str on working capital management
TRANSCRIPT
-
8/3/2019 Str on Working Capital Management
1/42
Jindal Industries
1 | P a g e
SUMMER TRAINING REPORT
ON
WORKINING CAPITAL MANAGEMENT
IN
JINDAL INDUSTRIES LTD. HISAR
In the fulfillment of the requirements for the award of theDegree of:
MASTER OF BUSINESS ADMINISTRATION
(SESSION 2010-12)
Under the Guidance of: Submitted by
Mr. T.R. GAUR Mr. Harish Mehta
Submitted to:
CHOUDHARY DEVI LAL UNIVERSITY SIRSA
-
8/3/2019 Str on Working Capital Management
2/42
-
8/3/2019 Str on Working Capital Management
3/42
Jindal Industries
3 | P a g e
ACKNOWLEDGEMENT
A project report is never the sole product of the personwhose name appears on the cover. There are always other
people whose guidance and help make it happens. So, it
becomes my duty to express my gratitude towards all of
them.
I am thankful to department of business administration,
Chaudhary Devi Lal University Sirsa for granting me
permission to take up this project. First of all I would like
to convey my sincere gratitude to Mr.T.R. GAUR for
giving me permission to work on a project in this
organization. I am very thankful to him for his
supervision and guidance during my project work. Iwould like to thank management of Jindal Industry Ltd.
Hisar.
HARISHMEHTA
-
8/3/2019 Str on Working Capital Management
4/42
Jindal Industries
4 | P a g e
DECLARATION
I am the student of M.B.A. 2.nd Semester ofJINDAL
INDUSTRIES. HISAR hereby declare that the Project
Report onWORKING CAPITAL MANAGEMENT
is my original work and has not been submitted by any
other person.
I also declare that I have done my work
sincerely and accurately even then if any mistake or error
had kept in, I request to the readers to point out these
errors and guide me to remove theses errors infuture.
HARISH MEHTA
-
8/3/2019 Str on Working Capital Management
5/42
Jindal Industries
5 | P a g e
COMPANY PROFILE
-
8/3/2019 Str on Working Capital Management
6/42
-
8/3/2019 Str on Working Capital Management
7/42
Jindal Industries
7 | P a g e
SWOT Analysis
Four quadrants of SWOT analysis are strengths, weaknesses, opportunities and
threats.
SWOT analysis is an examination of the strength, weakness, opportunities and
threats faced by a company during its phase of operation. A SWOT analysis is
important for Jindal Industries to evaluate its current position and formulatestrategies to tackle its competitors.
Strengths of Jindal Industries
Jindal Industries is the pioneer of steel business in India and thus enjoys brand
equity. Jindal Industries has a multiple companies under the same banner, whichgives it an advantage of value-chain efficiency, whereby the company can utilize
products made in its sister companies to process raw materials and increase
efficiency.
Weaknesses of Jindal Industries
The biggest weakness of Jindal Industries is its increasing debt-to-equity ratio.
Most of its assets are financed by debt, which can be dangerous in the long-run.
Jindal Industries largely depends on domestic and a few international markets for
generating business. This over-dependence can prove to be fatal in times ofeconomic crisis.
Opportunities for Jindal Industries
Jindal Industries is branching out to overseas market. Tata Steel will now be in a
position to utilize the R&D facility and the patents owned by the themselves
Exposure to new technologies and markets is a big advantage for the company.
Threats to Jindal Industries
In the current scenario, the biggest threat for Jindal Industries is to maintain the
Co2 emission standards when it starts its operations in India. The sudden overseas
exposure along with a possible economic slowdown is the biggest challenge faced
by Jindal Industries in the present circumstances.
-
8/3/2019 Str on Working Capital Management
8/42
Jindal Industries
8 | P a g e
PRODUCTS & EQUIPMENTS
PRODUCTS
Galvanised pipes : 1\2to12 various national & international
Jindal Hissar-ACL pipes : 1\2to 2 for concealed piping
Black pipes : 1\2to 12various national & international
Rectangle pipes : from 25mm*25mm to 150mm*150mm
Line pipes : from 80mm*80mm to 300mm*300mm
EQUIPMENTS
Slitting units
Erw pipe mills
Galvanizing lines
Threading machines
Hydro testing machines
Eddy current testing
Annealing
Power plant
-
8/3/2019 Str on Working Capital Management
9/42
Jindal Industries
9 | P a g e
MANUFACTURING PROCESS
The process utilizes the latest technology and modern equipments for producing
high quality ERW pipes.
Slit preparation. HR Coils are slitted to predetermined widths for each size of
pipe and thickness. Slitted coil is uncoiled at the entry of ERW mill and the
ends are sheared and welded one after another to make it single endless strip.
1. Forming. Slitted coils are initially formed into U shape and then into acylindrical shape with open edges using a series of forming rolls.
2. Welding. The open edges are heated to the required temperature throughhigh frequency low voltage high current and press welded by forge rolls
making perfect and strong butt weld without filler materials.
3. Debeading. Weld flash on top and inside is trimmed out through carbidetools
4. Seam Annealing. Whenever required, welding portion and heat affectedzone is put to normalizing with medium frequency normalizes and then
cooled down in air cooling bed.
5. Sizing & Cutting. After water quenching slight reduction is applied to pipeswith sizing rolls to give them desired accurate outside diameter. Pipes are
cut to required lengths by flying cut off disc\saw cutter.
6. Facing and Beveling. The pipe ends are faced and beveled by the end facer.All the processes are continuous with auto arrangements. These plain ended
tubes go for further processing as per the customer nee like galvanizing,
threading, black varnishing etc.
7. Packing. Finishing pipes are bundled in desired number of pieces as percustomers requirements and packed properly to ensure freshness till
delivery.
-
8/3/2019 Str on Working Capital Management
10/42
Jindal Industries
10 | P a g e
QUALITY IS THE STRENGTH
JINDAL INDUSTRIES LTD. HISAR manufactures high quality MS. Black &
Galvanized Pipes\ Tubes in the range of 15mm to 300mm as per BIS well
equipment with modern manufacturing machineries, mills, welding plants &
galvanizing plants. It has full on maintenance work shop and testing equipment to
produce the best quality steel pipes besides other infrastructure facilities.
JINDAL Industries ltd. has trebled its production & sales during last five years. It
has achieved this fat by winning a higher share in very competitive market, which
is also flooded with inferior & duplicate quality pipes. Their strength lies in their
all time endeavor to provide higher standard of quality and service to worthycustomers. They never compromise on quality front even under the most adverse
market conditions.
QUALITY ASSURANCE DEPARTMENT:
This department is guided by quality control manager and it performs bellow
mentioned functions:
To device and follow system as per ISI standards requirements. To support product to achieve zero defect product. Achieve total customer satisfaction. Continuous production in process rejection store work.
MAINTAINCE DEPARTMENT:
Manager of maintaince heads it. It undertakes the following functions:
To maintain the equipment with less down time. Planning & scheduling of spares required for replacement. Planning & function of preventive maintaince. Maintaining of main inventory of spares and consumable.
-
8/3/2019 Str on Working Capital Management
11/42
Jindal Industries
11 | P a g e
MANUFACTURING DEPARTMENT:
To produce the largest quality consistently. To produce with zero defect. To maintain quality. To avoid waste & maintain shop floor cleanness.
PRODUCTION ENGINEERING DEPARTMENT:
Deputy Manager heads this department and it undertakes industry. Watching the progress of delivery according with schedule. Studying markets to determine time & quality to buy. Locating cheaper & better sources to supply. Maintaining records.
PURCHASE DEPARTMENT:
Scrutinizing store indents for which purchase is to be affected. Placing purchase order.
STORE DEPARTMENT:
After material received by purchase department, store department checks it. Here
store receipt note is prepared. The store receipt specifies description of material,quantity after inspection. Store code no. rate per unit & total amount. The name of
department using is also written. Besides the name of the supplier, date of delivery
& date of bill, challan no, bill no. etc is noted.
-
8/3/2019 Str on Working Capital Management
12/42
Jindal Industries
12 | P a g e
FURURE OUTLOOK
Steel industries has witness a robust growth in the global arena in past few years.
As a result, capacity creation has outpaced demand growth resulting in over
capacities. This has led to a major correction in steel prices. At the same time thereis an increased volatility, creating a challenging environment for steel processes.
Fortunately, Indian economy is on a growth path, expected to touch more than 8%
growth in 2010-11. This should result in some demand growth for steel pipe
industries. However increased steel pipes capacity and substitution by PVC, will
put pressure on volumes and margins from the same.
Growth opportunities in existing market segments are likely to be limited. To
maintain growth tempo, it would be imperative to diversify. Our company has
taken steps to enter cross country pipes core and section segments. These are
related and growing sectors and we expect good volumes and margins from the
same.
In view of continuous thrust of the government of India on housing, water and
infrastructure sectors, there is tremendous scope for growth in steel tubes and pipes
every year. With the easy availability of finance and tax incentives, it is expected
that housing sector will get a major boost. In view of the same, the long term
outlook of the company remains positive. All these measures will help inincreasing the sales and profitability in the current financial year.
Further at the same time, there is competition due to low technology resulting in;
number of players catering to regional markets. The segment also faces
competition from PVC pipes in the household usage segment.
-
8/3/2019 Str on Working Capital Management
13/42
Jindal Industries
13 | P a g e
Table No. 1.1
Turnover of Jindal Industries Ltd.
Year Turnover
2008-09 829
2009-10 950
(In Crore )
Graph 1.1 Showing the Graphical Turnover In 2008-09 and
2009-10
829
950
760
780
800
820
840
860
880
900
920
940
960
2008-09 2009-10
Turnover
Turnover
-
8/3/2019 Str on Working Capital Management
14/42
Jindal Industries
14 | P a g e
37.93
52.55
0
10
20
30
40
50
60
2008-09 2009-10
Profit after Tax
Profit after Tax
Year Profit after Tax
2008-09 37.93
2009-10 52.55
-
8/3/2019 Str on Working Capital Management
15/42
Jindal Industries
15 | P a g e
Sales of the company
Year Sales
2005-06 360.5
2006-07 550.6
2007-08 708.1
2008-09 829.1
2009-10 949.7
(rs in crore)
Graphical representation of the sales
(Rs in crore)
0
100
200
300
400
500
600
700
800
900
1000
2005-06 2006-07 2007-08 2008-09 2009-10
sales
sales
-
8/3/2019 Str on Working Capital Management
16/42
Jindal Industries
16 | P a g e
Research Methodology
OBJECTIVE OF THE STUDY
The main objectives of study are:
1. To find the liquidity position of the company.2. To find the effectiveness of working capital management.3. To analyze the credit policy of the company.4. To know the cause of changes in the firms working capital.
DATA COLLECTION
Data is collected by secondary method.
-
8/3/2019 Str on Working Capital Management
17/42
Jindal Industries
17 | P a g e
LIMITATION OF THE STUDY
Time is considered as major constraint because it is based upon six weeksstudy only.
Working Capital analysis is based upon only monetary information and non-monetary factors are ignored.
The accuracy of the result is also limited to the reliability of methods ofinvestigation, measurement and analysis of data.
It does not considered changes in prices levels. Analysis is only a means and not ends in itself. The analyst has to make
interpretation and draw his own conclusion.
-
8/3/2019 Str on Working Capital Management
18/42
Jindal Industries
18 | P a g e
Techniques Used For Analysis
1. Balance sheet
2. Profit & loss
3. Current ratio
4. Quick ratio
5. Cash management
6. Inventory management
7. Management of receivable
8. Management of payble
9. Cash management
-
8/3/2019 Str on Working Capital Management
19/42
Jindal Industries
19 | P a g e
INTRODUCTION OF WORKING
CAPITAL
Working capital is a financial metric which represents operating liquidity available
to a business, organization or other entity.
Working capital is calculated as:
Working capital=Current assets-Current liability
One of the main advantage of looking at the working capital position is being able
to for see any financial difficulty that may arise. If current assets are less than
current liabilities and entity has a working capital deficiency, also called a workingcapital deficit.
There are two types of working capital:
1. Positive working capital= it means that the company is able to pay its shortterm liabilities.
2. Negative working capital= it means that the company is unable to meet istshort term liabilities with its current assets.
CURRENT ASSETS:
Those assets which can be converted into cash within a short period of time not
exceeding one year.
It includes:
Stock of raw material Work in progress Finished goods Cash balance Sundry debtors Bills receivable
-
8/3/2019 Str on Working Capital Management
20/42
Jindal Industries
20 | P a g e
CURRENT LIABILITIES:
Those liabilities which have to pay within a short period of not exceeding one year.
It includes:
Trade creditors Accrual expenses Outstanding expenses Bills payable Short term loan
-
8/3/2019 Str on Working Capital Management
21/42
Jindal Industries
21 | P a g e
CONCEPT OF WORKING CAPITAL
1. Gross working capital concept :
According to this concept, working capital is the total of all current assets of
a business.
Gross working capital =total current assets.
2. Net working capital concept:
According to this concept, working capital means net working capital which
is the excess of current assets over current liabilities.
Net working capital= current assets-current liabilities.
-
8/3/2019 Str on Working Capital Management
22/42
Jindal Industries
22 | P a g e
Net working capital of Jindal Industries
(Rs. In crore)
Year Ending
31st March
Current
Assets
Current
liabilities
Net Working
Capital2005 7529.82 2249.62 5280.2
2006 7598.1 2587.67 50510.43
2007 7034.77 2269.57 4768.19
2008 12398 3565 8833
2009 17730 5797 11933
2010 13709.67 6892.24 6817
2011 18395.18 5150.18 13245Explanation:
Net working capital is the excess of current assets over current liabilities. An
enterprise should have the sufficient Net Working Capital in order to meet the
claim of its creditors and day to day business. Net working capital of JINDAL
INDUSTRIES LIMITED increases gradually. In 2005 Net working capital has
increased from 3256.6 to 5280.2. however in 2006& 2007 net working capital has
decreased due to short term investment purposed, still the company will be
considered to be in a good position. Then again, in 2009, it has increased to 11933
lakhs and in the year 2010 & 2011 it has increased to 13245.00 lakhs.
-
8/3/2019 Str on Working Capital Management
23/42
Jindal Industries
23 | P a g e
WORKING CAPITAL MANAGEMENT
Working capital is that part of company capital which is used for purchasing raw
material and involve in sundry debtors. We all know that current assets are very
important for proper working of fixed assets. Suppose, if we have invested our
money to purchased machines of company and if we do not have any more money
to buy raw material, then our machinery will no use for any production without
raw material, then our machinery will no use for any production without raw
material, From this example, we can understand that working capital is very useful
for operation any business organization. we can also take one more liquid item of
current assets that is cash. If you have not cash in hand, then you cannot pay for
different expenses of company, and at that time, your many business works many
delay for not paying certain expenses. If we define working capital is the excess of
current assets over current liabilities.
-
8/3/2019 Str on Working Capital Management
24/42
Jindal Industries
24 | P a g e
DETERMINANTS OF WORKING CAPITAL
A firm should have neither too much nor too nor little working capital. The
working capital requirement is determined by a large number of factors but, in
general, the following factors influence the working capital needs of an enterprise.
1. Nature of business:Working capital requirements of enterprises are largely influenced by the nature
of its businesses. For instance, public utilities such as railways, transport, water,
electricity etc. have every limited need for working capital because they have to
invest fairly large amount of fixed assets. Their working capital need is minimal
because they get immediate payment for their services and do not have to
maintain big inventories. On the other extreme are the trading and financialenterprises which have to invest fewer amounts in fixed assets and a large
amount in working capital. This is so because the nature of cash, inventories
and debtors. Working capital of most of the enterprise falls between these two
extreme, that is, between public and utilizes and trading concerns. JINDAL
INDUSTRIES LTD, is a manufacturing enterprise.
2. Growth and expansion:
As business enterprise grows, it is logical to expect that a large number ofworking capital will be required. Growing Industries require more working
capital than those that are static. JINDAL INDUSTRIES LTD. is a growing
continuously, hence it requires increasing working capital is a continuing
necessary for the company.
3. Production policy:The demand for certain products ( such as woolen clothes) is seasonal. Two
types of production policies may be adopted for such products. Firstly, the
goods may be produced in the months of demand and secondly, the goods man
be produced throughout the year. If the second alternative id adopted, the stock
of finished goods will accumulate up to the season of demand which requires an
increasing amount of working capital that remains tied up in stock of finished
goods for some months.
-
8/3/2019 Str on Working Capital Management
25/42
Jindal Industries
25 | P a g e
4. Production cycle:
The production cycle means the time span between the purchase of raw material
and its conversion into finished goods. The longer the production cycle, the
larger will be the need for working capital because the funds will be tied up fora longer period in work in process. If the production cycle is small, the need for
working capital will also be small. The production cycle for JINDAL
INDUSTRIES LTD. is of 50 days which is neither too long nor too short.
Hence it requires average working capital.
5. Credit policy relating to sales:
Is a firm liberal credit policy in respect of sales, the amount tied up in debtors
will also be higher? Obviously higher book debts man more working capital.
On the other hand, if the firm follows tight credit policy, the magnitude of
working capital will decrease.
6. Credit policy relating to purchase:
If a firm purchases more goods on credit, the requirement for working capital
will be less. In other words, the liberal credit terms are available from the
supplier of goods, the requirement for working capital will be reduced and vice
versa.
7. Price level changes:Changes in price level affect the working capital requirements. If the price level
is rising, more funds will be required to maintain the existing level of
production.
8. Availability of credits form banks:
If a firm can get easy bank credit facility in case of need, it will operate with
less working capital. On the other hand, if such facility is not available, it will
have to keep large amount of working capital.
9. Efficiency of management:Efficiency of management is also a significant factor to determine the level of
working capital. Management can reduce the need for working capital by the
-
8/3/2019 Str on Working Capital Management
26/42
Jindal Industries
26 | P a g e
efficient utilization of resources. It can accelerate the pace of cash cycle and
thereby use the same amount of working capital again and again very quickly.
-
8/3/2019 Str on Working Capital Management
27/42
Jindal Industries
27 | P a g e
ADVANTAGES OF WORKING CAPITAL
1. Availability of raw material regularly:
Adequacy working capital makes it possible for a firm to pay the supplier of
raw material on time. As a result it will continue to receive regular suppliers of
raw materials and thus will be no disruption in production process.
2. Full utilization of fixed assets:
Adequacy of working capital makes it possible for a firm to utilize its fixed
assets fully and continuously. For example, if there is inadequate stock of raw
material, the machines will not be utilized in full and their productivity will bereduced.
3. Cash discount:
A firm having the adequacy working capital can avail the cash discount by
purchasing the goods for cash or by making the payment before the due date.
4. Increase in credit rating
Paying its short term obligations in time leads to a strong credit rating whichenables the firm to purchase goods on credit on favorable terms and to maintain
its line of credit with banks etc. It facilities the taking of loan in case of need.
5. Advantage of favorable business opportunities:
Whenever there are chances of increase in prices of raw material. The firm can
purchase suffient quantity if it has adequate working capital. Similarly, if a firm
receives a bulk order for the supply of goods, it can take advantage of such
opportunity if it has sufficient working capital.
6. distribution of dividend:
Occasionally, in spite of sufficient profits, management faces difficulty in
paying a proper rate of dividend to the shareholder because of paucity of cash.
7. Facility of obtaining bank loans:
-
8/3/2019 Str on Working Capital Management
28/42
Jindal Industries
28 | P a g e
Banks do not hesitate to advance even the unsecured loan to a firm which has
the sufficient working capital. This is because the excess of current assets over
current liabilities itself is a good security.
8.
Increase in efficiency of management
Adequacy of working capital has a favorable psychological effect on the
managers. This is because no obstacles arise in the day-to-day business
operations. Creditors, wages and all other expenses are paid on time and hence
it keeps the morale of managers high.
9. Meeting unseen contingencies:Adequacy of working capital enables a company to meet the unseen
contingencies successfully.
-
8/3/2019 Str on Working Capital Management
29/42
Jindal Industries
29 | P a g e
DISADVANTAGE OF INADEQUATE
1.A concern, which has inadequate working capital, cannot pay its short termliabilities in time. Thus, it will loose its reputation & shall not be able to get
good credit facilities.
2.It cannot buy its requirements in bulk & cannot avail of discounts, etc.3.It becomes difficult for the firm to exploit favorable market conditions &
undertake profitable projects due to lack of working capital.
4.The firms cannot pay day-to-day expenses of its operations & it createsinefficiencies, increases costs & reduces the profits of the business.
5.It becomes impossible to utilize the fixed assets due to non-availability ofliquid funds.
6.The rate of return on investments also falls with the shortage of workingcapital.
-
8/3/2019 Str on Working Capital Management
30/42
Jindal Industries
30 | P a g e
Balance sheet
AUDITED BALANCE SHEET AS AT 31ST MARCH, 2010
PARTICULARS 31.03.2010 31.3.2009
SOURCES OF FUNDS
SHARE HOULDER FUNDS
Share capital 4.5 1.5
Reserve & Surplus 70.14 46.71
74.64 48.21
LOAN FUNDS
Secured Loans 77.23 28.17
Unsecured Loans 20.7 12.45
97.93 40.62
DEFERRED TAX LIABLITY 3.48 3.25
176.05 92.08
APPLICATION OF FUNDS
FIXED ASSETS
Gross Block 49.07 34.4
less: Depreciation 13.28 11.19
35.78 23.21
add: silver coin 0.0002 0.0002add: CWIP including Capital Advance 7.82 0.69
Net Block 43.6 23.9
CURRENT ASSETS, LOANS & ADVANCES
Inventories 101.58 66.7
Sundry Debtors 46.95 49.52
Cash and Bank Balance 28.65 13.79
Other current assets 0.004 0.004
Loans and Advances 6.77 7.08
183.95 137.1
less: Current Liabilities & Provisions
Liabilities 14.03 9.83
Provisions 37.47 59.09
NET CURRENT ASSETS 132.45 68.18
TOTAL 176.05 92.08
-
8/3/2019 Str on Working Capital Management
31/42
Jindal Industries
31 | P a g e
Profit & loss of Jindal Industries for the year Ended 31st
March ,2010
AUDITED PROFIT & LOSS FOR THE YEAR ENDED
31ST MARCH, 2010PARTICULARS 31.3.2010 31.3.2009
REVENUE
Rs.In
Crore
Rs. In
Crore
Sales and servicing charges 949.66 829.1
less: excise Duty 71.74 88.21
877.92 740.89
Other Income 3.05 2.41
Total Revenue 880.97 743.3
EXPENDITURE
Material, Manufacturing & Operating Expenses 740.22 626.99Employees Remuneration & Benefits 10.46 9
Interest & Financial Charges 5.97 7.24
Selling, Administration & Other Charges 41.6 39.84
Depreciation 2.09 1.58
PROFIT BEFORE TAXATION 80.63 58.65
Less: provision for Current Taxation 27.85 20.5
Deferred Tax Liability 0.23 0.06
Fringe benefit tax 0.15
Wealth Tax 0.001PROFIT AFTER TAXATION 52.55 37.94
Balance brought forward from last year 3.81 22.99
Income relating to earlier year 0.12 -0.51
add Income tax relating to earlier year 0.04
56.48 60.46
TRANSFER TO:
Proposed Dividend on Equity Shares 22.5 45
Corporate Tax on Proposed Dividend 3.74 7.65
General reserve 6 4
Balance Carried to Balance Sheet 24.24 3.81
56.48 60.46
Basic\Diluted Earnings per share in Rs. 1170.57 832.56
Face value per share in Rs. 100 100
-
8/3/2019 Str on Working Capital Management
32/42
-
8/3/2019 Str on Working Capital Management
33/42
Jindal Industries
33 | P a g e
ratio shows that the firm is liquid & due. On the other hand, a relatively low
current ratio indicated that the liquidity position of the company is not so good &
may not be able pay its current liabilities in time without facing difficulty. Convent
ally a ratio of 2:1 is from this only we cannot say that the liquidity position is no
sound.
-
8/3/2019 Str on Working Capital Management
34/42
Jindal Industries
34 | P a g e
Quick ratio
Quick ratio= Quick assets/Current liabilities
And Quick Assets= Current assets-Inventories
Interpretation
Quick ratio shows the relationship between quick assets of the firm & its current
liabilities. Quick assets are those which are easily converted into cash. It includes
cash & bank balance, debtors & receivables, marketable securities & excludesprepaid expenses & inventories. Since inventories are both readily converted into
cash hence they are not including in quick assets? In the year 2006-07 the ratio
1.85:1 shows the company can easily fulfill its obligation as & where they become
due. In the year 2009-10 the ratio is 1.59:1 which is greater than 2008-09 quick
ratios.
Year Ending
Quick
assets
Current
Liabilities
Quick
ratio
2004 3647.96 2249.62 1.62:1
2005 3829.11 2587.67 1.48:1
2006 2465.05 259.57 1.09:1
2007 6630 3565 1.85:1
2008 8584 5797 1.55:12009 7039.56 6892.24 1.02:1
2010 8237 5150.18 1.59:1
-
8/3/2019 Str on Working Capital Management
35/42
Jindal Industries
35 | P a g e
CASH MANAGEMENT
Cash management is the important current asset for the aerations of the business.
Cash is the basic input needed to keep the business running on a continuous basis it
is also the ultimate output expected to be realized by selling the service or product
manufactured by the firm. The firm should keep sufficient cash, neither more nor
less. Cash shortage will disrupt the firms operations while excessive cash will
simply remain idle, without contributing anything contributing anything towards
the firms profitability. Thus a major function of the financial manager is to
manager is to maintain a sound cash position.
Cash management is concerned with management of:
1. Cash flow in and out of the firm.2. Cash flows within the firm.3. Cash management held by the firm at a point of time by financing deficit or
inverting surplus cash.
4. Sales generate cash, which has to be disbursed out.
MOTIVE FOR HOLDING CASH:
1. Transaction motive: the transaction motive refers to the holding of ash tomeet anticipated obligations whose timing is not perfectly synchronized with
cash receipts. If the receipts of cash and its disbursements could exactly
coincide in the normal course of operations, a firm would course ofoperations; a firm would not need cash receipts. If the receipts of cash and
its disbursements could exactly coincide I the normal course of operations, a
firm would course of operations; a firm would not need cash for transaction
motive.
-
8/3/2019 Str on Working Capital Management
36/42
Jindal Industries
36 | P a g e
2. Precautionary motive: precautionary motive of holding cash implies theneed to hold cash to meet unpredictable obligations and the cash balance
held in reserve for such random and unforeseen cash flows are called as
precautionary balances.
3. Speculative motive: it refers to the desire of a firm to take advantage ofopportunities which themselves at unexpected movements and which are
typically outside the normal course of business.
4. Compensation motive: yet another motive to hold cash balances is tocompensate banks for providing certain services and loans. Banks provide a
variety of services to business firms, such as clearances of cheques, supply
of credit informations transfer of funds etc.
-
8/3/2019 Str on Working Capital Management
37/42
Jindal Industries
37 | P a g e
MANAGEMENT OF INVENTORY
Inventories are the product for sale by the company or semi finished of semi
finished goods or raw material. Inventory of finished goods which are ready for
sale is required to maintain smooth marketing operation. The inventory of raw
material and work in progress is required in order maintain an unobstructed flow of
material in the production line. These inventories serve as a link between the
production and consumption line. These inventories serve as a link between the
production and consumption of goods.
Basically there are three reasons for which inventories are stocked and they are:
1. Transaction motive: this motive lays emphasis on maintain of inventoriesin order to maintain a smooth and unobstructed supply of materials for the
sales and productions operations.
2. Precautionary motive: this motive emphasizes on the stocking goods inorder to guard against the uncertainties of future unpredictable changes in
the forces for demand, supply and other forces.
3. Speculative motive: this motive influences the decisions regarding theincrease and decrease in the level of inventory in order to take advantage of
price fluctuations.
-
8/3/2019 Str on Working Capital Management
38/42
Jindal Industries
38 | P a g e
MANAGEMENT OF PAYABLES
A substantial part of purchase of goods and services and services in business are
on credit terms rather than against cash payment. While the supplier of goods and
services tends to perceive credit as a layer for enhancing sales or as a form of non-
price instrument of completion the buyer tends to look upon it as a loaning og
goods of inventory. The supplier credit is referred to as accounts payables, trade
credit, trade bill, trade acceptance, and commercial drafts of bills payable
depending on the nature of the credit.
Types of trade credit:
Open accounts Promissory notes Bills payable
-
8/3/2019 Str on Working Capital Management
39/42
Jindal Industries
39 | P a g e
MANAGEMENT OF RECEIVABLES
Trade credit, the tool as a bridge for movement of goods through production stage
to customers is a force in the present day business and an essential device. Trade
credit creates receivables which refer to the amount, which a firm is expected to
collective in near future. It represents futurity. The cash payments for the good or
services received by the buyer will be made in future.
The goals of management of receivable are:
To obtain optimum value of sales. To control the cost of credit and keep it to the minimum level. To maintain investments in debtors at optimum level.
-
8/3/2019 Str on Working Capital Management
40/42
Jindal Industries
40 | P a g e
CONCULSION
Jindal Industries ltd. is growing enterprise. Its sales are increasing gradually
depending upon its capital requirements in also increased.
The management of working capital is JIL is quite satisfactory which is shown by
different ratios and other calculations. Ratio like Net working Capital, Current
Ratio, and Quick Ratio shows that the liquidity positions of the company is good,
which mean companys quick assets are almost to its current liabilities. Thus the
risk of getting insolvent is almost nil.
Working capital as the percentage of total net assets is showing a downward trend
also. There is no direct and proportional relationship between expansion of activity
level and working capital.
The companys trade credit policy is good which is shown by ratios like debtors
conversion and creditors conversion period.
From these it is concluded that company is getting trade credit for a longer period.
It reflects the efficiency of credit collection department they has made good credit
collection efforts. These efforts are improving gradually.
-
8/3/2019 Str on Working Capital Management
41/42
Jindal Industries
41 | P a g e
-
8/3/2019 Str on Working Capital Management
42/42
Jindal Industries