Chandu Prj

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Working Capital Management DORA

PLASTICS PVT LTD

INTRODUCTION

INTRODUCTION

Finance is the life blood of any business organization. Just as Circulation of blood is

necessary in the human body to maintain life finance is very essential to the business

organization for smooth running of the business

Financial management involves Managerial activities concerned with the

acquisition of Fund for the business purpose. The Finance Function does with

procurement of money taking in to consideration of today as well as future need and

finance is required to purchase need and finance is required to purchase a machinery

and raw materials to pay salaries and wages and also for day to day e!penses.

Financial Management is an appendage to the Finance function. "ith the

Creation of comple! industry structure the finance function has grown to very great

heights. #ne cannot think of any business activity in isolation from its financial

implication.

Financial Management

Meaning:-

Financial Management refers to that part of Management activity which is

concerned with planning and controlling of firms financial resources Financial

Management is applicable to every type of organization irrespective of size kind of

nature.

Objectives of Financial Management

Financial Management evaluates how funds are produced and used. $n all

cases it involves a sound %udgment combined with logical approach of decision

making. Financial management provides a framework for selecting a course of action

and deciding an economically viable strategy.

B.E.S GROUP O I!STITUTIO!S "GVIC COLLEGE# A!GALLU$MADA!APALLI

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The Main ob%ective of a business is to ma!imize the owner's welfare. This ob%ective

can be achieved by

(&) *+#F$T M,-$M$,T$#/

(0) "1,2T3 M,-$M$,T$#/

PROFIT MAXIMIATION:

*rofit earning is the primary of every economic activity. 4usiness can service

only it earns profit5 profit is the measure of the efficiency of a business enterprise. $t

is remuneration for innovation. The survival of the firm depends upon it ability to

earn profit but from the e!perience it is learn that concept of ma!imization is a myth.

!"A#T$ MAXIMIATION

"ealth ma!imization is the appropriate ob%ective for an enterprise.

The concepts of wealth ma!imization tell value of assets in terms of benefits it

can produce. The concept of wealth ma!imization universally accepted in financial

decision6making.

FINANCIA# D"CI%ION%

$nvestment decisions

Financing decisions

7ividend decisions

2iquidity decisions ("orking capital Management)

IN&"%TM"NT D"CI%ION%8


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The decisions relates to the determination of the total amount of assets to be

held by the firm their composition the business risk and the image of the firm's

perceived by the investors.

FINANCIN' D"CI%ION:

,fter taking the $nvestment decision the firm commits itself to the newinvestment and hence it must decide upon the best means of Financing these

commitments. The cost of raising funds for investing is very crucial in making the

financial decisions.

DI&ID"ND D"CI%ION%

This refers to the reimbursement of profit to the investors who have supplied

funds.


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!OR(IN' CAPITA# MANA'"M"NT

INTRODUCTION:

"orking capital may be regarded as the life blood of a business. "orking

capital Management is one of the most important aspects of Financial Management.

$t forms a ma%or function of the finance manager and accountant.

The term working capital stands for that part of the capital which is required

for the financial working of the company in simple words5 we can say that working

capital is the investment needed for carrying out day to day operations of the business

smoothly.

M"ANIN' AND D"FINATION

"orking Capital management nor administration of all aspects of working

capital which manage the firm's current assets and current liabilities in such a way

that a satisfactory level of working capital is maintained.

,ccording to smit) :working capital Management is concerned with the

problems that arise in attempting to manage the current assets current liabilities and

the inter6relationship that e!ists between them;.


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,ccording to ge*stenbe*g +Ci*c,lating capital means current assets of a

company that are changed in the ordinary course of business from one form to

another as for e!ample from cash to inventories inventories to receivables

receivables into cash;.

INDU%TR PROFI#"

P#A%TIC% MAT"RIA#% INDU%TR IN INDIA

$ndia has witnessed a substantial growth in the consumption of plastics and an

increased production of plastic waste. *olyolefin's account for the ma%or share of =>?

in the total plastics consumption in $ndia. *ackaging is the ma%or plastics consuming

sector with


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PLASTICS PVT LTD

available for disposal(e!cluding recycling)will increase at least &> fold up to the year

0>9> from its current level of &.9 million tones.

O&"R&I"!:

*lans can be classified in many ways but most commonly by their polymer

backbone (polyvinyl chloride polyethylene polymethyl mathacrylate and other

acrylics silicones polyurethanes etc.). #ther classifications include thermoplastic

thermoset elastomer engineering plastic addition or condensation or polyaddition

(depending on polymerization method used) and glass transition temperature or Tg.

ome plastics are partially crystalline and partially amorphous in molecular

structure giving them both a melting point (the temperature at which the attractiveintermolecular forces are overcome) and one or more glass transitions (temperature

above which the e!tent of localized molecular is substantially increased). o6called

semi6crystalline plastics include polyethylene polypropylene poly (vinyl chloride)

polyamides (nylons) polyesters and some polyurethane. Many plastics are completely

amorphous such as polystyrene and its copolymers poly (methylmethacrylate) and

all thermosets.

*lastics are polymers long chains of atoms bonded to one another. Common

thermoplastics range from 0>>>> to B>>>>> in molecular weight while thermosets are

assumed to have infinite molecular weight. These chains are made up of manyrepeating molecular units known as Drepeat unitsD derived from Dmonomers D5 each

polymer chain will have several &>>>Es of repeat units. The vast ma%ority of plastics

are composed of polymers of carbon and hydrogen alone or with o!ygen nitrogen

chlorine or sulfur in the backbone. (ome of commercial interests are silicon based.)

The backbone is that part of the chain on the main DpathD linking a large number of

repeat units together. To vary the properties of plastics both the repeat units with

different molecular groups DhangingD or DpendentD from the backbone (sually they

are DhungD as part of the monomers before linking monomers together to form the

polymer chain). This customization by repeat unitEs molecular structure has allowed plastics to become such an dispensable part of twenty first6century life by fine tuning

the properties of the polymer.

A.OUT T$" INDIAN P#A%TIC INDU%TR:

The plastics industry in $ndia has made significant achievements ever since it

made a modest but promising beginning by commencing production of polystyrene in

&GBH. The chronology of manufacture of polymers in $ndia is summarized as under.

I&GBH6 *#2T1+1/1


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I&GBG6 27*1

I&G=&6 *KC

I&G=A6 37*I&GHA6 *#2*+#*21/1

The potential $ndian market has motivated $ndian entrepreneurs to acquire

technical e!pertise achieve high quality standards and build capacities in various

facets of the booming plastic industry. *henomenal developments in the plastic

machinery sector coupled with matching developments in the petrochemical sector

both of which support the plastic processing sector have facilitated the plastic

processors to build capacities to service both the domestic market and the markets in

the overseas.

The plastic processing sector comprises of over 9>>>> units involved in

producing a variety of items through in%ection moulding blow moulding e!trusion

and calendaring. The capacities build in most segments of this industry coupled with

inherent capabilities have made us capable of servicing the overseas markets.

The economic reforms launched in $ndia since &GG& have added further fillip

to the $ndian plastic industry. Joint ventures foreign investments easier access to

technology from developed countries etc have opened up new vistas to further

facilitate the growth of this industry.

"XPORT%:-

$n the calendar year 0>>= the value of world plastic e!port was L 9HB

billion. 3owever the share of $ndia was less than &? with e!ports of worth L

9.&AHbillon. The percentage of growth in e!port was 0&?. 7uring this trend of growth

in e!ports of plastics raw material increased from BB? to =>? of the total e!port of

plastic goods while the e!port of processed plastic goods has registered a negative

growth from > million through value addition on the raw materials that

are e!ported.

T$" TOP /0 TRADIN' PARN"R% OF INDIAN P#A%TIC INDU%TR AR":-

D ,

D ,1

D $T,2


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D

D 412@$M

D @1+M,/

D $/@,*#+1

D ,7$ ,+,4$,

D 3#/@ #/@

FINANCIA# CONC#U%ION:

The consumption of plastics will increase about si!6fold between 0>>> and

0>9>. The share of polyolefins in $ndia will remain at about =>? a percentage

comparable to that of "estern 1urope. $n 0>9> plastics waste for

disposal (e!cluding recycled plastics) will increase &> times compared to the

situation in the year 0>>>N0>>&5 this model result assumes that the plastics recycling

rates will remain at the current level for the ne!t three decades. /evertheless it is

more likely that the recycling rates will decrease with the increasing level of wealth8

in this case plastics waste for disposal will grow by more than a factor of &>between

0>>> and 0>9>.


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"aste for disposal is increasing relatively faster than the plastics consumption

because of the higher share of long 6life products in waste and the lower recycling

rates of these products.

*lastic is the general term for a wide range of synthetic or semi synthetic

polymerization products. They are composed of organic condensation or addition

polymers and may contain other substances to improve performance or economics.

There are few natural polymers generally considered to be DplasticsD. *lastics can be

formed into ob%ects or films or fibers. Their name is derived from the fact that many

are malleable having the property of plasticity.

COMPAN PROFI#"

D7ora plastics private limitedD was incorporated as a private limited company on 096

&&6&GGA at Tirupati. The company is promoted by ri T.esavulu /aidu with the

inspiration of ri. .+eddy 6M.* /andyal and M7 /andi pipes /andyala.


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The company started its operations in &GGG. The company done its operation

in the financial year of &GGG60>>> at &9B days only. The company started with an

authorized capital of +s. >>>>>N6 and issued O paid up capital of +s. 9H >>>>>N6.The company started. The paid6up capital of the concern is +s.9G.>0lakhs. The

outside sources of funds to the company are loans O Term loans from 4$ Tirupathi.

The company started with a workforce of &B members. /ow it is increased to

G> members. The company having < lakhs shares P +s.&> each. ,t present the

company is paying interest P rate of &


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PLASTICS PVT LTD

The company markets their products in ,ndhra *radesh O Tamil /adu (some

regions).They are getting the advertisement through paper. They are using the field

staff for distributing the products. 4y producing the qualitative products and fi!ingthe competitive price the companies overcome the competition.

O.1"CTI&":

• *rovide employment to people and increase sales with cheaper rate.

MI%%ION &A#U"% 2 ."N"FIT%:

• "e believe in trading each other with honesty fairness dignity and respect

• "e help each other work in terms and hold each other accountable to ensure

contribution towards goals.

• "e believe in innovative and optimum use of our resources to ensure better

productivity.

%OCIA# R"%PON%I.I#IT:

• Quality of the product to the customers.

• 1nhancement of knowledge and skills of employees through training

• *assing benefit of cost cutting in construction finance and operation

to the customers.

FINANCIA# %TAT"M"NT ANA#%I%

Term loan +s.=> >>>>>N6from

%TAT" .AN( OF INDIA

ettipalli 4ranch

+enigunta +oad

ettipalli (post)

Tirutathi6B&HB>&


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PLASTICS PVT LTD

R"'I%T"R"D OFFIC":

*lat /o. 9>

$ndustrial 1state

+enigunta +oad

ettipalli (post)

.OARD OF DIR"CTOR%:

Managing 7irectors 8 T.esavulu /aidu

7irector 8 T.7oraswami /aidu

,uditor 8 1.*alguna umar

PRODUCT AD&ANTA'"%:

The main advantage of this product is use and through and also very cheap in

cost.

The company produces &> to &B times based on size and gauges The

following are the various types of products.

Our Vision


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PLASTICS PVT LTD

Providing world class quality, services and offering most

competitive prices to earn customer satisfaction and

preferences. To earn trust and building corporate image of the

company by constant growth and transparency

to all the stake holders including share holders, employees,

customers, vendors and society as a whole.

Keeping pace with the technological development, training of

the employees and benchmarking world class management

systems and there by achieving ecellence in corporategovernance

Our !ission

• Provide ecellent services to our customers in all means

• "nsure the timely eecution in all our endeavors

• #earn new strategies to identify niche markets

• $reate Opportunities to achieve our highest potentials

• %trive hard to enhance our values

• &uality

As an Organisation and individual we are committed to:

• %atisfy customer's requirement

• $ontinual improvement on product, process and quality

management systems

• Optimum use of resource

Keshava Plastics (nfrastructure

Keshava Plastics has a large manufacturing unit, spread over

an area of )*+++ square feet with latest technology, complete

manufacturing is almost automatic and entire process is

backed by highly skilled, quality and trusted professionals.


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R"&I! OF #IT"RATUR"

!OR(IN' CAPITA# MANA'"M"NT

• INTRODUCTION

"orking capital may be regarded as the life blood of a business. "orking capitalManagement is one of the most important aspects of Financial Management. $t forms

a ma%or function of the finance manager and accountant.

D"FINITION

&. :"orking Capital +epresents the 1!cess of Current ,ssets over current

2iabilities and identify the liquidity position of total enter prizes Capital;

!*itten b3 + As4at)a55a6


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0. +,ccording to smit) :working capital Management is concerned with the

problems that arise in attempting to manage the current assets current

liabilities and the inter6relationship that e!ists between them;.

M"ANIN':

/either "orking Capital management nor administration of all aspects of working

capital which manage the firm's current payment of wages and other day to day

e!penses etc These funds are also known as working capital. Mainly the organization

used working capital day to day business obligations purposed used. The main goal

of working capital is to mange current assets and current liabilities. The following

formula is used calculation of working capital.

/et "orking Capital R Current ,ssets 6666666 Current 2iabilities

,ccording to genstenbe*g +Ci*c,lating capital means current assets of a

company that are changed in the ordinary course of business from one form to

another as for e!ample from cash to inventories inventories to receivables

receivables into cash;.

I7 TP"% OF !OR(IN' CAPITA#

There are two types of working capital. They are


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I8 ON T$" .A%I% OF CONC"PT:

/8 '*oss 4o*9ing ca5ital7

8 Net 4o*9ing ca5ital7

/7 '*oss !o*9ing Ca5ital

+efers to the firm's investment in current assets are the assets which can be

concerned into and within an accounting year (or operating cycle) and include cash

short6term securities debtors (accounts receivables or book debts) bills receivable and

stock (inventory)@ross working capitals points to the arranging of funds to finance

current assets.


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7 /etworking Capital

+efers to the difference between current assets and current liabilities. Currents

liabilities are those claims of outsiders which are e!pected to nature for payment

within accounting years and include creditors (accounts payable). 4ills *ayable and

outstanding e!penses. /etworking capital can be positive or negative. , positive

networking capital will arise when current assets e!ceed current liabilities and a

negative working capital will arise when current liabilities are in e!cess of current

assets.

II8 ON T$" .AI% OF TIM"/8 Pe*manent;fi


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/ote8 " C where Rworking capital

0.Temporary "orking Capital

7epending upon the changes in production and sales the need for working capital

over and above permanent working capital will have in be maintained to support the

peak proceeds of sale and investment in receive may also increase during such

periods. #n the other hand investment in raw material working in progress and

finished goods will fall if the market is slack.

The e!tra working capital needed to support the changing production and sales

activities is called fluctuating or variable or temporary working capital. The firm to

meet liquidity measurement that will last only temporarily creates temporary working

capital.

,mount Temporary w c

#f w c or

Fluctuating w c

Time permanent " c


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II7 D"T"RMINAT"% OF !OR(IN' CAPITA# OR FACTOR% AF"CTIN'

The working capital requirement of a firm affected by a number of factors.

The various factors which affect the working capital requirement of a concern are as

follows8

INT"RNA# FACTOR%


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&7 /ature of 4usiness

The working capital requirements of enterprises are basically related to the conduct of business. *ublic utilities have certain features which have a bearing on their working

capital needs. They do not maintain big inventories arid have therefore probably the

least requirement of working capital. #n the other hand trading and manufacturing

concern required large amount of working capital to maintain a sufficient amount of

cash inventories and book debts.

7 *roduction Cycle

The term production or manufacturing cycle refers to the span between the

procurement of raw materials and completion of the manufacturing process leading to

the production of finished goods. $n other words there is a sometime gap before raw

materials become finished goods. Therefore the longer the time span the larger will

be the working capital needed and vice versa.

>. 4usiness cycle

The business fluctuations influence the size of working capital mainly during updated

phase when boom conditions prevail the need for working capital is likely to cover

the lag between increases sales and receipt of cash as well as invest in plant and

machinery to meet the increased demand. The down swing an opposite effect on the

level of working capital requirement.

?7 Credit *olicy

The credit policy relating to sales and purchases also affects the working capital. The

credit policy in influences the requirements of working capital in two ways8

Though credit terms granted by the firm to its customersNbuyers of goods

credit terms available to the firm from its creditors. , firm which more credit sales

and cash purchase required high working capital than a firm having more credit

purchase and cash sales.

@7 %cale of P*o=,ction

, concern carrying on activities on a small scale of needs less working capital. #n the

other hand a concern undertaking activities on large scale

/eeds large amount of working >capital.

7 '*o4t) an= "


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The growth and e!pansion of business also affect the working capital requirement.

"hen there is growth and e!pansion in the business of a firm the working capital

needs of the firm will also increase.

B7 O5e*ating "fficienc3

The operating efficiency of the management is also important determinant of the level

of working capital. , firm en%oying operating efficiency can eliminate wastage and

use its resources efficiently and thereby reduce its working capital needs considerably.

"XT"RNA# FACTOR%

/7 .,siness Fl,ct,ations

4usiness enterprises usually e!periences fluctuations in demand for their products and

services because of changes in economic conditions. $n view of this working capital

requirements of these enterprises are affected. Thus in the event of economic

prosperity general demand of the goods and services tends to shoot up. To cope with

increased demand and consequently increased production the firm will require

additional working capital.

7 Tec)nological Develo5ments

Technological developments in the area of production can have sharp effects on the

need for working capital. $f a firm switches over to new manufacturing process and

installs new equipments with which it is able to cut period involved in converting raw

materials into finished goods permanent working capital requirements of the firm will

decrease.

>7 T*ans5o*t an= Comm,nication Develo5ments

"here the means of transport and communication in a country are not well developed

industries may need additional funds to maintain big inventory of raw materials and

other accessories which would otherwise not be needed where the transport and

communications systems are highly developed.

?7 Im5o*t Polic3

$mport policy of the government may also have its bearing on the levels of working

capital of the enterprises since they have to arrange funds for importing goods at

specified times.

@7 Ta


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"orking capital needs of business enterprises are affected sharply by ta!ation policy

of the government. $n the event of regressive ta!ation policy of the government as it

e!ists today in $ndia imposing heavy ta! burdens on business enterprises leaves verylittle profits for distribution and retention purposes.

III7 %OURC"% OF !OR(IN' CAPITA#

,mong the various sources available for financing working capital needs finance

manager has to select the best suitable source depending on working capital need of

company

The need of working capital is increased by raising prices of end products and

relative inputs. #n the other hand the government and monetary authorities play their

own role to curd the malice in periods of inflation. The control measures often take

the firm of dear money policy and restriction credit. Financing of additional working

capital in such an amusement >becomes a real problem to finance manager of a

concerned unit. Commercial banks play the most significant role in providing

working capital finance particularly in $ndians conte!t. $n view of mounting

inflation the +.4.$ has taken up certain social measures to check the money supply in

the economy. The balancing need has to be managed either by long6term borrowings

or by issuing equity or by earning sufficient profits and retaining the same of coping

with the additional working capital requirements. The first choice before a finance

manager where banks do not provide a part of additional working capital is to take

the long6term sources of fiancS.

• #ong Te*m Financing


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2oans from financial institution the option is normally rules out because financial

institutions do not provide finance for working capital requirements. Further this

facility is not available to all companies

This option is not practical.

• Floating of Debent,*es

The profitability of a successful floating of debentures seems to be rather merging. $n

$ndian capital market floating of debentures has still to gain popularly debentures

issues of companies in private sector not associated with certain reputed groups

generally failed to attract investors to invest their funds in companies. $n this conte!tthe mode of raising funds by issuing convertible debentureNbonds is also gaining.

• Acce5ting P,blic De5osits

The issue of tapping deposits is directly to the image of the company seeking to invite

public deposits.

• Iss,e of %)a*es

"ith a view of financing additional capital needs issue of additional equity sharecould be considered. Many $ndian company have still to go ahead to command

respect of investors in the conte!t low profit margin as well as lack o knowledge

about company make the success of a capita $ssue very dim.

• Raising F,n=s b3 Inte*nal Financing

+aising funds from operational profit poses problems for many companies because

price of their end products are controlled and do not permit companies to earn profit

sufficient requirements to finance additional working assets still a largely feasible

solution lies in increase profitability through cost control and cost reduction measuresmanaging the cash operating cycle rationalizing inventory stock and so on.

I&7 M"T$OD% FOR "%TIMATIN' !OR(IN' CAPITA# R"UIRM"NT%

Three widely used methods for determining working capital requirements of a firm

are

Pe*centage of sales met)o=

Reg*ession anal3sis met)o=


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O5e*ating c3cle met)o=

/7 Pe*centage of %ales Met)o=

$n this method level of working capital requirements is decided on the basis of past

e!perience. The past relationship between sales and working capital is taken as a base

for determining the size of working capital requirements for future. $t is however

presumed that the relationship between sales and working capital that has e!isted in

the past has been stable. This may be e!plained with the help of the following

illustration.

*ercentage of sales method is a simple and easily understood method and

practically used for ascertaining short6term changes in working capital in future.

3owever this method lacks reliability inasmuch as its basic assumption of linear

relationship between sales and working capital does not hold true in all the cases. ,s

such this method cannot be recommended for universal application.

7 Reg*ession Anal3sis Met)o=

This is a statistical method of determining working capital requirements by

establishing the average relationship between sales and working capital and its

various components in the past years. $n this regard the method of least squares is

employed and the relationship between sales and working capital is e!pressed by the

equation8

Rab!

The values of Ua' and Ub' is obtained by the solution of simultaneous linear equations

given as under8

"here aRfi!ed component

bRvariable component

!Rsales

yRinventory

nRnumber of observation

>7 O5e*ating C3cle A55*oac)

#perating cycle refers to the length of time necessary to complete the following cycle

of events.


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Conversion of cash into inventory.

Conversion of inventory into receivable

Conversion of receivable into cash$f the operating cycle is length than the working capital requirement will be more on

the other hands if the operating cycle is shorter than the working capital requirement

will be less.

,ccording to this approach size of working capital requirements of a firm is

determined by multiplying the duration of the operating cycle by cost of operations.

The duration of the operating cycle may be found with the help of the following

formula8

#R+ " F , V *

"here #R7uration of operating cycle

+R7uration of raw materials

"R7uration of work6in6process

FR7uration of finished goods

,R7uration of accounts receivable

*R7uration of accounts payable

D,*ation of *a4 mate*ials

$t reflects the number of days for which raw materials remain in inventory before they

are issued for production. The following formula can be used to determine duration

of raw materials.

,verage stock of raw materials

+R 6666666666666666666666666666666666666666666666666666

*er day consumption of raw materials

D,*ation of t)e 4o*9-in-5*ocess

$t denotes the number of days required in the work6in6process stage. $t may be

ascertained with the help of the following formula8

,verage work6in6process inventory

"R 66666666666666666666666666666666666666666666666666


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,verage production per day

D,*ation of finis)e= goo=s

$t refers to the number of days for which finished goods remain in inventory before

they are sold. This can be computed by the following formula

,verage finished goods inventory

FR 6666666666666666666666666666666666666666666666

*er day sale of goods

D,*ation of t)e acco,nts *eceivable

$t represents the number of days required to collect the accounts receivable. This may

be calculated as under8

,verage book debts

,R 666666666666666666666666666666666666666666666

,verage credit sales per day

D,*ation of acco,nts 5a3able

$t refers to the number of days for which the suppliers of raw materials offer credit.This may be measured with the help of the following formula8

,verage trade creditors

*R 66666666666666666666666666666666666666666666666

,verage credit purchases per day

&7 OP"RATIN' CC#"%


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R"C"I&A.#"% MANA'"M"NT

Finished goods sold on credit get converted (from the point of view of the

selling firm) into receivables (book debts) which realized generate cash. The average

balance in the receivable account would appro!imately be average daily credit sales

multiplied by average collection period.

• O.1"CTI&"% OF R"C"I&A.#" MANA'"M"NT

The main ob%ectives of receivable management are8

To obtain the optimum value of sales.

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

To reduce the average collection period.

A%P"CT% OF R"C"I&A.#" MANA'"M"NT

7etermining the credit policy.

7etermining the credit terms.

1valuating the credit applications.

7etermining collection policies and methods.

Control and analysis of receivables.

D"T"RMININ' CR"DIT PO#IC


%Page 0A

Ca&'

Ra( material&

Work in

progre&&ini&'e) goo)&

Sale&

De*tor&


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PLASTICS PVT LTD

The first decision area of receivable management is determining credit policy.

$n developing an optimum credit policy the financial manager should compare the

benefits of credit e!tension with the cost of credit. The ma%or considerations in costs

are liquidity and opportunity cost. The credit policy of a firm provides the frame

work to determine.

"hether or not e!tent to a customer

3ow much credit to e!tend.

IN&"NTOR MANA'"M"NT

$nventory management involves the control of assets being produced for the

purpose of sale in the normal course of company's operations. $nventories include

raw material inventory work6in6progress inventory and finished goods inventory.

The goal of effective inventory management is to minimize the total costs direct and

indirect those are associated with holding inventories. 3owever the importance of

inventory depends on the e!tent or investment inventory.

CA%$ MANA'"M"NT

Cash is the most important factor in financial management. $t is also the mostimportant of all the current assets for the operations of the business.

Nee= fo* an= objective of cas) management

2arger cash and bank balances indicating high liquidity position of a company

which will result in lower profitability as idle cash fetches

/o return while the same when invested in the assets of the company will result in

profits. The need for holding cash arises from a Karity of reason such as8

Transaction motive

*recautionary motive

peculation motive

2ack of proper synchronization between cash inflows O cash outflows

/8 T*ansaction motive


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PLASTICS PVT LTD

, company is always entering in to transactions with other entities which may

cause immediate cash inflows and out flows. o firms always keep a certain amount

as cash to deal with routine transactions where immediate cash payment is required.

08 P*eca,tiona*3 motive

, company has to be prepared to meet such contingencies like a sudden fire

may break out accidents employees strike etc to minimize its losses. For this

purpose companies generally maintain some amount in the form of cash.

>8 %5ec,lation motive

Firms also maintain cash balance in order to take advantage of opportunities

that do not take place in the course of routine business activities.


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PLASTICS PVT LTD

R"%"ARC$ M"T$ODO#O'

N""D FOR %TUD

•The company ma%or problem is inventory mishandling so in that time

2osses increases.

•This is an indication of defective credit policy and stock collection

*eriod.

Finance is the life blood and nerve system of any business organization. Just as

Circulation of blood is necessary in the human body to maintain life finance is very

essential to the business organization for smooth running of the business.

Financial management involves Managerial activities concerned with the

acquisition of Fund for the business purpose. The Finance Function does with

procurement of money taking in to consideration of today as well as future need and

finance is required to purchase need and finance is required to purchase a machinery

and raw materials to pay salaries and wages and also for day to day e!penses.

Financial Management is an appendage to the Finance function. "ith the

Creation of comple! industry structure the finance function has grown to very great

heights. #ne cannot think of any business activity in isolation from its financialimplication.


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PLASTICS PVT LTD

%COP" OF T$" %TUD

The prime ob%ective of the company is to obtain ma!imum profit thought the

business. The amount of profit largely depends up on the magnitude of sales.

3owever the sale does not convert into cash instantaneously. There is always a time

gap between the sales and their actual realization in cash is technical termed as

operating cycle. ,dditional capital required to have uninterrupted business

operations and the amount will be locked up in the current assets. +egular

availability of advocate working capital is inevitable for sustained business

operations if the proper fund is not provided for the purpose the business operations

will be effected and hence this part of finance managed well.


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PLASTICS PVT LTD

O.1"CTI&"% OF T$" %TUD

To evaluate the performance of 7ora plastics (*vt) 2td. by analyzing

The liquidity position of the company.

To study the changes and identify the problems in net working

Capital position of the organization from 0>&>6&


34/67


PLASTICS PVT LTD

#IMITATION% OF T$" %TUD

• ,vailability of time is a serious constant in the proposed survey since pro%ect

will be completed within a period of


35/67


PLASTICS PVT LTD

RESEARCH METHODOLOGY

Resea*c) =esign:

The main aim of this study is to know the working capital Management with

respect to +enigunta 7ora plastics *vt 2td +esearch is a carful investigation or

enquiry through search for new facts in any branch of knowledge.

Resea*c) Met)o=olog3:

+esearch methodology is a way to systematically solve the research problem.

$t may be understand as a science done identifiably. $n it study the various steps that

are generally adopted by a research in studying his research problem behind them.


%Page 9B


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PLASTICS PVT LTD

%OURC" OF DATA CO##"CTION

/ P*ima*3 =ata

The data is collected from in two ways one is primary data another one is

secondary data. The primary data is not available from the company but in the

secondary data is collected from various sources these are given below.

/7 %econ=a*3 Data

The secondary data collected from the financial reports previous records

published records and other statements provided by finance department of :DORA

P#A%TIC% P&T #TD;.

%am5le =esign:

,vailability of the 7ora plastics *vt ltd in the balance sheets 0>>H6>A


%Page 9=


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PLASTICS PVT LTD

,vailability of the 7ora plastics *vt ltd in the balance sheets 0>>A6>G

,vailability of the 7ora plastics *vt ltd in the balance sheets 0>>G6&>

,vailability of the 7ora plastics *vt ltd in the balance sheets 0>&>6&&

,vailability of the 7ora plastics *vt ltd in the balance sheets 0>&&6&0

DATA ANA#%I% AND INT"RPR"TATION

%C$"DU#" OF C$AN'"% IN !OR(IN' CAPITA# 00-0/0

Pa*tic,la*s As on

>/;>;0

As On

>/;>;/0

C)ange OF !o*9ing Ca5ital

Inc*ease

Rs;-

Dec*ease Rs;-

a7 C,**ent Assets

$nventories 0>


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PLASTICS PVT LTD

undry 7ebtors &G&G&G).

%C$"DU#" OF C$AN'"% IN !OR(IN' CAPITA# 0/0-0//

Pa*tic,la*s As on

>/;>;/0

As On

>/;>;//

C)ange OF !o*9ing

Ca5ital

Inc*ease Rs;- Dec*eases

Rs;-

a7 C,**ent Assets

$nventories


39/67


PLASTICS PVT LTD

undry 7ebtors 0A=AA &&9H&B=

Cash O 4ank balance &&0GAA9 9A0=A>0 B9HHGH

#ther current assets 90 9B&=&B

A7 Total C,**ent Assets //B/B0/ />@//

b7 C,**ent #iabilities

Current 2iabilities BG0&AHH B99HGB> BA9G0H

*rovisions &0BB9HG &>).

%C$"DU#" OF C$AN'"% IN !OR(IN' CAPITA# 0//-0/

Pa*tic,la*s As on

>/;>;//

As On

>/;>;/

C)ange OF !o*9ing

Ca5ital

Inc*ease

Rs;-

Dec*ease

Rs;-

a7 C,**ent Assets


%Page 9G


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PLASTICS PVT LTD

$nventories = H0=9G

undry 7ebtors &H9&9>A 90 B&A>AG &&0 BAGA&&> 0>H&9>A

A7 Total C,**ent Assets />@// /?/@E@E


Current 2iabilities B99HGB> GBB9GHH=

.7 Total C,**ent

#iabilities

@?BEBB @?B

Net!o*9ing Ca5italGA-.8 E/E@>?@ E@0E/

Dec*ease in !o*9ingCa5ital

&99@@EE

INF"R"NC":

From above the table current assets more than current liabilities so that

working capital is 7ecrease (i.e &99;/

As On

>/;>;/>

C)ange OF !o*9ing

Ca5ital

Inc*ease

Rs;-

Dec*ease

Rs;-


%Page


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PLASTICS PVT LTD

a7 C,**ent Assets

$nventories =B&&GH> A==>A0> 0& 6

undry 7ebtors 9=

A7 Total C,**ent Assets /?/@E@E >0B0


Current 2iabilities GBB9G9>= 6 0A9=9BG

*rovisions &&>B> B>00BB @>BB

?/B>E ?/B>E E/BE> E/BE>E

INF"R"NC":

From above the table current assets more than current liabilities so that

working capital is increase ($.e 0B==9HH).

%C$"DU#" OF C$AN'"% IN !OR(IN' CAPITA# 0/>-0/?

Pa*tic,la*s As on

>/;>;/>

As On

>/;>;/?

C)ange OF !o*9ing

Ca5ital

Inc*ease Dec*ease


%Page


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PLASTICS PVT LTD

Rs;- Rs;-

a7 C,**ent Assets

$nventories A==>A0> &>BAH= 9G>>G>0 6 0==&BG=

*rovisions B>00 6

.7 Total C,**ent

#iabilities

/BB?/@@ >/B0E

!o*9ing Ca5italGA-.8 />@>0 >/B0E

Inc*ease in !o*9ing

Ca5ital

EB/EB 6 EB/EB

/@/@@?B /@/@@?B @?EEBE> @?EEBE>

INF"R"NC":

From above the table current assets more than current liabilities so thatworking capital is increase (i.e 0A0H&AH).

RATIO ANA#%I%

Meaning of Ratio:


%Page


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PLASTICS PVT LTD

, +atio is a mathematical relationship between two items e!pressed in a

quantitative from. , +atio is a statistical yardstick that provides a measure of the

relationship between variable of figures.

+atio can be defined as :+elationship e!pressed in quantitative from between

figures which have cause and effect relationship or which are contacted with each

other in some manner other;

• T35es of Ratios

everal ratios calculated from the accounting data can be grouped in to various

classes according to financial activity are function to be evaluated. ,s stated earlier

the parties interested in financial analysis are short6term and long6 term creditors

owners and management. hort6term creditors.

Main interest in the liquidity position are the short6term solvency of the firm

long6term creditors on the other hand are more interested in the long term solvency

and profitability of the firm.

"e may classify them in to the following from important categories

• 2iquidity +atios

• Turnover +atios

• *rofitability +atios

I7 #iH,i=it3 o* Financial Ratios

These ratios are calculated to %udge the financial position of the concern from long

term as well as short term solvency point of view.

/7 CURR"NT RATIO

The current ratio establishes the relationship between current assets and

current liabilities. The ob%ective of computing this ratio is to measure the ability of the

firm to meet its short term financial strengthNsolvency of a firm. $f a firm having high

degree of liquidity funds is unnecessarily toed up in current assets. The satisfactory

current ratio is 08&.$n other words the ob%ective is to measure the safely margin

available for short term indicators. This ratio is e!pressed as under8

C++1/T ,1T

C++1/T +,T$# R 66666666666666666666666666666666666666

C++1/T 2$,4$2$T$1


%Page


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PLASTICS PVT LTD

C++1/T +,T$#

1,+ C++1/T

,1T

C++1/T

2$,4$2$T$1

C++1/T +,T$#

0>>H6>A &&H0&H>& BG0&AHH &.GH

0>>A6>G &9==B&0& B99HGB> 0.BB

0>>G6&> &=6&& 009>GHG> &09G>9>= &.A>

0>&&6&0 &A.GB

$/T1+*+1T,T$#/8

7uring 0>>H6&0 the current ratio of the company was &.GH 0.BB &.H& &.A>

and >.GB. This indicates for every one rupee of current liability companies has more

than two rupees to pay for it. For all the years of study the current ratio is equal to the

standard ratio of 08&e!cept 0>&&6&0.


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PLASTICS PVT LTD

7 UIC( RATIO

$n a short period a firm should be able to meet all its short term obligations i.e. current

liabilities and provisions. Current assets are those assets which can be converted into

cash in the short run or with in one year. Current assets should not only yield

suffictint fund to meetr current liabilities as they fall due.

Q$C +,T$#

1,+ C++1/T

,1T6

$/K1/T#+$1

C++1/T

2$,4$2$T$1

Q$C +,T$#

0>>H6>A H>A6>G H00BHG> B99HGB> &.9

0>>G6&> GG>9AAH GBB9G

0>&>6&& &9= &09G>9>= &.&

0>&&6&0 HA=AH>0 &G9=990< >.<

$/T1+*+1T,T$#/8


%Page


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PLASTICS PVT LTD

The standard norm for the quick ratio is &8&. Quick ratio is decreased gradually

from 0>>H6>A to0>>G6&> and then it is increased slightly. 3owever the ratio was

above the standard norm. so that the ratio was satisfactory.

>7 N"T !OR(IN' CAPITA# RATIO GN!C8:

/1T "#+$/@ C,*$T,2 +,T$#R /1T "#+$/@ C,*$T,2

/1T ,1T

1,+ /1T "#+$/@

C,*$T,2

/1T ,1T /.".C +,T$#

0>>H6>A BHGGA0< 0>&&9HA< >.0A

0>>A6>G A90H&H& 00.0H

0>>G6&> =A=&G&& 9&BA=9A= >.0&

0>&>6&& GG&G.0B

0>&&6&0


47/67


PLASTICS PVT LTD

The net working capital is >.0A in 0>>A bin 0>>A and >.9H in 0>>G. 2ater it is

decreased in 0>&> to >.0& and then it is increased to >.0B in 0>&& and in 0>&0 it is

decreased >.>A. , condition of business working capital is not shortage. Therefore itcan conclude that on an average the working capital ratio of 7#+, *2,T$C is

found satisfactory.

?7 FIX"D A%%"T% TURNO&"R RATIO GFAT8:

,21

F$-17 ,1T T+/#K1+ +,T$# RWWWWWWWWW

/1T F$-17 ,1T

,21R @+# ,21

/1T F$-17 ,1TR /1T 42#C

1,+ ,21 /1T F$-17

,1T

F.,.T +,T$#

0>>H6>A 99&B=G>B A9G0>A9 9.GB

0>>A6>G 9>>> &&9 9.0=

0>>G6&> B=0=B09H &B&H>B0A 9.H>

0>&>6&& BAA=>&>< &=B>99=& 9.B=

0>&&6&0 B990=A00GG> 0.


48/67


PLASTICS PVT LTD

$/T1+*+1T,T$#/8

Fi!ed assets turnover ratio is high in the year 0>>H6>A that is 9.GB. ,nd there is

slight difference in each year comparison. The ratios are 9.GB in 0>>A 9.0= in 0>>G

9.H> in 0>&> 9.B= in 0>&&and 0.&0.

@7 !o*9ing Ca5ital T,*nove* Ratio

This ratio shows the number of times working capital is turned V over in a stated

period the higher is the ratio the lower is the investment in working capital and the

greater are the profits. 3owever a very high turnover of working capital is a sign of

overtrading and may put the concern into financial difficulties. #n the other hand a

low working capital turnover ratio indicates that working capital is not efficiently

utilized. $t is calculated as follows. ale

"orking capital turnover ratioR

/et working capital

Net !o*9ing ca5ital C,**ent Assets J C,**ent liabilities

1,+ ,21 /1T "#+$/@

C,*$T,2

".C.T +,T$#


%Page


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PLASTICS PVT LTD

0>>H6>A 99&B=G>B BHGGA0< B.H&

0>>A6>G 9>>> A90H&H& B.BA

0>>G6&> B=0=B09H =A=&G&& A.&G

0>&>6&& BAA=>&>< GG&G&&6&0 >H6>A 9G&9>H< 0GHBG< &9.&B


%Page


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PLASTICS PVT LTD

0>>A6>G H9=& =H &>.A0

0>>G6&> BAHGBG= B>>=G&0< &&.H<

0>&>6&& ==&0>09 B&BB00&B &0.A0

0>&&6&0 &00&&0 0.B0

$/T1+*+1T,T$#/8

7uring the year 0>>A the net profit margin is &9.&B and it is slightly

decreased to &>.A0 in the year 0>>G. $n the year 0>&> it is increased to &&.H&&and it decreased drastically to

0.B0 in 0>&0.

FINDIN'%

The current +atio standard is (08&) in the year 0>>H6>Athere was a

increase in the years 0>>H60>>Aand current ratio below the

,verage in the 0>>H6>G rapid increase in current ratio7

The quick ratio standard (&8&) in the year 0>>H6>Aincrease in the

years 0>>H60>>Aand quick ratio below the average standard in the

0>>H60>>G rapid increase in quick ratio.


%Page B>


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PLASTICS PVT LTD

The net profit ratio increased in the year 0>>G6&>and another years

also decreased 0>>H6>Aon the year rapid increase in the profit ratio

in the year.

The working capital management is satisfactory and working

capital turnover ratio shows the efficiency of the in utilization thisworking capital.

Fi!ed assets turnover ratio of the firm indicates the better

utilization of fi!ed assets.

%U''"%TION%

The concern may concentrate to improve its profitability because its actual gross

profit ratio and net profit ratio are less than 0>?and B?respectivaly. For this it is


%Page B&


52/67


PLASTICS PVT LTD

necessary to reduce the cost of production by implementing latest techniques to

reduce production long period.

The liquidity position of the concern is also satisfactory for the betterment it is

necessary to reduce this inventory conversion period. $f it was reduced there is a

saving of nearly 0>? of the cost of production.

$t is better to reduce the long term loans which base high interest charges. $f the

concern clears off there loans and so for fresh loans with current interest rates

(lower then the previous interest rates).

CONC#U%ION


%Page B0


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PLASTICS PVT LTD

,s per completion of may pro%ect work in Do*a Plastics *vt 2td

finally $ conclude the company liquidity ratios are below the standard so

if the company barrow some amount and put it on investment. The

inventory turnover ratio fluctuating in the Byears. The net working capital

ratio decreased in the year 0>&>6&& (i.e B.G9) the company is not taking

any proper measures to control operating e!penses.

.ibliog*a5)3:B.E.S GROUP O I!STITUTIO!S "GVIC COLLEGE# A!GALLU$MADA!APALLI

%Page B9


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PLASTICS PVT LTD

/ame of the 4ook ,uthor *ublications

Financial Management I7M7 Pan=e3 Kikas *ublishing

3ouse Gthedition/ew 7elhi

Financial Management M77 ()an 2 P7(7 1ain Kikas *ublishing

3ouse /ew

7elhi.

P*inci5les of Management D*7 %7 N7 Ma)es4a*i ultan Chand Oons

/ew Acco,nting 7elhi.


%Page B


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PLASTICS PVT LTD

PROFIT & LOSS ACCOUNT FOR !AR !N"!" #$$%$'

S(NO PARTICULARS SC)!"UL!S #$$' #$$%

.

-.

%alesOther income(ncrease or decrease in stock

"penditure/aw materials consumed!anufacturing epenses 0dministrative epensesPayments 1benefits to employees/ates 1 taes2inancial chargesPreliminary epenses write3epreciation

Profit#ess provisions for income ta

Provision for deffered taa4Ta effect of timing differencesoriginating during the year b4Ta effect of timing differencesreversing during the year

profit from previous year less opening deffered ta liability

-

56

*789)

559--+8-*--6-7*8+

-8-68)7755-:856*4

5676))) -97*95

)+796-7695-)95)--8+-)*6-+)6))-*7++87587

))85-6669956*6)9-*6)75597-*859*8767++778---

5-)*+75+ ))7+968

7))57

8-+++

;il-9*6)+

7+678

9**857

66+5*

;il;il

;il

+96+6 88+

-+56)))6765

5+8)9;il

Profit carried to balance sheet #*+'+%# #$*,+--


%Page BB


56/67


PLASTICS PVT LTD

PROFIT & LOSS ACCOUNT FOR !AR !N"!" #$$'$-

S(NO PARTICULARS SC)!"UL!S #$$- #$$'

.

-.

(ncome%ales :


57/67


PLASTICS PVT LTD

less short provision for taand profit

Pro.it carried to /alances0eet

,,-$$1+ #*+'+%#

PROFIT & LOSS ACCOUNT FOR !AR !N"!" #$$-*$

S(NO PARTICULARS SC)!"UL!S #$*$ #$$-

.

-.

(ncome

%ales :


58/67


PLASTICS PVT LTD

b4Ta effect of timingdifferences

reversing during the year

profit from previous year less short provision for taand profit

6-*77* 9*-57

-))6786

5+-9*

-6968-

76

Profit carried to balancesheet

,%,,+%- ,,-$$1+


%Page BA


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PLASTICS PVT LTD

PROFIT & LOSS ACCOUNT FOR !AR !N"!" #$*$**

S(NO PARTICULARS SC)!"UL!S #$** #$*$.

-.

(ncome%ales#ess ecise duty %ales ta

salesOther income(ncrease or decrease instock

"penditure/aw materials consumed!anufacturing epenses 0dministrative epensesPayments 1benefits toemployees/ates 1 taes2inancial chargesProvisions for doubtful debts

3epreciation

Profit#ess provisions for incometa

Provision for deffered taa4Ta effect of timingdifferencesoriginating during the year

b4Ta effect of timingdifferencesreversing during the year

profit from previous year less short provision for taand profit

56

*789)

-)6**87-*8+9-+5-8---*8*-86

7++868599-7-9*58)

6)*6-)79+)8*-*6)66)-*66865+-6*)6989)+*+78)89-*85*-5*

**+668*+++

-+6

;il

-988+8-====== >>>;il>>> -*5+89-

-*655:99+)-4-676-7-

6-+5*)+7+9966*57)*76957)966++969)5+-===)7565+-5))++58

7*--*-87-89

>

:6)994

6-*77*5+-9*

5*9+6+

55)++*667*

Pro.it carried to /alances0eet

,%,,+%- ,%,,+%-


%Page BG


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PLASTICS PVT LTD

PROFIT & LOSS ACCOUNT FOR !AR !N"!" #$***#

S(NO PARTICULARS SC)!"UL!S #$*# #$**.

-.

(ncome%ales:


61/67


PLASTICS PVT LTD

2ALANC! S)!!T AS ON #$$%$'

NU32!RS

PARTICULARS SC)!"UL!S

#$$' #$$%

%ources of funds

-

5

%hare capital%hare application money/eserves 1 surplus

Profit 1 loss a?c#oans funds%ecured loans3eferred ta liabilityTotal

0pplication of funds.fied assets:gross @lock4#ess depreciation

-. current assets loans 1advances a4 (nventories b4 %undry debtors c4 $ash 1 @ank d4 Other assets

#ess $urrent #iabilities1

provisions a4#iabilities b4provisions

!iscellaneous epenses

-56

*

789)

+

-

57,89++ -9*+++

-6968-

7989865)-599

575*56

-*-9*-569588

)877)+9

57985)88-**97+7-)

5+6)9 9*79595

6+6+5+956)56

57)569 8689

5789++-9*+++

-+56))

*99886+ nill

9+6+5)

+-6+5*98+++

9*58+5

-6*7)-*6+))5

5586-578-+*678+7)

769-99*75)85

5-*69+9

--++

*,45,*1,+ **'$+$,-


%Page =&


62/67


PLASTICS PVT LTD

2ALANC! S)!!T AS ON #$$'$-

NU32!RS

PARTICULARS SC)!"UL!S

#$$- #$$'

* Sources o. .unds

-

%hare capital

%hare application money

/eserves 1 surplus

#oans funds

%ecured loans

3eferred ta liability

Total

0pplication of funds

.fied assets:gross @lock4

#ess depreciation

-. current assets loans 1advances

a4 (nventories

b4 %undrydebtors

c4 $ash 1 @ank

d4 Other assets

#ess $urrent #iabilities1provisions

a4#iabilities

b4 provisions

-

5

6

*

7

8

9

)

+

5789++

-9*+++

-9*+++

-))6786

66)-+5

*769)+

-)*6588

5-**+

5-5*7+

++6**+

5**5+6

*+*9+

)899+

-6+6)56

7-75-))

-67-6))

)*5-))

-968*++

5789++

-9*+++

-9*+++

-6968-

798986

7)-599

575*56

-*-9*

-569588

)877)+9

57985)8

8-**97

+7-)

6+6)9

9*79595

6+6+5+

956)56

57)5*9


%Page =0


63/67


PLASTICS PVT LTD

5


-

7*5-8

8689

*#-1+,%% *,5,*1,+

2ALANC! S)!!T AS ON #$$-*$

NU32!RS PARTICULARS SC)!"UL!S #$*$ #$$-

%ources of funds


%Page =9


64/67


PLASTICS PVT LTD

-

5

%hare capital%hare application money

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