is not good.

As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if quick assets are equal to the current liabilities then the concern may be able to meet its short-term obligations. However, a firm having high quick ratio may not have a satisfactory liquidity position if it has slow paying debtors. On the other hand, a firm having a low liquidity position if it has fast moving inventories.

CALCULATION OF QUICK RATIO

(Rupees in Crore)

Year2011201220132014

Quick Assets14.6812.9412.712.2

Current Liabilities9.7311.4911.2712.09

Quick Ratio1.5 : 11.1 : 11.1 : 11 : 1

Interpretation : A quick ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time. The quick ratio is1:1 and it is ideal as compare with standard. 3. absolute liquid ratio Although receivables, debtors and bills receivable are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or in time. So absolute liquid ratio should be calculated together with current ratio and acid test ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets. Absolute Liquid Assets includes :

Absolute liquid ratio = absolute liquid assets CURRENT LIABILITES

Absolute liquid assets = cash & bank balances. (Rupees in Crore)

Year2011201220132014

Absolute Liquid Assets0.600.330.620.68

Current Liabilities9.7311.4911.2712.09

Absolute Liquid Ratio0.06 : 1 0.02 : 10.05 : 10.05 : 1

Interpretation :The companys absolute ratio is low as compare to standard ratio 0.5:1. If absolute acid test ratio is 0.05 which is less than rule standard ratio and current and liquid ratio are much more than rule of thumb, at that time, we have to improve cash liquidity by changing the policy of credit sales and advance payments.

B) current assets movement ratiosFunds are invested in various assets in business to make sales and earn profits. The efficiency with which assets are managed directly affects the volume of sales. The better the management of assets, large is the amount of sales and profits. Current assets movement ratios measure the efficiency with which a firm manages its resources. These ratios are called turnover ratios because they indicate the speed with which assets are converted or turned over into sales. Depending upon the purpose, a number of turnover ratios can be calculated. These are :

1. Inventory Turnover Ratio

2. Debtors Turnover Ratio

3. Creditors Turnover Ratio

4. Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets include high amount of debtors due to slow credit collections and moreover if the assets include high amount of slow moving inventories. As both the ratios ignore the movement of current assets, it is important to calculate the turnover ratio.1.Inventory Turnover or Stock Turnover Ratio :Every firm has to maintain a certain amount of inventory of finished goods so as to meet the requirements of the business. But the level of inventory should neither be too high nor too low. Because it is harmful to hold more inventory as some amount of capital is blocked in it and some cost is involved in it. It will therefore be advisable to dispose the inventory as soon as possible.

inventory turnover ratio = cost of good sold Average inventoryInventory turnover ratio measures the speed with which the stock is converted into sales. Usually a high inventory ratio indicates an efficient management of inventory because more frequently the stocks are sold ; the lesser amount of money is required to finance the inventory. Where as low inventory turnover ratio indicates the inefficient management of inventory. A low inventory turnover implies over investment in inventories, dull business, poor quality of goods, stock accumulations and slow moving goods and low profits as compared to total investment.

average stock = opening stock + closing stock 2(Rupees in Crore)

Year2011201220132014

Cost of Goods sold48.7751.8655.7263.19

Average Stock7.767.698.269.94

Inventory Turnover Ratio6.28 times6.74 times6.74 times6.35 times

Interpretation : These ratio shows how rapidly the inventory is turning into receivable through sales. In 2012 and 2013 the company has high inventory turnover ratio but in 2014 it has reduced to 6.35 times. This shows that the companys inventory management technique is less efficient as compare to last year.2. Inventory conversion period:Inventory conversion period = 365 (net working days) inventory turnover ratio (Rupees in Crore)Year2011

201220132014

Days365365365365

Inventory Turnover Ratio6.28 6.74 6.746.35

Inventory Conversion Period58 days54 days54 days57 days

Interpretation : Inventory conversion period shows that how many days inventories takes to convert from raw material to finished goods. In the company inventory conversion period is increasing as compare to last 2 years. This shows the efficiency of management to convert the inventory into cash.3. debtors turnover ratio :A concern may sell its goods on cash as well as on credit to increase its sales and a liberal credit policy may result in tying up substantial funds of a firm in the form of trade debtors. Trade debtors are expected to be converted into cash within a short period and are included in current assets. So liquidity position of a concern also depends upon the quality of trade debtors. Two types of ratio can be calculated to evaluate the quality of debtors.

a) Debtors Turnover Ratio

b) Average Collection Period

Debtors Turnover Ratio = Total Sales (Credit) Average DebtorsDebtors velocity indicates the number of times the debtors are turned over during a year. Generally higher the value of debtors turnover ratio the more efficient is the management of debtors/sales or more liquid are the debtors. Whereas a low debtors turnover ratio indicates poor management of debtors/sales and less liquid debtors. This ratio should be compared with ratios of other firms doing the same business and a trend may be found to make a better interpretation of the ratio.

average debtors= opening debtor+closing debtor 2 (Rupees in Crore)Year2011201220132014

Sales49.8353.2957.2765.44

Average Debtors11.3213.3413.2111.79

Debtor Turnover Ratio4.4 times4 times4.3 times5.5 times

Interpretation : This ratio indicates the speed with which debtors are being converted or turnover into sales. The higher the values of debtors turnover, the more efficient is the management of credit. But in the company the debtor turnover ratio is decreasing in 2012 compare to 2011 and in 2013 and 2014 it will increase.4. average collection period :Average Collection Period = No. of Working Days Debtors Turnover Ratio

The average collection period ratio represents the average number of days for which a firm has to wait before its receivables are converted into cash. It measures the quality of debtors. Generally, shorter the average collection period the better is the quality of debtors as a short collection period implies quick payment by debtors and vice-versa.Average Collection Period = 365 (Net Working Days) Debtors Turnover Ratio (Rupees in Crore) Year2011201220132014

Days365365365365

Debtor Turnover Ratio4.4 4 4.3 5.5

Average Collection Period83 days91 days85 days66 days

Interpretation : In the firm average collection period increasing in 2012 but it will decrease in 2013 and 2014. It shows that shorter the average collection period the better is the quality of debtors.5. Working capital turnover ratio :Working capital turnover ratio indicates the velocity of utilization of net working capital. This ratio indicates the number of times the working capital is turned over in the course of the year. This ratio measures the efficiency with which the working capital is used by the firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover is not a good situation for any firm.

Working Capital Turnover Ratio =Cost of Sales Net Working Capital

Working Capital Turnover = Sales Networking Capital

(Rupees in Crore)Year2011201220132014

Sales49.8353.2957.2765.44

Networking Capital13.7514.9118.1518

Working Capital Turnover3.63.63.13.6

Interpretation : This ratio measures the efficiency with which the working capital is used by the firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise so in 2011, 2012 and 2013 it constant but in 2013 it will decrease by 0.5.

CALCULATIONS OF OPERATING CYCLE:

Operating cycle = R + W + F + D C

R = Raw material storage period

W = Work in progress holding period

F = Finished goods storage period

D = Debtors collection period

C = Credit period availed

Formula:a. RMCP = Average Stock x 360 = days

Annual Consumption

b. WIPCP = Average Stock x 360 = days

Cost of Production

c. FGCP = Average Stock x 360 = days

Cost of Goods SoldOperating cycle2011

(in days)2012(in days)2013(in days)2014(in days)

a)RMCP145134150125

B)WIPCP1109810590

C)FGCP57535357

Interpretation :

From the above chart companys RMCP,WIPCP,FGCP period is less as compare to last year, so company is in profitable condition because less operating cycle period i.e converting raw material into sales of the product.LIMITATIONS OF THE STUDY

The limitation in this study is: -

1) A company generally cannot disclose its internal policies to outsiders. In such case, it is very difficult to find out and gather complete and true information in the forms of figures regarding financial matters.2) Information regarding new plans and policies also can not be known to me.

Summary of Findings:

1. Current Ratio: As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of the company for last four years it has standard ratio from 2011 to 2014. This shows that companys liquidity position is sound. Its current assets are more than its current liabilities.2. Quick Ratio: A quick ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time. The quick ratio is1:1 and it is ideal as compare with standard.3. Absolute Liquid Ratio: The companys absolute ratio is low as compare to standard ratio 0.5:1.4. Inventory Turnover Ratio: These ratio shows how rapidly the inventory is turning into receivable through sales. In 2012 and 2013 the company has high inventory turnover ratio but in 2014 it has reduced to 6.35 times. This shows that the companys inventory management technique is less efficient as compare to last year. 5. Inventory conversion period: It shows that how many days inventories takes to convert from raw material to finished goods. In the company inventory conversion period is increasing as compare to last 2 years. This shows the efficiency of management to convert the inventory into cash.6. Debtors Turnover Ratio: This ratio indicates the speed with which debtors are being converted or turnover into sales. The higher the values of debtors turnover, the more efficient is the management of credit. But in the company the debtor turnover ratio is decreasing in 2012 compare to 2011 and in 2013 and 2014 it will increase.7. Average collection period: In the firm average collection period increasing in 2012 but it will decrease in 2013 and 2014. It shows that shorter the average collection period the better is the quality of debtors.

8. Working capital turnover:This ratio measures the efficiency with which the working capital is used by the firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise so in 2011, 2012 and 2014 it constant but in 2013 it will decrease by 0.5.9. The operating cycle period of the firm as compare to last year is less so it shows that the period of converting raw material into finished goods.SUGGESTIONS:-a. Nirlep is very small company and its head office is only in Aurangabad but according to its goodwill and brand name in the market, it is necessary to expand the business throught in India.

b. Nirlep producing number of product but it is costly for normal person thats why they cannot purchase it because of their financial condition, so reduce prices or to make product according to their purchasing power.

c. Absolute acid test ratio is 0.05 which is less than standard ratio and current and liquid ratio are much more than standard, at that time, to improve cash liquidity by changing the policy of credit sales and advance payments.

BIBLIOGRAPHY

1) www.nirleponline.com 2) www.google.com

HYPERLINK "http://www.google.co.in/imgres?imgurl=http://2.bp.blogspot.com/_z4CbdYFed2Q/TEXpUpgkQWI/AAAAAAAAAy0/JoYV-aDxEww/s1600/India-got-rupee-symbol.jpg&imgrefurl=http://123wings.blogspot.com/2010/07/httpblog.html&usg=__0cAsDchQotgmp3_Dq5I97tkb860=&h=245&w=325&sz=4&hl=en&start=6&zoom=1&tbnid=2a5Jcn9BSF-mwM:&tbnh=89&tbnw=118&ei=BPJETt6zEtDRrQe_9KzrAw&prev=/search?q=sign+of+rupee&hl=en&gbv=2&tbm=isch&itbs=1" in crore

HYPERLINK "http://www.google.co.in/imgres?imgurl=http://2.bp.blogspot.com/_z4CbdYFed2Q/TEXpUpgkQWI/AAAAAAAAAy0/JoYV-aDxEww/s1600/India-got-rupee-symbol.jpg&imgrefurl=http://123wings.blogspot.com/2010/07/httpblog.html&usg=__0cAsDchQotgmp3_Dq5I97tkb860=&h=245&w=325&sz=4&hl=en&start=6&zoom=1&tbnid=2a5Jcn9BSF-mwM:&tbnh=89&tbnw=118&ei=BPJETt6zEtDRrQe_9KzrAw&prev=/search%3Fq%3Dsign%2Bof%2Brupee%26hl%3Den%26gbv%3D2%26tbm%3Disch&itbs=1"in crore

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Classification Working Capital

On the Basis of Concept

On the Basis of Periodicity of Requirements

Gross Net

Permanent Variable

regular working capitalReserve Margin

Seasonal Special

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