Final SIP

The

Summer internship PROJECT Report

On

Working capital analysis of

Shri bhuvaneshwari aushadhashram

Submitted By

Jevin k shobhana

Enrollment No: 107880592020

Academic Year: 2011- 2012

Rajkot.

Guided BY: - Mr.AMIT A RAJDAV

C.c.gardi, institute of MANAGEMENT.

Gujarat Technological University, Ahmedabad.

In partial fulfillment of MBA

Shri Bhuvaneshwari Aushadhashram

I

Certificate from College


II

Certificate from Company


III

PREFACE

Many years ago people didn’t know the meaning of management. But now a day’s people

have interest in management field. Management plays an important role in any place. If

management is not, there is no possibility of facility.

Learning theories in books is the one way of learning the fundamental concepts. But so far

as management is concerned, practical side is having high importance. The industrial visit of the

organization helps to see the application of fundamental concepts in the real world. It gives the

opportunity to students to understand practical aspects of business management in a better way.

After visiting it personality, I can say the “SHRI BHUVANESHWARI

AUSHADHASHRAM’’ has a bright future so. I would say that visit this industry & also obtain

some practical information about industrial aspect for running a business organization.


IV

ACKNOWLEDGEMENT

It has been an honor and a great opportunity for me to associate myself with “SHRI

BHUVANESHWARI AUSHADHASHRAM’’for my practical training programmed. I feel great

pleasure in submitting this report as a part of my practical studies. I am thankful to all the persons

who helped me to prepare this Industrial Training Report.

It is my great to present this report before you. I would specially like to think to Ravi

Darshanbhai who is the chairman of “SHRI BHUVANESHWARI AUSHADHASHRAM’’

Gating me the permission to visit this unit.

I am also very much thankful to Dr. N. D. Sutariya who is the Production Manager of

“SHRI BHUVAESHWARI AUSHADHASHRAM’’ His guidance & outstanding knowledge in

his helped me to have comprehensive & complete picture of each department.

A project of this nature calls for intellectual nourishment and professional help from

many people. I therefore, deeply express my gratitude to all the professors of my college and

special Mr.AMIT RAJDEV who guided me and even helped me in completing my project.


V

DECLARATION

This project report entitled “Study of Working Capital Analysis of Shri

Bhuvaneshwari Aushadhashram” has been submitted to Gujarat Technological University,

Ahmadabad in partial fulfillment for degree of Master of Business Administration.

I am undersigned hereby declare that this report has been completed by me under the

guidance of Prof. Amit A Rajdev (Faculty Member, C.c.gardi Institute of Management, Rajkot.)

This work has not been previously submitted to any other university or any institution

form examination or any other purpose.

Place: RAJKOT

Date:

Jevin K .Shobhana

(MBA Sem-3rd)Student signature


VI

List of Table

Particular Pg.No.

Table 1 Current Assets 29

Table 2 Current Liability 30

Table 3 Net working Capital 31

Table 4 Current Assets 34


Table 6 Current Ratio 37

Table 7 Absolute Liquid Assets 39


Table 9 Absolute Liquid Ratio 42

Table 10 Net Profit 43

Table 11 Net Working Capital 44

Table 12 Return on Working Capital 46

List of FigureParticular Pg.No.

Fig.1 Organization Chart 7


VII

EXECUTIVE SUMMARY

Today in course like MBA, project is very important with the theoretical

knowledge. The importance of project work has greater role in business world. Combination of

practical knowledge with theoretical knowledge makes student perfect in his work.

This research work analyzes the effect of working capital management on firm

profitability. In accordance with this aim, to consider statistically significant relationships

between firm profitability and the components of cash conversion cycle at length, a sample

consisting of the company working capital analysis has been included.

Decisions relating to working capital and short term financing are referred to as working

capital management. These involve managing the relationship between a firm's short-term assets

and its short-term liabilities. The goal of working capital management is to ensure that the firm is

able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-

term debt and upcoming operational expenses.

In this research work, the researcher will consider the introduction of the study which will

in turn considers the following topics: The background of the study, scope of the study. Literature

review; this chapter is where the researcher extracts materials from various books, magazines,

news papers and internet resources.

Research methodology adopted for study project profile; this chapter is where the

researcher uses the theoretical knowledge of working capital management for study of

organizational practices. The researcher compares working capital with different years while ratio

analysis and presentation. The findings, suggestion, and conclusion are in last part of the project.


VIII

TABLE OF CONTENT

Sr.No. Particular Pg.No.

1 Introduction 1

1.1 Definition 1

1.2 Scope of the project 2

2 Company Overview 3

2.1 Organization Chart 7

2.2 Company profile 8

2.3 Product Name 11

3 Literature Review 12

Theoretical Background 15

3.1 Introduction 15

3.2 Meaning 15

3.3 Concept 17

3.4 Importance of Working capital 19

3.5 Constituents of current assets 20

3.6 Constituents of current liability 21

3.7 Management of Working capital 22

4 Objective 23

5 Research Methodology 26

6 Data Analysis , Results and Interpretation 29

7 Conclusion 47

8 Suggestion and Findings 48

9 Bibliography 49


1

CHAPTER - 1

INTRODUCTION

1.1 DEFINITION:

Working Capital Management

An accounting strategy in which a company seeks to maximize its cash flows so as to pay

for its current liabilities and operating expenses. Examples of working capital management include

active monitoring of accounts receivable and maintaining little short-term debt. Working capital

management, if done properly, can help a company improve its earnings and maintain a healthy

financial state

A managerial accounting strategy focusing on maintaining efficient levels of both

components of working capital, current assets and current liabilities, in respect to each other.

Working capital management ensures a company has sufficient cash flow in order to meet its short-

term debt obligations and operating expense.


2

1.2 SCOPE OF THE PROJECT

Working capital management is referred to as the life and blood of the business firm. In the

event of working capital management being ill-managed, the flow of money gets choked, raw

materials and supplies are interrupted, dues and payments get delayed and clamor for clearance and

outstanding obligations and commitment gathers momentum. All these may entail virtual stoppage

of operations, jeopardizing the viability of the firm.

While inadequate working capital management has the potential to disrupt production sales

operations of otherwise well-run and managed firms, excessive working capital management is

equally unwarranted in the view of its adverse impact on profitability. Hence, effective management

of working capital is imperative. Working capital management is concerned with the problems that

arise in attempting to manage current assets, current liabilities and the interrelationships that exit

between them. Working capital management is the single best method of determining the position

of the company or how well that company may be doing.


3

COMPANY OVERVIEW

“SHRI BHUVANESHWARI AUSHADHASHRAM”S history was unique. The vision &

compassion of Rajviadya Shri Jivram Kalidas Sastri gave the birth to the foundation of rasashala

Aushadhashram Gondal to serve the deprived message in more accessible way. He firmly believed

that ayurveda was the right approach to serve to the mankind in alleviating their suffering. In 1905

Rasashla Aushadhasharam was established 15000 sq.ft.land with building & gardens allocated by

them progressive & prosperous state of Gondal in Gujarat.

At present the proprietor can successfully, running the business of medicine. Previously the

organization was manufacturing their types of Ayurvedic medicine but today it is produce 350 types

of medicine, which shows the development of the unit bright future in the year to become.

“SHRI BHUVANISHWARI AUSHADHASHRAM’’ was established in the same

primordial and glorified premises with aim of restoration of ayurveda to its original glory &

encourages people to turn to nature’s way of healing.


4

Brahmaleen Rev. Acharyashree - A life – Sketch

He was the former Royal Physician of Gondal

State, well-known as (Rajvaidya Jivram Kalidas

Shastri). He was an institution by himself. He devoted

his life to Ayurveda and religion. He rendered various

human welfare and religious activities. He was the

person who founded the Ayurvedic Pharmacy in 1910

A.D.

He carried out various researches in Ayurveda,

Sanskrit and Astrology throughout his life. He has

written about 200 books on various subjects like

Ayurveda, Philosophy, Astrology Karmakanda,

Grammar, and Religion. Poetry, Drama, History,

Purana, etc.

His researches in all these fields have earned him a worldwide repute. A critical edition of

"Bhagvad Geeta" containing 745 verses and "Yajnaphalam"- a drama based on the Ramayana are

his unique contributions to Sanskrit literature. Keeping in view the unique services of Rev.

Acharyashri, innumerable foreign institutions have conferred honorary doctorates and other

similar degrees and titles.

He developed the activities of Ayurveda. He was elected as the President of 31st Session of

the All Indian Ayurvedic Congress in 1942 in Lahore. On 27th Jan. 1915 Ghandhiji visited at

Gondal. On this occasion he conferred upon him the title of “MAHATMA” for the first time.


5

During his childhood he met his Guru from Himalayas in Girnar who imparted knowledge of

various subjects like Veda, Sanskrit, literature, Ayurveda and gave him Diksha of Goddess

Bhuvaneshwari. Later in 1946 A.D. he laid the Stone of Temple of Shri Bhuvaneshwari, which is a

well known religious institute round the globe. Even during his old age, he continued his

researches. He was a well-known figure in the name of Bhoomandalacharya Ananstashri Vibhushita

Shri Bhuvaneshwari Pithadisha Jagadguru Acharyashri Charantirthji Maharaj.

Due to old age in 1970 he handed over the organization of Shri Bhuvaneshwari Pith to his son

Acharyashri Ghanshyamji Maharaj.

He left his mortal body on V.S. 2034, Shravana Vadi Amavasya (i.e. 2-9-’78) at1-15 p.m.

Thence forward every year the day of Shravana Vadi Amavasya is being celebrated as the ‘Nirvan

Din’ (-Death Anniversary) of Rev. Acharyashri Charantirthji Maharaj.


6

ORGANIZATION CHART


7

Fig.1 “SHRI BHUVANISHWARI AUSHADHASHARAM’’

Proprietors

Raw

Material

Section Head

Packaging

Manager

A/C

Billing

Marketing

Manager

Dispatch Label

Bottle Section

Sales

Medical

Represen

Tative

General Manager

Production Manager


8

COMPANY PROFILE

1. NAME OF THE COMPANY “SHRI BHUVANESHWARI AUSHADHASHRAM’’

2. ADDRESS OF THE INDUSTRY

‘GHANSHYAM BHUVAN’

2, MAHADEV VADI

GONDAL-360311 (GUJARAT) INDIA

3. REGISTERED OFFICE

“SHRI BHUVANESHWARI AUSHADHASHRAM’’

‘GHANSHYAM BHUVAN’ 2 MAHADEV VADI

GONDAL-360311 (GUJARAT) INDIA

4. YEAR OF ESTIBLISHMENT 1905

5. FROM OF ORGANISATION PRIVATE LIMITED COMPANY

6. SIZE OF THE UNIT SMALL SCALE UNIT

7. CHAIRMAN Dr. RAVIDARSHANJI G. VYAS

8. OWNERS GHANSHYAM G VYAS

9. PROMOTER GHANSHYAM G VYAS

10. BANKER HDFC BANK OF INDIA

11. AUDITOR SANGHAVI & CO. RAJKOT

12. SYMBOL


9

13. WEEKLY OFF DAY SUNDAY

14. TELEPHONE NO. & FAX NO 0091-2825-222445, 222446

0091-2825-221195, 220599

15. EMPLOYEES 80

16. SHIFTS 8 TO 12 & 2 TO 6

17. ACCOUNTING YEAR 1st APRIL TO 31st MARCH

18. AREA 15000 SQEARE FEET


10


11

PRODUCT NAME

� BHUVANESHWARI ACIDOX

� BHUVANESHWARI BAVISOL

� BHUVANESHWARI BOSOL

� BHUVANESHWARI DAYASOL

� BHUVANESHWARI MADHUMEHARI

� BHUVANESHWARI MADHUVICA

� BHUVANESHWARI NECTACARD

� BHUVANESHWARI SKINA OINTMENT

� BHUVANESHWARI SOLVA-ACHE

� BHUVANESHWARI COUGH-SOL SYRUP

� BHUVANESHWARI GULMADHU

� BHUVANESHWARI CHHACH MASALA

� BHUVANESHWARI HAJ-SOL TAB

� BHUVANESHWARI MEDICATED HAIR OIL

� BHUVANESHWARI RHUANA OIL

� AKIK BHASMA

� LOH BHASMA


12

CHAPTER – 2

LITERATURE REVIEW

The purpose of this chapter is to present a review of literature relating to the working capital

management. Although working capital is an important ingredient in the smooth working of

business entities, it has not attracted much attention of scholars. Whatever studies have conducted,

those have exercised profound influence on the understanding of working capital management good

number of these studies which pioneered work in this area have been conducted abroad, following

which, Indian scholars have also conducted research studies exploring various aspects of working

capital. Special studies have been undertaken, mostly economists, to study the dynamics of

inventory investment which often represented largest component of total working capital.

Sagan in his paper (1955), perhaps the first theoretical paper on the theory of working

capital management, emphasized the need for management of working capital accounts and warned

that it could vitally affect the health of the company. He realized the need to build up a theory of

working capital management. He discussed mainly the role and functions of money manager

inefficient working capital management. Sagan pointed out the money manager’s operations were

primarily in the area of cash flows generated in the course of business transactions. However,

money manager must be familiar with what is being done with the control of inventories,

receivables and payables because all these accounts affect cash position. Thus, Sagan concentrated

mainly on cash component of working capital. Sagan indicated that the task of money manager was

to provide funds as and when needed and to invest temporarily surplus funds as profitably as

possible in view of his particular requirements of safety and liquidity of funds by examining the risk

and return of various investment opportunities. He suggested that money manager should take his


13

decisions on the basis of cash budget and total current assets position rather than on the basis of

traditional working capital ratios. This is important because efficient money manager can avoid

borrowing from outside even when his net working capital position is low. The study pointed out

that there was a need to improve the collection of funds but it remained silent about the method of

doing it. Moreover, this study is descriptive without any empirical support.

Realizing the dearth of pertinent literature on working capital management, Walker in his

study (1964) made a pioneering effort to develop a theory of working capital management by

empirically testing, though partially, three propositions based on risk-return trade-off of working

capital management. Walker studied the effect of the change in the level of working capital on the

rate of return in nine industries for the year 1961 and found the relationship between the level of

working capital and the rate of return to be negative. On the basis of this observation, Walker

formulated three following propositions:

Proposition I─ If the amount of working capital is to fix capital, the amount of risk the firm

assumes is also varied and the opportunities for gain or loss are increased.

Walker further stated that if a firm wished to reduce its risk to the minimum, it should employ only

equity capital for financing of working capital; however by doing so, the firm reduced its

opportunities for higher gains on equity capital as it would not be taking advantage of leverage. In

fact, the problem is not whether to use debt capital but how much debt capital to use, which would

depend on management attitude towards risk and return. On the basis of this, he developed his

second proposition.

Proposition II─ The type of capital (debt or equity) used to finance working capital directly

affects the amount of risk that a firm assumes as well as the opportunities for gain or loss. Walker

again suggested that not only the debt-equity ratio, but also the maturity period of debt would affect

the risk-return trade-off. The longer the period of debt, the lower be the risk. For, management

would have enough opportunity to acquire funds from operations to meet the debt obligations. But

at the same time, long-term debt is costlier. On the basis of this, he developed his third proposition.


14

Proposition III ─ The greater the disparity between the maturities of a firm’s debt

instruments and its flow of internally generated funds, the greater the risk and vice-versa.

Welter, in his study (1970), stated that working capital originated because of the global

delay between the moment expenditure for purchase of raw material was made and the moment

when payments were received for the sale of finished product. Delay centres are located throughout

the production and marketing functions. The study requires specifying the delay centers and

working capital tied up in each delay centre with the help of information regarding average delay

and added value. He recognized that by more rapid and precise information through computers and

improved professional ability of management, saving through reduction of working capital could be

possible by reducing the length of global delay by rescuing and/or favorable redistribution of this

global delay among the different delay centers. However, better information and improved staff

involve cost. Therefore, savings through reduction of working capital should be tried till these

saving are greater or equal to the cost of these savings. Thus, this study is concerned only with

return aspect of working capital management ignoring risk. Enterprises, following this approach,

can adversely affect its short-term liquidity position in an attempt to achieve saving through

reduction of working capital. Thus, firms should be conscious of the effect of law current assets on

its ability to pay-off current liabilities. Moreover, this approach concentrated only on total amount

of current assets ignoring the interactions between current assets and current liabilities.

Appavadhanulu (1971) recognizing the lack of attention being given to investment in

working capital, analyzed working capital management by examining the impact of method of

production on investment in working capital. He emphasized that different production techniques

require different amount of working capital by affecting goods-in-process because different

techniques have differences in the length of production period, the rate of output flow per unit of

time and time pattern of value addition. Different techniques would also affect the stock of raw

materials and finished goods, by affecting lead-time, optimum lot size and marketing lag of output

disposals. He, therefore, hypothesized that choice of production technique could reduce the working

capital needs. He estimated the ratio of work-in-progress and working capital to gross output and


15

net output in textile weaving done during 1960, on the basis of detailed discussions with the

producers and not on the basis of balance sheets which might include speculative figures. His study

could not show significant relationship between choice of technique and working capital. However,

he pointed out that the idea could be tested in some other industries like machine tools, ship

building etc. by taking more appropriate ratios representing production technique correctly.

THEORETICAL BACKGROUND

3.1 INTRODUCTION

Working Capital management is a significant fact of financial management due to the fact

that it plays a pivotal role in keeping the wheels of a business enterprise running. Working Capital

management is concern with short term financial decisions have been relatively neglected in the

literature of finance. Shortage of funds for working capital has caused many businesses to fail and

in many cases, has recorded their growth, Lack of efficient and effective utilization of working

capital leads to earn low rate of return on capital employees or even compels to sustain losses.

Working Capital to a company is like the blood of human body. It is the most vital

ingredient of a business. Working Capital management if carried out effectively, efficiently and

consistently, will assure the health of the organization.

An Executive function of Finance for taking Liquidity decisions.

Signifies money required for day-to-day operations of an organization.

Business cannot run without adequate working capital (WC).

Requirements of WC may differ from organization to organization.


16

3.2 MEANING

The concept of working capital is, perhaps, one of the most misunderstood issues in the

literature of finance. The reason is that it is subject to multiple connotations. From the accounts

perspective it refers to the current assets minus current liabilities differential; from the finance

manager’ angel it implies the total investment made in current assets; from the production manager’

view it refers to the total funds that a firm needs to carry out its day-to-day operation.

Working capital alternatively referred to as current or circulating capital, is the investment

made by firms in their current assets. Current assets comprise all assets such as cash, marketable

securities, accounts receivables, and inventories that the firm expects to convert into cash within the

year. It is these current assets that determine the liquidity position of the business. The higher the

investment in current assets, the better is the health of the firm from the liquidity perspective.

Before we get to the issues of profibility- liquidity tangle, let us understand the concepts of gross

and working capital.

3.2.1 Gross Working Capital (GWC)

Gross working capital is the broader concept of working capital, as it talks about the total

investment made by a firm in current assets. It is referred to as the managers’ concept of working

capital, as it denotes the liquidity position of the firm. Other factors remaining the same, the higher

the GWC of a firm, the better its liquidity position.

3.2.2 Net Working Capital (NWC)

Net working capital refers to the difference between current assets and current liability. This

differential denotes that part of current assets which is financed by long term sources of financing.

It is referred to as the account ant’s definition of working capital. An increasing NWC indicates an


17

improving liquidity position of the firm, as it reflects an increasing usage of long-term financing

sources to partly finance shirt-term assets. The availability and cost of short-term funds and subject

to market vagaries; thus, to the extent a firm uses long-term funds to finance investments in current

assets, it precludes the possibility of non-availability of short-term funds for financing these assets.

This improves the firm’s liquidity position.

Working Capital management is the administration of the firm’s current assets and the

financing needed to support the current assets.

Current assets are those assets, which will be converted into cash within the current

accounting period or within the next year as a result of the ordinary operation of the business. They

are cash or nearly converted cash resources. These include Cash and Bank Balances, Receivables,

Inventory, Prepaid expenses, Short Term advances, Temporary Investments. The value represented

by these assets circulates among several items. Cash is used to buy raw materials, to pay wages and

to meet other manufacturing expenses. Finished goods are produced further held as inventories and

when inventories are sold account receivables are created. Then the collection of account

receivables brings cash into the firm and the cycle starts again.

Current Liabilities are the debts of the firm that have to be paid during the current

accounting period or within a year. This includes creditors for goods purchased, outstanding

expenses, short-term borrowing, advances received against sales, taxes and dividends payable, and

Cash

Inventories

Receivables

Circulation of Current Assets


18

other liabilities maturing within a year. Working Capital is also known as circulation capital,

fluctuating capital and revolving capital.

3.3 CONCEPT

3.3.1 Gross Working Capital

It refers to the firm’s investments in current assets. There is two characteristics of current

assets like: Short life span and swift transformation into other assets forms.

3.3.2 Net Working Capital

It refers to the excess of the current assets over current liabilities.

Net Working can be positive or negative. A negative working capital will arise in case when

current liabilities are more than current assets and positive working capital will occur when current

assets are more than current liabilities. Current credit soundness is indicated by positive NWC

position, which is of major concern to investors and bankers. It is measured by the current ratio

obtained by dividing the rupee value of current assets by rupee value of current liabilities. Larger

the ratio the more solvent the firm, i.e. in the event of bankruptcy, falling prices of inflated values,

the book value of current assets could shrink considerably and the firms creditors would still be

assured of payments. However from management’s point of view a high ratio may indicate poor

planning since excessive amounts are tied up in on productive current assets, which tend to produce

a lower income.


19

3.3.3 Need for working capital

The need for Working Capital to run day-to-day business activities cannot be

overemphasized. It is difficult to find any organization, which does not required any amount of

Working Capital. Indeed, firms differ in their requirements of the working capital we know that a

firm should enhance the wealth of its shareholders. In its endeavor to do so a firm should earn a

sufficient return from its operations. Earning as steady amount of profit requires successful sales

activity and co-ordination among all the department of the firm. The firm is required to invest

enough amounts of funds in current assets. For generating sales current assets are needed because

sales do not convert into cash immediately.

3.4 IMPORTANCE OF WORKING CAPITAL

� The level of current assets changes constantly and regularly depending upon the level of

actual and forecasted sales.

� This requires that the decision to bring the levels of current assets to the desired levels of

current assets should be made at the earliest opportunity and as frequently as required.

� The changing levels of current assets may also require review of the financing pattern.

� How much working capital needs to be financed by different sources of financing must

be periodically reviewed.

� Inefficient working capital management may result in loss of sales and consequently

decline in the profits of the firm.


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� Inefficient working capital management may also lead to insolvency of the firm, if it is

not in a position to meet its liabilities and commitments.

� Current assets usually represent a substantial portion of the total asses of a firm,

resulting in the investment of larger chunk of funds in the current assets.

� There is an obvious and inevitable relationship between the sales growth and the level of

current assets. The target sales level can be achieved only if supported by adequate

working capital.

3.5 CONSTITUENTS OF CURRENT ASSETS

1. Cash in hand and cash at bank

2. Bills receivables

3. Sundry debtors

4. Short term loans and advances.

5. Inventories of stock as:

a. Raw material

b. Work in process

c. Stores and spares

d. Finished goods

6. Temporary investment of surplus funds.

7. Prepaid expenses

8. Accrued incomes.

9. Marketable securities.

Net working capital can be positive or negative. When the current assets exceeds the current

liabilities are more than the current assets. Current liabilities are those liabilities, which are intended


21

to be paid in the ordinary course of business within a short period of normally one accounting year

out of the current assts or the income business.

3.6 CONSTITUENTS OF CURRENT LIABILITIES

1. Accrued or outstanding expenses.

2. Short term loans, advances and deposits.

3. Dividends payable.

4. Bank overdraft.

5. Provision for taxation, if it does not amt. to app. Of profit.

6. Bills payable.

7. Sundry creditors.

The gross working capital concept is financial or going concern concept whereas net working

capital is an accounting concept of working capital. Both the concepts have their own merits.

The gross concept is sometimes preferred to the concept of working capital for the following

reasons:

1. It enables the enterprise to provide correct amount of working capital at correct time.

2. Every management is more interested in total current assets with which it has to Operate

than the source from where it is made available.

3. It takes into consideration of the fact every increase in the funds of the enterprise would

increase its working capital.

4. This concept is also useful in determining the rate of return on investments in working

Capital.


22

The net working capital concept however is also important for following reasons:

1. It is qualitative concept, which indicates the firm’s ability to meet to its operating

expenses and short-term liabilities.

2. It indicates the margin of protection available to the short term creditors.

3. It is an indicator of the financial soundness of enterprises.

4. It suggests the need of financing a part of working capital requirement out of the

permanent sources of funds.

3.7 MANAGEMENT OF WORKING CAPITAL

Guided by the above criteria, management will use a combination of policies and techniques

for the management of working capital. These policies aim at managing the current assets

(generally cash and equivalent, inventories and debtors) and the short term financing, such that cash

flow and returns are acceptable.

Cash Management: Identify the cash balance which allow for the business to meet day to

day expenses, but reduces cash holding costs.

Inventory Management: Identify the level of inventory which allows for uninterrupted

production but reduce the investment in raw materials and minimized reordering cost – and hence

increase cash flow; see Supply chain management; Just in Time (JIT); Economic order quantity

(EOQ); Economic production quantity (EPQ).

Debtors Management: Identify the appropriate credit policy, i.e. credit terms which will

attract customers, such that any impact on cash flow and the cash conversion cycle will be offset by

increased revenue and hence return on Capital; see Discounts and allowances.

Short term financing: Identify the appropriate source of financing, given the cash conversion

cycle; the inventory is ideally financed by credit granted by the supplier; however, it may be

necessary to utilize a bank loan, or to “convert debtors to cash” through “factoring”.


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OBJECTIVES

Working capital management is very important in modern business. When I am analyzed and

interpret, financial statement analysis of working capital is also very useful for short-term

management of funds. The following are the main objective of my study:

1. To assess the significance of working capital by selecting few important parameters such as,

current ratio, absolute liquid ratio and return on working capital ratio.

2. To make item wise analysis of the elements or component of working capital to identify the

item responsible for changes in working capital.

3. To study liquidity position of the company by taking four measures at time namely,

inventory to current assent, debtors to current assent, cash and bank to current assent and

loan & advances and other assets to currents assets.

DETERMINANTS OF WORKING CAPITAL

Working capital requirements of a concern depends on a number of factors, each of which

should be considered carefully for determining the proper amount of working capital. It may be

however be added that these factors affect differently to the different units and these keeps varying

from time to time. In general, the determinants of working capital which re common to all

organization’s can be summarized as under:


24

A. Nature of business:

Need for working capital is highly depends on what type of business, the firm in. there are

trading firms, which needs to invest a lot in stocks, ills receivables, liquid cash etc. public utilities

like railways, electricity, etc., need much less inventories and cash. Manufacturing concerns stands

in between these two extends. Working capital requirement for manufacturing concerns depends on

various factors like the products, technologies, marketing policies.

B. Production policies:

Production policies of the organization effects working capital requirements very highly.

Seasonal industries, which produces only in specific season requires more working capital. Some

industries which produces round the year but sale mainly done in some special seasons are also

need to keep more working capital.

C. Size of business:

Size of business is another factor to determines the need for working capital

D. Length of operating cycle:

Operating cycle of the firm also influence the working capital. Longer the orating cycle, the

higher will be the working capital requirement of the organization.

E. Credit policy:

Companies; follows liberal credit policy needs to keep more working capital with them.

Efficiency of debt collecting machinery is also relevant in this matter. Credit availability form

suppliers also effects the company’s working capital requirements. A company doesn’t enjoy a

liberal credit from its suppliers will have to keep more working capital.


25

F. Business fluctuation:

Cyclical changes in the economy also influence the level of working capital. During boom

period, the tendency of management is to pile up inventories of raw materials and finished goods to

avail the advantage of rising prove.

G. Current asset policies:

The quantum of working capital of a company is significantly determined by its current

assets. Policies. A company with conservative assets policy may operate with relatively high level

of working capital than its sales volume. A company pursuing an aggressive amount assets policy

operates with a relatively lower level of working capital.

H. Fluctuations of supply and seasonal variations:

Some companies need to keep large amount of working capital due to their irregular sales

and intermittent supply. Similarly companies using bulky materials also maintain large reserves’ of

raw material inventories. This increase the need of working capital. Some companies manufacture

and sell goods only during certain seasons. Working capital requirements of such industries will be

higher during certain season of such industries period.

I. Other factors:

Effective co ordination between production and distribution can reduce the need for working

capital. Transportation and communication means. If developed helps to reduce the working capital

requirement.


26

RESEARCH

METHODOLOGY


27

CHAPTER – 3

The core concept underlying all research is its methodology. It is not enough to follow the

research procedures without an intimate understanding that research methodology directs the whole

endeavor where critical decisions are made and where organizing, planning, and directing the whole

project take place.

The methodology controls the study, dictates the acquisition of the data, and arranges them

in logical relationships. sets up a means of refining the raw data, contrives an approach so that the

meanings that lie below the surface of those data become manifest, and finally issues a conclusion

or series of conclusions that lead to an expansion of knowledge.

The purpose of this research is to contribute towards a very important aspect of financial

management known as working capital management with reference to SHRI BHUVANESHWARI

AUSHADHASHRAM for a period of five year from 2005 to 2010.

In quantitative analysis I applied methods. I have been able to identify many important

variables associated with working capital management. As multiple variables are influencing

problem, I have identified the crucial factors associated with working capital management.

The descriptive form of research method is adopted for study. The major purpose of descriptive

research is description of state of affairs of the institution as it exists at present. The financial

statements of SHRI BHUVANESHWARI AUSHADHASHRAM have been described in this study.


28

DATA COLLECTION TOOLS

The methodology followed means during the training period in the SHRI

BHUVANESHWARI AUSHADHASHRAM which method used for the collection of data from the

company. In the project report I have taken a subject or topic of financial Working capital

management. There are two types of collecting data:

1) PRIMARY DATA

2) SECONDARY DATA

Primary data means those data which are collected during the training period in the company

by the way of interview and discussion with the company officers or employees.

Secondary data means which data those were taken by the annual report of the company and

also from other project reports those made by the former trainee and from the company’s financial

statement and from the company’s website etc.

For the data collection I have used Secondary Data Method.


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CHAPTER - 4

DATA ANALYSIS, RESULTS AND INTERPRETATION

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.

CURRENT ASSETS

(Table 1)

YEAR CURRENT ASSETS

(RS. IN CRORES)

2005 – 06 1.92

2006 – 07 2.40

2007 – 08 2.50

2008 – 09 2.80

2009 – 10 3.03


30

Interpretation:

This graph shows that there is 57.81% increase in current assets of SHRI

BHUVANESHWARI AUSHADHASHRAM in 2009-10 compare to 2005-06.

CURRENT LIABILITY

(Table 2)

YEAR CURRENT LIABILITY

(RS. IN CRORES)

2005 – 06 1.73

2006 – 07 0.91

2007 – 08 0.82

2008 – 09 0.96

2009 -10 0.95

Interpretation:

In 2009 the current liability of the company decrease. But still increase in current

assets is more than its current liabilities. Current liability of the company increase and

decrease.


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NET WORKING CAPPITAL

(Table 3)

YEAR NET WORKING CAPITAL

(RS.IN CRORES)

2005 – 06 5.28

2006 – 07 4.60

2007 – 08 4.95

2008 – 09 5.64

2009 – 10 6.28

Interpretation:

Working capital is required to finance day to day operations of a firm. There should be an

optimum level of working capital. It should not be too less or not too excess. In the SHRI

BHUVANESHWARI AUSHADHASHRAM there is increase or decrease in working capital. The

increase and decrease in working capital arises because the SHRI BHUVANESHWARI

AUSHADHASHRAM has expanded its business.


32


33

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 & long term position of a firm. The following

ratios can be calculated for these purposes:

1. Current ratio.

2. Absolute liquid ratio.

3. Return on working capital ratio.

CURRENT RATIO:-

Current 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.

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.


34

Formula:

CURRENT ASSETS

CURRENT RATIO = -----------------------------

CURRENT LIABILITY

CURRENT ASSETS

(Table 4)

YEAR CURRENT ASSETS

(RS. IN CRORES)

2005 – 06 1.92

2006 – 07 2.40

2007 – 08 2.50

2008 – 09 2.80

2009 - 10 3.03

CURRENT LIABILITY


35

(Table 5)


(RS.IN CRORES)

2005 – 06 1.73

2006 – 07 0.91

2007 – 08 0.82

2008 – 09 0.96

2009 – 10 0.95

CALCULATION

CURRENT ASSETS

CURRENT RATIO = ------------------------------

CURRENT LIABILITY

2005 - 06

1.92

CURRENT RATIO = --------

1.73

= 1.11:1 time


36

2006 - 07

2.40

CURRENT RATIO = ---------

0.91

= 2.64:1 time

2007 - 08

2.50

CURRENT RATIO = --------

0.82

= 3.05:1 time

2008 - 09

2.80

CURRENT RATIO =--------

0.96

= 2.92:1 time


2009 - 10

3.03

CURRENT RATIO = ---------

0.95

= 3.19:1

Interpretation:

As we know that ideal curren

0

0.5

1

1.5

2

2.5

3

3.5

2005-06 2006-07


37

3.03

---------

0.95

= 3.19:1 time

(Table 6)

As we know that ideal current ratio of the company 3:1 times.

2007-08 2008-09 2009-10

CURRENT RATIO

CURRENT RATIO

(Table 6)

times.

CURRENT RATIO


38

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 so as to exclude even receivables from

the current assets and find out the absolute liquid assets.

Absolute Liquid Assets includes:

ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES

FORMULA:

ABSOLUTE LIQUID ASSETS

ABSOLUTE LIQUID RATIO = ----------------------------------------------

CURRENT LIABILITIES



39

(Table 7)

YEAR ABSOLUTE LIQUID ASSETS

(RS. IN CRORES)

2005 – 06 0.25

2006 – 07 0.36

2007 – 08 0.35

2008 – 09 0.22

2009 – 10 0.24

CURRENT LIABILITY

(Table 8)


(RS. IN CRORES)

2005 – 06 1.73

2006 – 07 0.91

2007 – 08 0.82

2008 – 09 0.96

2009 - 10 0.95

CALCULATION


40


ABSOLUTE LIQUID RATIO = ---------------------------------------

CURRENT LIABILITIES

2005 - 06

0.25

ABSOLUTE LIQUID RATIO = ----------

1.73

= 0.15:1 times

2006 - 07

0.36


0.91

= 0.40:1 times

2007 - 08


41

0.35


0.82

= 0.43:1 times

2008 - 09

0.22

ABSOLUTE LIQUID RATIO = ---------

0.96

= 0.23:1 times

2009 – 10

0.24

ABSOLUTE LIQUID RATIO = ---------

0.95

= 0.25:1 times


Interpretation:

Absolute liquid ratio for the company in year 2005

0.40 times, 2007-08 in 0.43 times

Absolute liquid ratio in increase and

RETURN ON WORKING CAPITAL RATIO:

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

2005-06 2006-07 2007

ABSOLUTE LIQUID RATIO


42

(Table 9)

liquid ratio for the company in year 2005-06 in 0.15 times

08 in 0.43 times, 2008-09 in 0.23 times and 2009-10 in 0.25 times.

ncrease and decrease.

RETURN ON WORKING CAPITAL RATIO:

2007-08 2008-09 2009-10



06 in 0.15 times, 2006-07 in

10 in 0.25 times. Company for



43

Return on working capital ratio shows the relationship between profitability and working

capital of the SHRI BHUVANESHWARI AUSHADHASHRAM. This ratio considers profit before

int. & tax and net working capital of the firm.

FORMULA

PROFIT BEFORE INT. & TAX

RETURN ON WORKING CAPITAL = ------------------------------------------- X 100

WORKING CAPITAL

NET PROFIT

(Table 10)

YEAR NET PROFIT

(RS. IN CRORES)

2005 – 06 0.62

2006 – 07 0.60

2007 – 08 0.70

2008 – 09 0.65

2009 – 10 0.66


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NET WORKING CAPITAL

(Table 11)

YEAR NET WORKING CAPITAL

(RS. IN CRORES)

2005 – 06 5.28

2006 – 07 4.60

2007 – 08 4.95

2008 – 09 5.64

2009 – 10 6.28

CALCULATION

PROFIT BEFORE INT. & TAX

RETURN ON WORKING CAPITAL = -------------------------------------- X 100

WORKING CAPITAL

2005 - 06

0.62

RETURN ON WORKING CAPITAL = --------- X 100

5.28

= 11.74%


45

2006 - 07

0.60


4.60

= 13.04%

2007 - 08

0.70

RETURN ON WORKING CAPITAL = ---------- X 100

4.95

= 14.14%

2008 – 09

0.65


5.64

= 11.52%


2009 - 10

RETURN ON WORKING CAPITAL

Interpretation:

Return on working capital

2007-08 in 14.14%, 2008-09 in 11.52% and 2009

capital in small percentage for increase and decrease.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

2005-06 2006-07 2007



46

0.66

RETURN ON WORKING CAPITAL = -------- X 100

6.28

= 10.51%

(Table 12)

Return on working capital for the year 2005-06 in 11.74%, 2006

09 in 11.52% and 2009-10 in 10.51%.Company for return on working

in small percentage for increase and decrease.

2007-08 2008-09 2009-10



(Table 12)

06 in 11.74%, 2006-07 in 13.04%,

Company for return on working



47

CHAPTER - 5

CONCLUSION

This is the last and analytical stage of research work. From this research, I came to know

about a lot of things regarding management of working capital. Working capital is very important

part for any company. To maintain their day to day transaction, efficient management of working

capital is required.

Any change in Working Capital will have an effect on business’s cash flow. A positive

change Working Capital indicates that the business had paid out cash e.g. in purchasing or

converting inventory, paying creditors etc. Hence an increase in Working Capital will have a

negative effect the business cash flow holding. However a negative change in Working Capital

indicates lower fund to pay off short term liabilities.

The producer is very for estimating Working Capital requirement; predetermined norms are

applied wherever they are applicable Mainly Working Capital management is the function of

finance department But many other departments like production, purchase and marketing are also

involved in this procedure indirectly. Thus the effect from all departments of various units helps

company to manage its Working Capital in a systematic manner.


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SUGGESTIONS AND FINDINGS

Shri Bhuvaneshwari Aushadhashram is the fastest growing company in Ayurvedic

Medicine. I have taken a summer internship programme for my MBA project at Shri

Bhuvaneshwari Aushadhashram. I have prepared a project on Working Capital Management of the

company. Following are some suggestions and findings of my research work:

� Company’s main strength is its employees and company is properly taking care of that by

providing safety working conditions, canteen facilities and employees benefit etc.

� Shri Bhuvaneshwari Aushadhashram is more and more expand in product in Ayurvedic

Medicine and companies for its faster growth.

� Company’s working capital us enough to maintain company’s sales and other operations

easily. Due to high goodwill the company is not getting any problem in getting short term

finance.

� Company is targeting to increase product export in other country transactions and also trying

to avoid hedging risk.


49

BIBLIOGRAPHY

� Rajiv Srivastava and Anil Misra, Financial Management

� I M. Pandey, Financial Management

� Company’s Report in 2005 - 2010

.

� [email protected]

� www.google.com

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