Title of the study: “The study of working capital management” As a part of curriculum, every student studying MBA has to undertake a project on a particular . Please this pdf send me [email protected] 2 months ago Reply working capital management project. 1. A A project report submitted to Jawaharlal Nehru university Kakinada in; 7. Partial fulfillment of the. PDF | Optimal management of working capital is an important 15+ million members; + million publications; k+ research projects.

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This project has been done on a Working Capital Management in Bharti Airtel. Services Ltd. It was complicated but exiting as well to do a project on a company. report on “working capital management in hcl infosystems limited” by (submitted in partial fulfillment of the requirements of mba program at icfai business. The title of the report is “Working Capital Management and Its The successful accomplishment of this project work is the outcome of the contribution of a

Such as pamphlets annual reports, return and internal records. The data includes: 1. Collection of required data from annual report of Cement Company. Reference from text book and journals relating to financial management. Articles published in business dailies like economic times, Business world, and etc. Due to the time constraint the study is confined to the assessment of working capital management only. Data collected for 5 years which is limited.

The study is confined to the secondary source of data and figures are taken from the annual reports and suggestions of various accountants. The data which is used in this project are taken from the annual reports, published at the end of the year. The study is limited to the period of 5 Years.

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

Accrued or outstanding expenses. Short term loans, advances and deposits. Dividends payable. Provision for taxation , if it does not amt. Of profit. Bills payable. 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. Every management is more interested in total current assets with which it has to operate then the source from where it is made available. It take into consideration of the fact every increase in the funds of the enterprise would increase its working capital.

This concept is also useful in determining the rate of return on investments in working capital. IT indicates the margin of protection available to the short term creditors. It is an indicator of the financial soundness of enterprises.

It suggests the need of financing a part of working capital requirement out of the permanent sources of funds. Working capital may be classified in to ways: o?????? On the basis of concept. On the basis of time. On the basis of concept working capital can be classified as gross working capital and net working capital.

Permanent or fixed working capital. Its return on assets will be low, as funds tied up in idle cash and stocks earn nothing and high level of debtors reduces profitability. Thus, the cost of liquidity increases with the level of current assets. The firm will not be in a position to honor its obligations if it carries to little cash. This may force the firm to borrow at high rates of interests.

This will also adversely affect the credit-worthiness of the firm and it will face difficulties in obtaining funds in the future. All this may force the firm into insolvency. Similarly, the.

Working Capital Management - IVth semester MBA Project-M.G.University - Kottayam - Kerala

Cost Trade-off competitors. Also, low level of debtors may be due to right credit policy, which. Thus the low level of current assets involves cost that increase as this level falls. The sources of long term financing include ordinary shares capital, preference share capital debentures, long term borrowings from financial institutions and reserves and surplus.

The short term financing is obtained for a period less than one year. It is arranged in advance from banks and other suppliers of short-term finance include working capital funds from banks, public deposits, commercial paper, factoring of receivables etc.

C Loans from financial institutions secured by pledge of PSU Bonds and bills accepted guaranteed by banks. Spontaneous financing refers to the automatic sources of short term funds arising in the normal course of a business. Trade Credit and outstanding expenses are examples of spontaneous financing. A firm is expected to utilize these sources of finances to the fullest extent. The real choice of financing current assets, once the spontaneous sources of financing have been fully utilized, is between the long term and short term sources of finances.

Needs and Objectives for Working Capital Every business needs some amount of working capital. The needs for working capital, arises due to time gap between production and realization of cash from sales. There is an operating cycle involved in sales and realization of cash. There are time gaps in download of raw material and production, production and sales, and realization of cash.

Thus, working capital is needed for the following purposes: For studying the need of working capital in a business, one has to study the business under varying circumstances such as new concern, as a growing and one,.

A new concern requires a lot of funds to meets its initial requirement such as promotion and formation etc. These expenses are called preliminary expenses and are capitalized. The amount needed for working capital depends upon the size of the company and the ambition of its promoters. Greater the size of the business unit, generally will be the requirement of the working capital.

The requirement of the working capital goes on increasing with the growth and expansion of the business until its gains maturity. At maturity, the amount of working capital required is called normal working capital. Time devoted to working capital management: Investment in current assets: Current assets represent more than half of the total assets of a business firm.

Because they represent largest investment and because this investment tends to relatively volatile, current assets are worthy for the financial manager's careful attention. Importance for small firm: Current assets are similarly important for the financial manager's of small firm.

Further small firm are relatively limited access to the long term markets, it must. The speed with which the working cycle completes one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital. Each component of working capital namely inventory, receivables and payables has two dimensions If you can get money to move faster around the cycle e.

As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Financial management should determine the quantum and structure of current assets. It should also see that current assets are financed from the proper sources.

Management should also see that current liabilities are paid in time, while managing the working capital. The main objective of working capital management is to manage current assets and current liabilities in a manner so that working capital can be kept in a satisfactory level.

It is also taken in to account that the working capital should be neither excessive nor inadequate. The amount of current assets should be adequate to pay the current liabilities in time and adequate security margin can be maintained. Accordingly, proper balance among the different constituents of current assets is maintained so that no current has more than require amount invested in it. Management of working capital affects profitability, risk and liquidity of the business significantly.

Management should, therefore, maintain proper balance among these factors while managing working capital. If the quantum of working capital is more, it will increase liquidity, but decrease profitability and risk.

If working capital relatively declines, it will decrease liquidity but cause an increase in profitability and risk. If business wants to earn more profit, it will have to bear higher risk.

Risk means inability of the firm to pay current liabilities in time. Working capital management is three dimensional in nature: It of policies with regard to profitability, liquidity and risk. To maintain the optimum level of working capital in such a big organization is really a challenging task. The three basic components that determine the level of working capital in any organization are: On the basis of our research in the BHEL Hardwar, these basic components are managed in the organisation, in the under mentioned manner.

Focusing on liquidity management Net working capital is a qualitative concept. It indicates the liquidity position of the firm and suggests the extent to which working capital needs may be financed by permanent sources of funds. Current assets should be sufficiently in excess of current liabilities to constitute a margin or buffer for maturing obligations within the.

In order to protect their interests, short-term creditors always like a company to maintain current assets at a higher level than current liabilities.

It is a conventional rule to maintain the level of current assets twice the level of current liabilities. However, the quality of current assets should be considered in determining the level of current assets Vis-a —Vis current liabilities.

A weak liquidity position poses a threat to the solvency of the company and makes it unsafe and unsound. Excessive liquidity is also bad.

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It may be due to mismanagement of current assets. Therefore prompt and timely action should be taken by management to improve and correct imbalances in the liquidity position of the firm.

Net working capital concept also covers the question of judicious mix of long-term and short-term funds for financing current assets. For every firm there is a minimum amount of net working capital, which is permanent.

Therefore a portion of the working capital should be financed with the permanent sources of funds such as equity, share capital, debentures, long-term debt, preference share capital or retained earnings. Management must decide the extent to which current assets should be financed with equity capital or borrowed capital. Balanced working capital position The firm should maintain a sound working capital position. Excessive working capital means holding costs and idle funds which earn no profits for the firm.

The dangers of excessive working capital are as follows:. It results in unnecessary accumulation of inventories. Thus chances of inventory mishandling, waste, theft and losses increase. It is an indication of defective credit policy and slack collection period. Consequently, higher incidence of bad debts results, which adversely affects profits.

Excessive working capital makes management complacent which degenerates into managerial inefficiency.

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Tendencies of accumulating inventories tend to make speculative profits grow. This may tend to make dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits.

Inadequate working capital is also bad and has the following dangers which BHEL might face if inadequate working capital continuous for longer period of time: It stagnates growth. It becomes difficult for the firm to undertake profitable projects for non-availability of working capital funds. Operating inefficiencies creep in when it becomes difficult even to meet day to day commitments.

Working Capital project

Fixed are not efficiently utilized for the lack of working capital funds. The firm loses its reputation when it is not in a position to honor its short term obligations. As a result the firm faces tight credit terms. Only then a proper functioning of business operations will be ensured. Sound financial and statistical techniques, supported by.

Risk in this regard means chances of the firm being unable to meet its obligations on due date. The lender considers a positive networking as a measure of safety. All other things being equal, the more the networking capital a firm has, the less likely that it will default in meeting its.

Lenders such as commercial banks insist that the firm should maintain a minimum net working capital position. In the above chart, it is clearly visible that the net working capital has decreased drastically in the past five years as it was in negative in i. It has come down to Lacs in from Lacs in But in it has increased which is good for the company because its turnover has also increased. Moreover if we see year there is a huge turn around in WC, as cash balance has decreased drastically in comparison to previous year and on the other hand creditors have also increased.

The main reason for working capital to be in negative is the untimely payment from debtors. And more over, there is a direct relation between working capital requirements with Debtors and Inventory.

There has given reasons to the organization to take certain strategic measures to manage its Debtors and Inventory. Following are the measures: This ratio helps to measure the efficiency of the utilization of the working capital. It signifies that for an amount of sales, a relative amount of working capital is needed.

This ratio shows the direct relationship between the sales and working capital. Current Assets Turnover Ratio This ratio indicates the efficiency with which current assets turn into sales. A higher current assets turnover rate or a lower current assets turnover period is better.

It indicates the efficient use of the funds and the reverse case indicates reduced lockup of funds in current assets. Interpretation By observing the above ratio we find that current assets turnover rate increased from to Then after there was a slight decline in and in very next year there was slight increase in it. In ratios shows a slight decline but taking into consideration last five years from. In almost every business, we have to sell on credit basis.

The basic objective of management of sundry debtor is to optimize the return on investment on this asset. It is obvious that if there are large amounts tied up in sundry debtors, working capital requirement would be high and consequently interest charges will be high. In such cases, the bad debts and cost of collection of debts would be high. On the other hand if the credit policy is very tight, investment in sundry debtors is low but the sale may be restricted, since the competitors may offer more liberal credit term.

We have limited resources and therefore every resource has its own opportunity cost. Therefore, the management of sundry debtors is an important issue and requires proper policies and efficient execution of such policies.

Debtors and cost of debtors have direct relation; cost will increase due to increase in debtors and vice versa. It depends on the credit sale of concern and credit period collection period allowed to customer.

It is in interest of customer to pay as late as possible, and company whom made sales, would like to collect their debtor as early as possible. There is a conflict between the two aspects.

Debtor management is the process of finding the equilibrium at which company agrees to receive its payment without hampering or having any adverse effect on its sales and customer agree to pay at their economical downloading concept. Sundry debtor level depends on two measure issues One is volume of credit sales and another is credit period allowed to customer.

It is the essence of every business that to sale on credit and allow credit period to the customer in such a competitive market. Debtors Management There are mainly three aspects of Management of Debtors 1. Credit Policy: The credit policy is to determine. It involves a tradeoff between the profits on additional sale that arises due to credit being extended on one hand and the cost of carrying those debtors and bad debts losses on the other.

Credit Analysis This requires determining as how risky is to advance credit to a particular customer. Control of Receivables This requires to the firm to follow up debtors and decide about a suitable credit collection policy. It involves both lying down of credit policy and execution of such policies.

There is a cost of maintaining receivables, which comprises Cost of: L Haridwar is engaged in the manufacturing business of heavy electrical equipments, where cycle time of the product is 24 months and most of the contracts take approximately years to complete. Customers of B. Hardwar are broadly divided into following categories: Hardwar are made in following stages:. At the time of MRC material receipt at site Deferred payment after commissioning of project with certain test.

However, the above terms may vary from contract to contract. Based on the above payment terms, B. Hardwar categories their debtors into two parts: Deferred debtors are those, which will become due on the occurrence of a particular event such as issuing of MRC material Receipt Certificate from customer or completion of contract with certain tests etc. The major objective to calculate ratio is to determine the efficiency with which the trade debtors are managed. We can easily calculate this ratio with the help of the following formula:.

It indicates the speed with which the debtors turnover an average each year. In general a high ratio indicates the shorter collection period which implies prompt payments by debtors and a low ratio indicates a long collection period which implies delayed payment by debtors. In it is the least i. From to the debtor turnover ratio has continuously declined. It depicts that how inefficiently debtors are collected. We can check the managerial efficiency with the help of this ratio by the comparison of average collection period and credit policy of the company form the table we can clearly see that in the year is days, but in year there was a decrease and it falls down to and from the year there is constant increase in it.

As it was days, days, and days in the year , , respectively. This indicates that the company is following a very liberal policy in recent years. If the days are increasing it indicates that the bad debts are also increasing.

It is difficult to lay down a standard collection period; it depends upon the. As a general rule the receivables should not exceed 4 to 5 months of credit sales. To maintain a large size of inventory, a considerable amount of fund is required. It is, therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment.

A firm neglecting the management of inventories will be jeopardizing its long-run profitability and may fail ultimately. It is possible for a company to reduce its levels of inventories to a considerable degree, e. There are at least three motives for holding inventories: To facilitate smooth production and sales operation transaction motive. To guards against the risk of unpredictable changes in usage rate and delivery time precautionary motive.

To make advantage of price fluctuations speculative motive. The objective of the inventory management should be the maximization of the value of the firm. The firm should therefore consider: Two types of costs are involved in the inventory maintenance: Ordering costs are fixed per order size increases.

Carrying cost increases. The economic order quantity EOQ of inventory will occur at a point where the total cost is minimum. The following formula can be used to determine EOQ: The inventory level at which the firm places order to replenish inventory is called reorder point.If supply is scarce and unpredictable or available during particular seasons, the firm will have to obtain raw material when it is available.

WordPress Shortcode. The lender considers a positive networking as a measure of safety.

It is one of the largest engineering and manufacturing enterprises in INDIA and is one of the leading international companies in the power field. Capital is a perishable. AminuMunkaila Please kindly send me Pdf copy aminmunkaila gmail. The RMCP refers to the period for which the raw material is generally kept in store before is issued to the production department.

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