ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES PVT. LTD. CONTENTS SL.N O TITLE PAGE NO 01 02 03 04 05 06 07 08 09 10 11 EXICUTIVE SUMMARY INDUSTRY PROFILE COMPANY PROFILE PRODUCT PROFILE WORK FLOW MODEL MCKINSEY’S 7S FRAMEWORK SWOT ANALYSIS ANALYSIS AND INTERPRETATION RATIO ANALYSIS FINDINGS SUGGESTIONANDRECOMMENDATION 05-10 11-12 13-15 16-20 21-22 23-48 49-52 53-69 70-79 80 81 Babasabpatilfreepptmba.com 1
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A Project Report on Analysis of Working Capital Management
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD.
CONTENTS
SL.NO TITLE PAGE NO
01
02
03
04
05
06
07
08
09
10
11
12
13
EXICUTIVE SUMMARY
INDUSTRY PROFILE
COMPANY PROFILE
PRODUCT PROFILE
WORK FLOW MODEL
MCKINSEY’S 7S FRAMEWORK
SWOT ANALYSIS
ANALYSIS AND INTERPRETATION
RATIO ANALYSIS
FINDINGS
SUGGESTIONANDRECOMMENDATION
CONCLUSION
BIBLOGRAPH
05-10
11-12
13-15
16-20
21-22
23-48
49-52
53-69
70-79
80
81
82
83
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD.
Executive Summary
Introduction:
One of the important areas in the day-to-day management of the affairs
of a firm is the management of Working Capital. Working Capital is used for
financing day-to-day business operations. An organization whether it is
manufacturing or trading, requires adequate funds for acquiring the stock of
materials, marketable securities, stores materials etc., apart from land,
building, machinery furniture etc. The funds invested in current assets such as,
stock of materials work in process, investments, bills receivables, debtors,
bank balance etc., is known as Working Capital. Success or otherwise of any
enterprise depends upon efficient management of working capital and hence,
working capital is often described as “life-blood of business”
In simple terms, all current assets used in daily operations represent
working capital. Current assets are cash or near cash resources. Working
Capital is also known as Circulating or revolving capital, because the current
assets are of nature of circulation. They keep on moving from one form to
another. For example, cash is used for purchasing merchandise which then
takes the form of stock-in-trade or inventories, when the inventories are sold
out cash or debtors are created, when debtors are collected cash is
accumulated and this process continues. Thus, its flow is circular in nature.
In, accounting Working Capital is taken to mean the difference between
current assets and current liabilities.
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD.
Objectives of the Study:
1. To know the financial position of the company access.
2. To assess the financial strengths and weakness of the company to give
valuable suggestions to attain operational excellence.
3. To study the importance of Working Capital Management in a
manufacturing concern.
4. To study and evaluate the present Cash Management system of the
company.
Methodology of Data Collection
Research methodology is a systematic way for solving any research problem.
It’s a science of analyzing how research is done scientifically. It studies the
various steps that are generally adopted by a researcher in studying the
research problem.
Sources of Data:
There are 2 types of data:
1. Primary Data
2. Secondary Data
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD.
Primary Data
The primary data are those which are collected fresh for the first time
and thus happen to be original in character. The primary data collection
involves the collecting of information for the first time by observation,
experimentation, questionnaire and through interview schedule in the original
form by the researcher himself or his nominees.
Plan of action:
The primary data was collected through discussion with the finance
manager using the interview schedule. This data was obtained to study the
latest procedures relating to working capital management and cash
management system followed by the company.
Secondary Data
The secondary data are those which have been collected by some other
and which have been processed. Generally speaking secondary data are
information, which have been previously collected by some organization to
satisfy its own need. But the department under reference for an entirely
different reason is using it.
There are two main sources for Secondary Data:
Published Data: Data that is already available in books, magazines,
trade journals, newspapers, reports, prepared by research scholar etc.
Unpublished Data: This is not published; it can be found in unpublished
biographies, autobiographies, some governmental aspects and private
individual organizations etc.
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD.
The Secondary data used in the study are:
o Annual Report of the company.
o Published financial reports of the company.
o Financial records and stores manual of the company.
o Directors reports, auditors report and other schedules.
Limitations of the Study:
The span of study is confined to only 5 years. The comparison of various
ratios may not have the same conditions, which may result in unrelated
comparisons.
DIPL depends completely on Divgi Warner Pvt. Ltd (Pune) for
procurement of raw materials & supply of finished goods. Hence the
Working Capital Inventory management techniques have to be adjusted
on a timely basis, based on DWPL’s needs.
In this project report the Working Capital Management & Cash
Management system followed during the time of doing the project is
recorded and analyzed.
Need and Importance of Working Capital:
To fulfill its endeavor to maximize the shareholder’s wealth, firm has to
earn sufficient return from its operations, which needs a successful sales
activity. The firm has to invest sufficient funds in current asset to succeed in
sales, as the sales do not convert into cash instantaneously because of time
gap between the sale of goods and actual receipt in cash.
Hence there is a need for Working Capital in the form of current assets to
sustain sales activity during that period.
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD.
Findings:
1. View of financial position: The Company was incorporated in the year
2000, its actual commercial work started in the year 2003 April 1st.The
Company had not started any business, so there is no question of profit
from the year 2000 to 2003. But however as a first step towards the
commencement of commercial activity the company has taken over the
business of timing gear blanker on April 2003.
2. In 2003-04 the Company started commercial activity by acquiring the
building, plant & machinery from Divgi Metal Ware Pvt. Ltd., on an
annual lease of Rs.9,00,000/- plus taxes of Rs.51,750/-. Using these
leased assets the company carried out job work for Divgi Warner Pvt.
Ltd. After expenses the company made a modest profit of Rs.3,745/-
before depreciation.
3. The debtors component in the composition of current assets is the
highest. It was 87.77% in the year 2003-04, 79.38% in 2004-05, 73.63%
in 2005-06, 70.87% in 2006-07 and 69.43% for the year 2007-08. It may
be noted that debtors components in current assets is decreasing over
the years.
4. The cash and bank component for the year 2003-04 was 2.19%.it was
1.71% in 2004-05, 7.11% in 2005-06, 1.16% in 2006-07, 0.27% in 2007-
08. The loans and advances component was 10.04% in the year 2003-
04, 18.91% in 2004-05, 19.26% 2005-06, 27.97% in 2006-07, 30.30% in
2007-08. The debtors component in the composition of current assets
decrease the loans and advance component is on an increase.
5. In the years 2003-04 and 2004-05, the company had a negative working
capital of Rs.1,35,169.09 and Rs.1,95,076.75 respectively which is not a
favorable position to the company. Then in the year 2005-06, 2006-07
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PVT. LTD. and 2007-08 the Net Working Capital has improved drastically to
Rs.9,78,370.64 ,.Rs9,86,858.40, and Rs 35,02,104.84 respectively.
Suggestions and Recommendations:
1. The Debtors component is the highest among the five years and it
amounted to nearly 76% of the total current assets. But the percentage
has decreased over the year which is a good sign of improvement. The
second highest element is the loans and advances component which has
increased over the years because of the expansion programmes
undertaken by the company. In the initial years the company had not
maintained a considerable amount of cash and bank balances, but over
the years the company is maintaining adequate cash so as to meet its
immediate cash requirements.
2. The working capital of the company should be always positive. It should
not be negative. In the years 2003-04 and 2004-05, the company had a
negative working capital which is not a favorable position to the
company. Then again in the year 2005-06, 2006-07, and 2007-08 DIPL’s
net working capital has increased to Rs.9, 78,370.64, RS9,86,858.40,
and Rs 35,02,104.84 which is a very positive sign of prosperity and it will
help the company to sustain its expansion programmes. It also shows
that the liquidity position of the company has improved. Hence there is
much capital available with the company to pay off the current liabilities.
3. In order to ensure liquidity and quick cash collection the company can go
for factoring technique, through which the company can get immediate
cash for its accounts receivables and employ it in business and there by
improve its profitability.
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
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INDUSTRY PROFILE
Indian Auto Components Industry :
The Indian auto ancillary industry has come a long way since it had its
small beginnings in the 1940s. If the evolution of the industry is traced in India,
it can be classified into three distinct phases namely: Period prior to the entry
of Maruti Udhyog Ltd, period after the entry of Maruti Udhyog Ltd and Period
post Liberalization. The period prior to the entry of Maruti Udhyog Ltd was
characterized by small number of auto majors like Hindustan Motors, Premier
Automobiles, Telco, Bajaj, Mahindra & Mahindra, low technology and assured
business for most of the auto component manufacturers.
The entry of Maruti in the 1980’s marked the beginning of the second
phase of the industry. The auto ancillary industry in the country really showed
a spurt in growth during this period. This period witnessed the emergence of a
new generation of auto ancillary manufacturers who were required to meet the
stringent quality standard of Maruti’s Korean collaborator Suzuki of Japan. The
good performance of Maruti resulted in an upswing for the domestic auto
ancillary industry. It was during this period that auto components from India
began to be exported.
The entry of foreign automobile manufactures ranging from Mercedes
Benz, Ford and General Motors to Daewoo following the government
liberalizing the foreign investment limits saw the beginning of the third phase
of the evolution of the industry. The auto ancillary industry witnessed huge
capacity expansions and modernization initiatives in the post liberalization
period. Technological collaborations and equity partnerships with world
leaders in auto components became a common affair. However, the global
automobile majors soon realized the folly of their estimations in India. The
market did not seem to be as big as it appeared to be. Hence, sales targets
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PVT. LTD. went away. The tough competitive scenario saw a lot of consolidation in the
industry and it still continues unabated.
Global Scenario;
Prior to 2000, it had been almost ten years since TTS (torq transfer
systems) had been awarded any new transfer case business for the European
market (Land Rover). Then concerted efforts were made to re-enter that
market & attain new business with improved technologies such as high output
transfer cases & Torsen Torque Differential technology which broadens the
industries offering in the transfer case market place.
In the global Scenario of transfer case industry there are significant
differences between the American & European Markets. While the American
car-buyer is primarily interested in traction & larger, more powerful vehicles,
the European driver is more interested in vehicle handling, stability & safety.
Therefore for their home markets, European auto makers are producing
smaller, front wheel drive vehicles. But as the American car buyers are more
interested in powerful engines the automakers are offering a wide range of
SUV’s for which the Torq transfer System ( TTS) is particularly well suited
making the 2 wheel drive into 4 wheel drive ( 4 x 4 ). The vehicles tend to be
technically more sophisticated creating new market potential for TTS.
Borg Warner & TTS (Torq Transfer Systems)
The Company engineers work closely with the Drivetrain group in
engineering strategy & provide many opportunities for collaboration & learning
of TTS. TTS engineers frequently make customer presentations along with
colleagues from TS. This collaboration allows the Company to talk about the
company’s all-wheel drive products while TS engineers present other Drive
train technologies that Borg Warner has to offer, including the very successful
Dual Clutch Technology, which is generating much attention in Global
markets.Other Borg Warner business groups have helped to establish a great
reputation for Borg Warner at the Global level. The company’s commitment to
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. new technologies & new products for the automakers will help TTS become a
future Product Leader in Auto industry.
Company Profile
Divgi Industries Private Limited (DIPL) is situated at Banavasi Road,
Sirsi in North Kanara District of Karnataka State. It is a medium scale
engineering industry of prestigious city SIRSI. DIPL was incorporated in the
year 2000.Its actual commercial activities started in April 2003. Its registered
office is in Sirsi (Karnataka). It is certified with ISO/TS 16949 quality system in
2005.
There is another industry in the campus of DIPL known as Divgi Warner
Pvt. Ltd. (DWPL) which is a sister concern. Divgi Warner Private Limited was
established in the year 1995 as a joint venture company between Borg Warner
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Torq Transfer Systems USA, a global leader in automotive power technology
with history going back over a hundred years & Divgi Metal Wares Limited,
India.
DIPL does the job work for DWPL. Actually buildings and machineries are
taken on Lease basis from Divgi Metal Wares Pvt. Ltd. Raw materials come
from DWPL (Pune) to DWPL (Sirsi). Again these raw materials supplied to
DIPL from DWPL (Sirsi). After the job work is completed & the raw materials
are converted into semi-finished products, it is again supplied to DWPL (Sirsi)
& after some value addition works these products are sent to DWPL (Pune) for
exporting it to Borg Warner (U.S.A.). It has following alliances for the product
range.
Alliance for - 4 WD technology & products.
Manual transmission technology & products.
Synchronizer technology & products
They design & manufacture the auxiliary transfer cases (required for 4x4
vehicles) & components required for automotive torque transfer applications.
The transfer case & the parts fit on the 4x4 vehicles & their products, end
customer base covers-
Tata Motors
Mahindra & Mahindra
The product range of DIPL includes turned Flange families, turned, hobbed,
rolled, ground shafts and gear families used in auto transmission systems. The
usage of their products on vehicle:
Transfer Case
ALH (automatic locking hub)
Companion Flange Families
There are 120 employees working in DIPL. The workers have shift basis work
with specified target. The company provides them with good salary, better
facilities and motivational programs.
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PVT. LTD.
Vision:
To be catalytic and innovative organization in the society that supplies
goods and services that are of superior value to those who use them, create
jobs that provide meaning for those who do them and offer our talents &
wealth to help & reward all who invest in us their time money & trust.
Goals:
To become India’s prominent & perfect technology & in crate based
solution provide in automotive transmission & power train application for on &
off highway usage to achieve world class standard in spheres of our business
activities.
Mission:
Our Mission is to assist our customer seek new frontiers of value for the
continuously evolving needs of a globalizing market place in so doing, we
seek to bring unique distinctive & superior value to those who use our
products and services. We seek to provide our customers a continuous source
of innovation by anticipating change & shaping it to our purpose.
Annual turnover of the company –
For the year
2004-2005 90,88,000
2005-2006 1, 22, 60, 000
2006-2007 1, 33, 80,000
2007-2008 1, 70, 54,584
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PVT. LTD. 2008-2009 3, 00, 00,000
Board of Directors
SHRI JITENDRA DIVGI.
SHRI HIRENDRA. DIVGI
SHRI BHARATH DIVGI.
Product ProfileDivgi Industry Private Limited manufactures the spare components
required transfer case. The raw materials are procured from Bhosari (Pune)
and component parts are manufactured at DWPL (Sirsi) and they are
assembled at DWPL (Pune).
Transfer Case: transfer case are used in 4*4 vehicles. It includes several
items made up of steel. They include:
Front Adapter: It is an item made up of aluminum.
Shafts:
1. Upper output Shafts.
2. Lower output Shafts.
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PVT. LTD.
Upper output shaft lower output shaft
Yokes:
The yokes are classified as single chorden and double chorden that are
supplied to Mahindra & Mahindra and Tata motors. These are also exported to
Borg Warner Torq Transfer Systems.
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PVT. LTD.
Gear: These items include:
Ring Gear
Sprocket drive
Sprocket driven
Hub Sleeve
Hub lock up
Collar lockup
Hub reduction
Clutch Gear
Planet penion Gear
Companion Flange:
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PVT. LTD.
Quality Objectives:
To continually enhance customer satisfaction by monitoring the
customer satisfaction index.
To improve productivity, achieve higher process capabilities with a
focus to achieve ZERO detect in all out business activities.
To achieve OPTIMUM INVENTORY LEVELS through ON TIME
PROCUREMENT (JIT) of quality material at competitive prices.
To improve the overall inventory effectiveness
To develop a motivated, committed and effective team by providing
the necessary resources, good training programs and a congenial
atmosphere for overall growth of the employees.
.
. Types of Transfer Case:
Mechanical Shift Transfer Case
Electrical Shift TC
Features and Benefits of Mechanical Shift Transfer Case and
Electric Shift Transfer Case:
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Part-time System: - Allows driver to select two or four wheel operation.
Light Weight Construction: - Reduces total vehicle weight to enhance
fuel use efficiency.
Upper Disconnect to Chain: - Stops unnecessary parasitic losses in
two wheel drive.
Positive Displacement to Oil Pump and Filter: - Assures full liberation
when driving or towing. Reduces maintenance needs.
Helical Gearing: - Delivers quiet, low range operation.
Four-wheel Drive Indicator Light Switch: - Indicates four wheel drive
mode for driver convenience.
Single lever Shift Control: - Simplifies selection of transfer case
operating modes.
Electromagnetic shift on the fly (optional): - Provides smooth
engagement of four wheel drive at highway speeds.
Functions of Transfer Case:
To convert 2 x 2 drive into 4 x 4 drive
To amplify Torque
AREA OF OPERATION
The area of operation of DIPL is done in DIVGI WARNER PRIVATE LTD,
which caters to domestic, and global customer base includes:
Auto Alliance (thailand)
Ford (usa)
Hyudai (japan)
Great wall (china)
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. General motors (usa).
Domestic customers
Mahindra & Mahindra
Tata motors
Telco.
OWNERSHIP PATTERN
DIVGI Industries is a VENDOR company which is owned by share
holders of the same company with a number of shares rupees 49, 53,000
(equity shares rupee 100 each)
COMPETITORS INFORMATION
There are no competitors to DIPL as it does only job work for DWPL as
it does not undertake a trading or marketing activity.
ACHIEVEMENT/AWARD
DIPL is awarded with ISO/TS-16949-Quality certificate in the year
2002.For every 3 year it should be recertified. Recently it is recertified in the
year 2009.
Work Flow Model
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CAD
DIPL MDT
ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Order specification DESIGN
Order
DW
Material Material
Design
FEEDBACK
Business Process Approach:
The various business processes, their interaction & sequences are
identified on the basis of nature of our business. Following business
processes are performed in the organization, classified into various functions:-
Top Management: The MD of the company is CEO for the quality
Management System. He is overall overseeing the overall growth of the
company whereas day – to – day operations are looked upon by Plant Head.
Sales & Customer Support: This business process communicates with
customer to identify customer requirements & assures customers in increasing
customer satisfaction by interacting with other business processes in the
company. They give inputs to Engineering about customer needs of new /
modified product / system requirements. This business process also supports
customer for line & warranty related issues. This activity is carried by
Marketing Department.
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DWPL PRODNDEPT
WASTE TO SCARP
FINAL INSPECTION
ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Product Design & Development: Engineering department is responsible for
designing the product / part as per the customer requirement. The customer
requirements are translated into the product realization plan through APQP
(Advanced Product Quality Planning) steps. Product leader convinces multi
disciplinary actions consisting of various business processes who act as a
board of decisions for design activity planning. This business process ensures
that company confirms to all the agreed customer requirements.
.
McKinsey’s 7S Framework
The 7S model is better known as McKinsey’s 7-S. This is because two
persons who developed this model, Tom Peters & Robert Waterman, have
been consultants to McKinsey & Co, at that time they published their 7-S
model in their article “Structure in not organization “( 1980 ) & in their book
“The Art of Japanese Management “(1981) “In search of Excellence “ ( 1982).
The model starts on the precise that an organization is not just structure,
but consist of 7 elements: Strategy, Structure, System, Style, Staff, Skill
and Shared values.
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PVT. LTD.
Strategy : Actions company plans in response to or anticipation of
changes in its external environment.
Structure : Basis for specialization & coordination influenced primarily by
strategy & by organization size and diversity.
Systems : Formal and informal procedures that support the strategy and
Structure.
Style : The culture of the organization consists of 2 components:-
o Organization Culture: The dominant values and norms which develop
over time & become relatively enduring features of organization
life.Management Style More a matter of what manager do than what
they say; how do a companies managers spend time? What are they
focusing attention on?
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PVT. LTD. o Symbolism: The creation and maintenance (or sometimes
deconstruction) of meaning is a fundamental responsibility of mangers.
Staff : The people / human resource management processes use to
develop mangers socialization processes, ways of shaping basic values of
management cadre, ways of introducing young recruits to the Co., ways of
helping to manage the career of employees.
Skills : The distinctive competencies – what the company does best, ways
of expanding or shifting competencies.
Shared values : Guiding concepts, fundamental ideas around which a
business is built – must be simple , usually stated at abstract level, have great
meaning inside the organization even though outsiders may not see to
understand them.
The 7-S model is a valuable tool to initiate change processes & to give
them direction. A helpful application is to determine the current state of each
element and to compare this with the ideal state. Based on this it’s possible to
develop action plan to achieve the intended state.
Application of McKinsey’s 7S:
STRUCTURE
Organizations are economic & social entities in which a number of
persons perform multifarious tasks in order to attain common goals.
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L. A. Allen defines an organization as “the process of identifying &
grouping the work to be performed, defining & delegating responsibility &
authority & establishing relationship for the purpose of enabling to people to
work most effectively together in accomplishing objectives”.
Organization structure can be designed on the basis of
departmentalization and relationships.
Departmentalization is the process of dividing work of an organization
into various units or departments.
Relationship is the process of organization brings relationship among
employees at different levels, materials, money & machines.
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PVT. LTD.
FUNCTIONAL AREAS AT DIPL
The various business processes, their interaction and sequences are
identified on the nature of business. Following business processes are
performed in the organization, classified into various function:-
1.Production, Planning and Control
2. Stores and Materials
3. Human Resource (HRD)
4. Quality System
5. Maintenance
6. Manufacturing
7. Quality Assurance
8. Finance and Accounts
1. Production, Planning and Control Department
This business process receives customer schedule details from
marketing considering inventories at raw material, work-in-progress and
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PVT. LTD. finished goods, they prepare production plan is a base for manufacturing
process. This business process also controls outsourcing of products/
processes. This process strives for 100% on time delivery performance of
company.
Responsibilities and Authorities of Production, Planning and
control:
Prepare dispatch plans / schedules based on scheduled requirements.
To-coporate with Bhosari ( Pune ) for the following:
o Raw materials
o Tooling / insert s
o Mobilizing empty trays for material handling
o Preparing dispatch schedule
Other requirements like consumables To organize inputs to Sirsi plant
such as:
o Trays or guards on machines
o Displaying information at info center
o Providing racks for storing various materials
Organizing dispatch co-ordination with individual engineer for component
for final inspection and further dispatch.
To take the work-in progress statement for production material within the
plant.
To negotiate and finalize rates for scrap (steel/aluminum) and take
approval from VP (operations).
Development of new tools/ inserts and conduct trails for productivity
improvement with reducing the cost per component.
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
Current LiabilitiesCreditors for suppliers & servicesCreditors for outstanding expenses
18,90,298.75
3,75,787.00
18,37,154.35
2,69,117.00
53,144.40
1,06,670.00
Total 22,66,085.75 21,06,271.35 1,59,814.4
Net Working Capital(Current Asset – Current Liability)
9,78,370.64 (1,95,076.75) 11,73,447.39
Table 5: Statement of changes in Working Capital for the year 2005-06
Statement of Changes in Working Capital for year 2006-07
Particulars 31.3.07 31.3.06 Increase DecreaseCurrent AssetsDebtorsDivgi Warner Pvt. Ltd.
24,83,949.50 23,88,962.60 94,986.90
Cash and Bank BalanceCash in HandSirsi Urban Co-op, BankSirsi Urban Co-op, BankVijaya Bank kansurVijaya Bank sirsi
12,489.591,680.00
999.9824,646.00
878.00
8,594.89980.00
1,96,272.87 24,757.00 ---
3894.70700.00
878.00
1,95,272.89111.00
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Loans and AdvancesDWPL, PuneDWPL, Sirsi
Other AdvancesAdvanced to Staff & WorkersPrashant Tools Pvt. Ltd.
T.D.S.
7,829.635,73,656.40
17,732.00
1,25,000.00 2,56,038.00
7,829.632,62,003.40
23,618.00
68,775.00
2,62,663.00-
3,1,653.00
56,225.00
5,886.00
6,625.00
Total 35,04,899.10 32,44,456.39 2,60,442.71
Current LiabilitiesCreditors for suppliers & servicesCreditors for outstanding expenses
21,08,000.45
4,10,040.25
18,90,298.75
3,75,787.00
2,17,701.70
34,253.25
Total 25,18,040.70 22,66,085.75 2,51,954.95
Net Working Capital(Current Asset – Current Liability)
9,86,858.40 9,78,370.64 8,487.76
Table 6: Statement of changes in Working Capital for the year 2006-07
Statement of Changes in Working Capital for year 2007-08
Particulars 31.3.08 31.3.07 Increase DecreaseCurrent AssetsDebtorsRediant Securities Service ,Pune
Divgi Warner
2,872.00
33,09,440.50
-----
24,83,949.50
2,872.00
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Pvt. Ltd. Sirsi 8,25,491.00Cash and Bank BalanceCash in HandSirsi Urban Co-op, BankSirsi Urban Souharda Co-op Bank Vijaya Bank KansurVijaya Bank Sirsi
3,787.23
1,680.00
4,178.982,389.00
878.00
12,489.59
1680.00
999.98 24.646.00 878.00
3,179.00
8,702.36
22,257.00
Loans and AdvancesDWPL, PuneDWPL, Sirsi
Other AdvancesAdvanced to Staff & WorkersTrue Consultants Belgaum .T.D.S
61,329.639,22,031.40
11,500.00
1,25,000.00 3,25,649.00
7,829.635,73,656.40
17,732.00
1,25,000.00 2,56,038.00
53,500.003.48,375.00
69,611.00
6,232.00
Total 47,70,735.74 35,04,899.10 12,65,836.64
Current LiabilitiesCreditors for suppliers & services Creditors for outstanding exps
7,25,630.65
5,43,000.25
21,08,000.45
4,10,040.25
4,52,690.20
1,32,960.00
Total 12,68,630.90 25,18,040.70 5,85,650.20
Net Working Capital(Current Asset – Current Liability)
35,02,104.84 9,86,858.40 25,15,246.44
Table 7: Statement of changes in Working Capital for the year 2007-08
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD.
Interpretation:
The working capital of the company should be always positive. It should
not be negative. In the years 2003-04 and 2004-05, DIPL had a negative
working capital which is not a favorable position to the company.
It clearly shows that DIPL was a newly established company. So it was
facing shortage of working capital in initial years, so it had to increase its
working capital to stand in the business world.
Then again in the year 2005-06, 2006-07 and 2007-08 DIPL’s net
working capital has increased to Rs.9,78,370.64, Rs9,86,858.40 and
Rs35,02,104.84 which is a very positive sign of prosperity and it will help DIPL
to sustain its expansion programmes.
Ratio Analysis
Ratio analysis is a widely accepted tool of financial analysis. It is
defined as a systematic use of ratio to interpret the financial statements so that
the strengths and weakness of the firm as well historical performance and
current financial conditions can be determined. The term ratio refers to the
numerical or quantitative relationship between two items or variables.
Current Ratio
Concept: Current ratio is a measure of firm’s short term solvency i.e. its
ability to meet short term obligations. This ratio is also known as Working
Capital ratio. The current ratio is the ratio of total current assets to total current
liabilities.
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Current Assets
Current Ratio =
Current Liabilities
Year Current Assets Current
Liabilities
Ratio
2003-04 23,19,688.84 24,54,857.93 0.95 : 1
2004-05 19,11,194.6 21,06,271.35 0.91 : 1
2005-06 32,44,456.39 22,66,085.75 1.43 : 1
2006-07 35,04,899.10 25,18,040.70 1.39: 1
2007-08 47,70,735.74 12,68,630.90 3.76: 1
Table 8: Current Ratio
Interpretation:
The Current Ratio was 0.95 for 2003-04 and decreased to 0.91 in the
year 2004-05 and for 2005-06 the ratio increased to 1.43.and then decreased
to1.39 in the year 2006-07 and for 2007-08 the ratio increased to 3.76.
The current ratio has met the standard of 2:1 ratio and hence it can be
said that there is enough working capital to meet the current liabilities. Hence
it can be noted that steps have been taken to increase the current ratio in the
previous financial years .so that enough working capital is available to meet
the current obligation. Thus the liquidity position, as calculated by the current
ratio, is improved in the financial year 2007-08.
Absolute Liquidity Ratio
Concept: Absolute liquidity ratio is a ratio of cash in hand and at bank to
Current Liabilities. The standard ratio is 0.5: 1.
Cash in hand + Cash at bank
Absolute Liquidity Ratio =
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Current Liabilities
Year Cash Current
Liabilities
Ratio
2003-04 50,913.04 24,54,857.93 0.021 : 1
2004-05 32,587.97 21,06,271.35 0.015 : 1
2005-06 2,30,604.76 22,66,085.75 0.102 : 1
2006-07 40,693.57 25,18,040.70 0.016: 1
2007-08 12,913.21 12,68,630.90 0.010: 1
Table 9: Absolute Liquidity Ratio
Interpretation:
The absolute liquidity ratio was 0.021 for 2003-04 and decreased to
0.015 in the year 2004-05 and for the year 2005-06 the ratio increased to
0.102 and then in 2006-07 and 2007-08 the ratio decreased to 0.016 and
0.010 respectively.
The absolute liquidity ratio is below the standard of 0.5:1. It shows that
the liquidity position of the concern is not good. Hence adequate cash balance
need to be maintained by the company.
Working Capital Turnover Ratio
Concept: This ratio indicates how efficiently the working capital of the firm is
being utilized.
Sales / Income
Working Capital Turnover Ratio =
Net working Capital
Year Sales Net Working Ratio
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Capital
2003-04 58,31,018.2 (1,35,169.09) (43.14)times
2004-05 90,88,657.33 (1,95,076.75) (46.59)times
2005-06 1,22,61,058.8 9,78,370.64 12.5 times
2006-07 1,33,77,943.25 9,86,858.40 13.5 times
2007-08 1,71,49,248.50 35,02,104.84 4.89 times
Table 10: Working Capital Turnover Ratio
Interpretation:
The working capital turnover ratio was negative for the years 2003-04
and 2004-05. in the year 2005-06 and 2006-07 it has increased to 12.5 times
and 13.5 times respectively. But in the year 2007-08 it has considerably
decreased to 4.89 times.
Working capital turnover is the ability to generate sales per rupee of
working capital. It should always be positive but in the initial years the ratio
was negative which is not a favorable position to the company. For year
2005-06, 2006-07 the ratio has improved to12.5 times and 13-5 times But in
the year 2007-08 it has decreased to 4.89 times which shows that the
organization is not able to utilize its working capital full.
Debtors Turnover Ratio
Concept: Debtors are expected to be converted into cash over a short
period of time and therefore are included in current assets. It shows how many
times debtors are converted into cash in a year.
Net Credit Sales
Debtors Turnover Ratio =
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Average Debtors
Where, Average Debtors= opening Debtors + closing Debtors
_____________________________
2
Year Credit Sales Average Debtors Ratio
2003-04 58,31,018.2 20,35,974 2.86 times
2004-05 90,88,657.33 17,76,582 5.12 times
2005-06 1,22,61,058.8 19,53,076.3 6.28 times
2006-07 1,33,77,943.25 24,36,456.05 5.49 times
2007-08 1,71,49,248.50 28,98,131.00 5.91 times
Table 11: Debtors Turnover Ratio
Interpretation:
The debtors turnover ratio was very less for the year 2003-04 at 2.86
times, it has increased to 5.12 and 6.28 times in the years 2004-05 and 2005-
06. subsequently in the year 2006-07 it has decreased to 5.49 times. Again
the debtors turn over ratio has increased 5.91 times in the year 2007-08. This
shows that the company is making all the efforts to speed up the collection
process.
Debtors Conversion Period
Concept: Debtors are expected to be converted into cash over a short
period of time and therefore are included in current assets. It shows how many
times debtors are turned over during the year. It is the number of days needed
for debtors to get converted into cash.
No. of days in a year
Debtors Conversion Period =
Debtors turnover Ratio
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Year Debtors Turnover
Ratio
Debtors Conversion
Period
2003-04 2.86 times 128 days
2004-05 5.12 times 71 days
2005-06 6.28 times 58 days
2006-07 5.49 times 66 days
2007-08 5.91 times 62 days
Table 12: Debtors Conversion Period
Interpretation:
The debtors conversion period was 128 days in the year 2003-04 and
over the years it is improving by reducing debtors conversion period days it
has significantly reduced from 128 days in the year 2003-04 to just 62 days in
the current year 2007-08.
The standard period of credit allowed is 30 days, if it is less than the
standard it indicates the credit collection is efficient and if it is more, it indicates
that its credit collection is inefficient. But in the case of DIPL, even though the
debtors conversion period is falling short of the standard period. The company
has shown that it is making all the efforts to speed up the collection period.
Creditors Turnover Ratio
Concept: Creditors turnover ratio establishes relationship between net credit
purchases and average trade creditors and accounts payable. The ratio
indicates the velocity with which the creditors are turned over in relation to
purchases.
The objective of computing this ratio is to determine the efficiency with
which the creditors are managed.
Net Credit Purchases
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Creditors Turnover Ratio =
Average Creditors
Where, Average Creditors= opening creditors+ closing creditors
________________________________
2
Year Credit
Purchases
Average
Creditors
Ratio
2003-04 50,47,654.21 13,11,015.5 3.85 times
2004-05 64,38,433.5 22,80,564.6 2.82 times
2005-06 1,02,27,956.31 20,49,057.25 4.99 times
2006-07 1,11,01,526.70 23,92,063.23 4.64 times
2007-08 1,37,46,031.96 18,93,335.80 7.26 times
Table 13: Creditors Turnover Ratio
Interpretation:
The creditors turnover ratio was 3.85 times in the year 2003-04 and then
decreased to 2.82 times in the year 2004-05. In the year 2005-06 it increased
to 4.99 times. Subsequently in the current financial year 2007-08 it has
increased to 7.26 times.
Generally lower the ratio better is the liquidity position of the firm and
vice versa. But lower ratio also implies lesser discount facilities availed or
higher prices paid for the goods purchased on credit. The creditors turnover
ratio is important tool of analysis as a firm can reduce its requirement of
current assets by relying on suppliers credit.
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. From the above table it can be known that that the creditors turnover
ratio in the current financial year 2007-08 is increased considerably over the
previous year and hence the company’s liquidity position is not good in current
years.
Average Collection Period
Concept: Average collection period is the period within which the creditors
are repaid. Higher the credit period enjoyed by the company from its creditors,
higher will be the liquidity of the company.
365Days
Average Collection Period =
Creditors Turnover Ratio
Year Creditors Turnover
Ratio
Conversion Period
2003-04 3.85 times 95 Days
2004-05 2.82 times 129 Days
2005-06 4.99 times 73 Days
2006-07 4.64 times 79 Days
2007-08 7.26 times 50 Days
Table 14: Average Collection Period
Interpretation:
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Generally higher the credit period enjoyed by the company better is their
liquidity status. But the credit period has decreased in the current financial
year 2007-08 to 50 days which shows that there is a prompt repayment to
creditors
Current Asset Ratio
Concept: This ratio measures sales per rupee of investment in current
assets. This ratio measures the efficiency with which current assets are
employed – a high ratio indicates a high degree of efficiency in asset utilization
and a low ratio reflects inefficient use of current assets.
Net Sales
Current Asset Ratio =
Average Current Assets
Where, Average Current Assets = opening + closing
_______________
2
Year Sales Average Current
Assets
Ratio
2003-04 58,31,018.2 12,80,671.42 4.55
2004-05 90,88,657.33 21,15,441.72 4.30
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. 2005-06 1,22,61,058.8 25,77,825.5 4.76
2006-07 1,33,77,943.25 33,74,677.74 3.96
2007-08 1,71,49,248.50 41,37,817.42 4.14
Table 15: Current Asset Ratio
Interpretation:
The current asset ratio for the year 2003-04 was 4.55 and in 2004-05 it
slightly decreased to 4.30 and in the year 2005-06 it has increased to 4.76.
and then decreased to 3.96 in the year 2006-07. In the current year 2007-08
the ratio is slightly increased to 4.14.
The current asset ratio shows the relationship between or
elasticity of current assets to sales and it depicts how efficiently current assets
are employed in an organization to boost the sales.
Findings:
1. View of financial position: The Company was incorporated in the year
2000, its actual commercial work started in the year 2003 April 1st.The
Company had not started any business, so there is no question of profit
from the year 2000 to 2003. But however as a first step towards the
commencement of commercial activity the company has taken over the
business of timing gear blanker on April 2003.
2. In 2003-04 the Company started commercial activity by acquiring the
building, plant & machinery from Divgi Metal Ware Pvt. Ltd., on an
annual lease of Rs.9,00,000/- plus taxes of Rs.51,750/-. Using these
leased assets the company carried out job work for Divgi Warner Pvt.
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. Ltd. After expenses the company made a modest profit of Rs.3,745/-
before depreciation.
3. The debtors component in the composition of current assets is the
highest. It was 87.77% in the year 2003-04, 79.38% in 2004-05, 73.63%
in 2005-06, 70.87% in 2006-07 and 69.43% for the year 2007-08. It may
be noted that debtors components in current assets is decreasing over
the years.
4. The cash and bank component for the year 2003-04 was 2.19%.it was
1.71% in 2004-05, 7.11% in 2005-06, 1.16% in 2006-07, 0.27% in 2007-
08. The loans and advances component was 10.04% in the year 2003-
04, 18.91% in 2004-05, 19.26% 2005-06, 27.97% in 2006-07, 30.30% in
2007-08. The debtors component in the composition of current assets
decrease the loans and advance component is on an increase.
5. In the years 2003-04 and 2004-05, the company had a negative working
capital of Rs.1,35,169.09 and Rs.1,95,076.75 respectively which is not a
favorable position to the company. Then in the year 2005-06, 2006-07
and 2007-08 the Net Working Capital has improved drastically to
Rs.9,78,370.64 ,.Rs9,86,858.40, and Rs 35,02,104.84 respectively.
Suggestions and Recommendations:
1. The Debtors component is the highest among the five years and it
amounted to nearly 76% of the total current assets. But the percentage
has decreased over the year which is a good sign of improvement. The
second highest element is the loans and advances component which has
increased over the years because of the expansion programmes
undertaken by the company. In the initial years the company had not
maintained a considerable amount of cash and bank balances, but over
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. the years the company is maintaining adequate cash so as to meet its
immediate cash requirements.
2. The working capital of the company should be always positive. It should
not be negative. In the years 2003-04 and 2004-05, the company had a
negative working capital which is not a favorable position to the
company. Then again in the year 2005-06, 2006-07, and 2007-08 DIPL’s
net working capital has increased to Rs.9, 78,370.64, RS9,86,858.40,
and Rs 35,02,104.84 which is a very positive sign of prosperity and it will
help the company to sustain its expansion programmes. It also shows
that the liquidity position of the company has improved. Hence there is
much capital available with the company to pay off the current liabilities.
.
3. In order to ensure liquidity and quick cash collection the company can go
for factoring technique, through which the company can get immediate
cash for its accounts receivables and employ it in business and there by
improve its profitability.
Conclusion:
The Working Capital management contributes much in the overall
management of the organization affairs. Efficiency of organization operations
depends on how it manages its short-term business dealings. Working capital
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ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES
PVT. LTD. management contributes for the firm’s efficiency as well as the bottom line by
optimally utilizing the available wealth and maintaining the required liquid
Bibliography
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