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Chapter:-1 Industry Profile/Company Profile 1.1) Marble Industry in India and world:- 1.1.1) Products India possesses a wide spectrum of stones ~ granite, marble, sandstone, limestone, slate, and quartzite. It is amongst the largest producer of raw stone material. 1.1.2) Production areas Marble deposits are widespread in India: concentration in states of Rajasthan, Gujarat, Madhya Pradesh, Haryana, and Andhra Pradesh. Next Gujarat also produces some very fine marble followed by Madhya Pradesh. Rajasthan is the main depository of marble; accounts for over 90% of total marble production in India [1100 m tons]. Newer varieties of marble are being developed in Bihar, Jammu & Kashmir, Maharashtra, Sikkim, and Uttar Pradesh & Bengal. 1.1.3) Production Technology Industry has evolved into the production and manufacturing of blocks, flooring slabs, structural slabs, calibrated - ready to fix tiles, monuments, tomb stones, sculptures, artifacts, cobbles, cubes, pebbles and landscape garden stones. Advent of sophisticated mining machinery & new mining fields has led to increase in marble production. Although India produces machinery, there is an excellent 1
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Page 1: Pratik

Chapter-1 Industry ProfileCompany Profile11) Marble Industry in India and world-

111) Products

India possesses a wide spectrum of stones ~ granite marble sandstone limestone

slate and quartzite It is amongst the largest producer of raw stone material

112) Production areas

Marble deposits are widespread in India concentration in states of Rajasthan Gujarat

Madhya Pradesh Haryana and Andhra Pradesh Next Gujarat also produces some very

fine marble followed by Madhya Pradesh

Rajasthan is the main depository of marble accounts for over 90 of total marble

production in India [1100 m tons] Newer varieties of marble are being developed in

Bihar Jammu amp Kashmir Maharashtra Sikkim and Uttar Pradesh amp Bengal

113) Production Technology

Industry has evolved into the production and manufacturing of blocks flooring slabs

structural slabs calibrated - ready to fix tiles monuments tomb stones sculptures

artifacts cobbles cubes pebbles and landscape garden stones

Advent of sophisticated mining machinery amp new mining fields has led to increase in

marble production Although India produces machinery there is an excellent

opportunity for exporting machineries for working stone cutting sawing grinding and

polishing

114) Indo-Italian Trade-

Italy imports blocks and after cutting and processing exports these all over the world

including India Italy imports large amounts of granite from India around euro 62 million

as compared to imports of Marble which amount to only euro 5 million (inclusive of

blockstilescrudetrimmed)]

The whole world economy is facing the recessionary trend since past few years This

has affected most of the industries but the commodities of necessity

1

112) The largest state of India accounts for over 90 of total marble production

of the country Main varieties here are

1121) Makarana Marble-

The famous marble of which the Taj Mahal is made it is highly calcic Main sub-

varieties are Kumhari Doongri Alberta and Makaran WhiteThe largest mines are

Makrana marble Length of mines is 1350m

1122) Rajnagar Marble-

Worlds largest marble-producing area with over 2000 gang saw units located in the

nearby town of Kishangarh to process the material produced Agaria is the best variety

of this area with numerous other varieties and patterns primarily in white base The

marble is dolomites and often has quartz intrusions

1123) Andhi Marble-

Located near the capital city of the state of Jaipur (also known as the Pink City) it is

dolomitic marble with intrusions of tremolite and is commonly known by the name of

pista (pistachio) marble because of the green coloured tremolite against an off-white

background One of the famous varieties of this area was known as Indo-Italian owing

to its resemblance with Satvario Marble Most of the mining of this famous field is now

banned by the Supreme Court of India because of the vicinity of the area to the Sariska

Tiger Reserve

1124) Salumber Marble-

Also known as Onyx Marble it has thick bands of green and pink hint A resemblance

to Onyx Marble from Pakistan gives it this name This is also highly dolomitic

Yellow Marble Though it has not been metamorphosed and hence is still a

limestone it is Known as Yellow Marble in trade circles It is mined in the

Jaisalmer District

Bidasar Again this is not marble but is known as marble in trade circles These

are ultra basic rocks in shades of brown and green colour The criss-cross linear

pattern given it a remarkable resemblance to a photograph of dense forest

1125) Gujarat Amba Ji Marble

2

is one of the finest marble produced in India It can be easily compared with Makarana

Marble It is highly calcic and is produced in a town called Amba ji (famous for its

temple of Durga Devi) The marble has a very soft and waxy look and is often used by

sculptors

Madhya Pradesh Katni Range is famous for its beige coloured marble which is

dolomitic but highly crystalline with very fine grain size and some quartz intrusions

The marble accepts excellent polish Another variety of the same range is redmaroon-

colored marble

1126) Granite

India is endowed with one of the best granite deposits in the world having excellent

varieties comprising over 200 shades India accounts for over 20 of the world

resources in granite Granite reserves in India have now been estimated by the Indian

Bureau of Mines at over 42916 million cubic metres Splendid black and multicolour

varieties of granite are available in the states of Karnataka Andhra Pradesh Tamil

Nadu and Uttar Pradesh Granite deposits are also widespread over the provinces of

Rajasthan Bihar West Bengal and Gujarat India is the largest exporter of granite and

granite products in the world

1127) Sandstone

Sandstone reserves in India are spread over the states of Andhra Pradesh Assam

Bihar Gujarat Haryana Madhya Pradesh Meghalaya Mizoram Karnataka Orissa

Punjab Rajasthan Uttar Pradesh Tamil Nadu and West Bengal Over 90 of the

deposits of sandstone are in Rajasthan spread over the districts of Bharatpur Dholpur

Kota Jodhpur Sawai-Madhopur Bundi Chittorgarh Bikaner Jhalawar Pali and

Jaisalmer

1128) Slate

Slate reserves in India are found in Rajasthan Haryana Himachal Pradesh Andhra

Pradesh and Madhya Pradesh Deposits in Rajasthan are spread over the districts of

Alwar Ajmer Bharatpur Tonk Sawai Madhopur Pali Udaipur Churu and

Chittorgarh

3

1129) Flaggy limestone

Kota stone of Kota district and Yellow Limestone of Jaisalmer district of Rajasthan are

the prime limestone occurrences in India Other deposits include the Shahabad Stone of

Gulbarga and the Belgaum districts of Karnataka Cuddapah Stone of Kadapa Kurnool

and the Anantpur amp Guntur districts of Andhra Pradesh Milliolitic Limestone from

Saurashtra Region Gujarat and Yellow Limestone of Kutch district of Gujarat

amongst others

11210) Limestone deposits in Andhra Pradesh India

Andhra Pradesh has the privilege of possessing about 32 of the countrys total

reserves of limestone Commercial grade limestone deposits are being exploiting from

Bethamcherla Macherla Neereducherla Tandur Mudimanikyam of Kurnool Guntur

Anantapur Rangareddy and Nalgonda districts are widely used in our country for

panelling and flooring purposes Sullavai limestone of Karminagar and Warangal

districts massive limestones of Mudimanikyam Nalgonda districts Andhra Pradeshs

limestone reserves are estimated about 30424 million tonnes Total Indias limestones

are estimated about 93623 million tonnes Limestones are extensively utilized for

manufacturing of cement and also building stones particularly flooring and roofing

(Dept of Mines and Geology APVenkat Reddy2006)

11211) Other dimensional stones

There are some other dimensional stones being quarried and used in consumption in

addition to the dimensional stones already detailed above Laterite bricks are quarried

in huge quantities and are utilised as bricks in the construction of houses and for

pavements in the states of Orissa Karnataka Goa and in other parts of coastal states

The felspathic sandstone occurring with the coal seams as overburden is also used as

building stone The huge deposits of basalt in the states of Maharashtra Karnataka and

Gujarat are used as building stones since ancient times Other quartzitic bands

occurring with phyllites and schists are also utilised for building purposes Khondelites

from Eastern coast are being used widely in sculptures and as a building material

Felsite from Karnataka is being extensively used as a dimensional stone as well

4

113) Types-

Historically notable marble varieties and locations

1131) Sculpture-

White marble was prized for its use in sculptures since classical times This preference

has to do with the softness and relative isotropy and homogeneity and a relative

resistance to shattering Also the low index of refraction of calcite allows light to

penetrate several millimeters into the stone before being scattered out resulting in the

characteristic waxy look which gives life to marble sculptures of the human body

1132) Construction marble-

Construction marble is a stone which is composed of calcite dolomite or serpentine

which is capable of taking a polish More generally in construction specifically the

dimension stone trade the term marble is used for any crystalline calcitic rock (and

some non-calcitic rocks) useful as building stone For example Tennessee marble is

really a dense granular fossiliferous gray to pink to maroon Ordovician limestone that

geologists call the Holston Formation

114) Industrial use-

Blocks of cut marble at the historic mill in Marble ColoradoColorless or light-colored

marbles are a very pure source of calcium carbonate which is used in a wide variety of

industries Finely ground marble or calcium carbonate powder is a component in paper

and in consumer products such as toothpaste plastics and paints Ground calcium

carbonate can be made from limestone chalk and marble about three-quarters of the

ground calcium carbonate worldwide is made from marble Ground calcium carbonate

is used as a coating pigment for paper because of its high brightness and as a paper

filler because it strengthens the sheet and imparts high brightness Ground calcium

carbonate is used in consumer products such as a food additive in toothpaste and as an

inert filler in pills It is used in plastics because it imparts stiffness impact strength

dimensional stability and thermal conductivity It is used in paints because it is a good

filler and extender has high brightness and is weather resistant However the growth

in demand for ground calcium carbonate in the last decade has mostly been for a

coating pigment in paper

Calcium carbonate can also be reduced under high heat to calcium oxide (also known

as lime)

5

12) Company Profile-

The Company R K Marble Private Limited was established in 1989 by the Patni group

of Kishangarh-District Ajmer to help serve increasing National and international

demands for Indian marble Since then we have enjoyed exponential growth and export

too many markets worldwide including European Union countries the Middle East

Japan other parts of Asia China and North America etc

The seagull who sees farther flies higher living up to the immortal words of

Johanthan Swift Mr Ashok Patni established the first processing unit at Rajasthan

(with an installed capacity of one lakh cu ft marble slabs Per Annum) and never

looked back The company now has 14 Gangsaw machines In November 1993 was the

time when state government took a step forward to allot a virgin marble mine on lease

to R K Marble at Morwad Distt Rajsamand in Rajasthan

By the touch of sheer hard work guts burning inner desire to reach unprecedented

heights and fulfilling their dreams the trio converted these marble mines to gold

mines Morwad from which the stone takes its name is a remote village in the eastern

part of Rajasthan India

Today the name Morwad Marble from R K Marble group has become almost generic

for a whole range of white and semi-white types of marble which are extracted from

these locations

6

The popularity of this range of marble continues to grow at an astonishing rate and it is

marketed in large quantities The white background with light gray veins corresponds

with nearly everyones perception of the most beautiful marble and architects for many

of the Indias important buildings suggest it

Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic

fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the

largest producer of marble in the world Bedecked with most sought after gadgets the

exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder

Marble thats wondrous and splendid in myriad hues

Wonder Marbles colour panorama and innate design makes it the right choice for

flamboyant users Our fascinating range can be floored to encompass living rooms

drawing arrangements dining spaces hotel lobbys pool sites wall claddings special

lounges and many more Among its endless usages left for creative imagination some

could be - artifacts and decorative objects

A) Products-

Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone

Figure White marble Marble Flooring Marble Tiles

121) Wonder Marble-

The WONDER MARBLE produced at the RK Majoli mines comes to you in

heartwarming shades of deep and dark red brown to rose patches in creamy base

7

coupled with abrasion resistant fine grained form luster and reflective gloss which

makes it truly a masterpiece for a lifetime

~ Wonder Marble is available in 4 exotic colours-

bull Milky Opal Creamy base Shades of beige amp mauve

bull Pink Pearl Ecstatic pink amp brown tones

bull Garnet Rush Reddish

bull Jasper Jazz Chocolate red amp brown

122) White Marble -

Famous from antiquity for the high quality the incomparable clearness and resistance

the Morwad Marble from R K Marble Private Limited have constituted the base of

many big monuments and works of art in India RK Milky Coral is a captivating

splendor with generous splashes of green and grey on milky white marble

~ Marble Patterns amp Fixing-

R K Marble Private Limited offers decorative flooring patterns stone inlaid borders

and marble inlaid items The most popular choice with architects and interior designers

for flooring and wall cladding

8

13) Mines-

World famous Morwad Mines of RKMarble Private Limited are situated 15km from

Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-

maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68

Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20

Kms from mines Electrical power line of 11KV from State Viduyat Nigam is

extended up to mines Captive Power generation to the tune of 2500 KVA is standing

by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and

Explosive magazine with 500 kg storage capacity are maintained at mines

9

An over head tank of 15 lakh liters capacity along with a filter plant is maintained for

meeting the requirement of drinking water and domestic use The quality of water is

potable

Safety Management Committee meetings are organized regularly for tacking stock of

safety preparation accident analysis and suggestions for remedial measures for

achieving ZERO accident status The personal protective equipment and safety gadgets

are provided to employees and all out efforts are made to inculcate the habit of their

regular use

Facilities of Modern store and well equipped workshops for repair and maintenance of

HEMM and other field machinery are available at mines

Technology the core aspect at R K Marble Private Limited can be seen at mining

campus where all means of communication are available which hooks this remote site

to the rest of the world and make them feel a part of larger community of R K Group

Eight telephone connections with a fax connection and two hot line between Mines to

Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky

sets are well maintained for smooth communications amongst the

staffworkersofficers

A four-bed hospital with Para medical staff and Doctor along with an ambulance is

available at a well-equipped Group Vocational Training Center is established at site to

provide initial training to new entrants and refresher and special training to existing

employees OEMS and other service agencies training programmes were conducted

periodically

14) Factory-

10

Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM

from Jaipur the state capital of Rajasthan along the famous Makarana road We have

exclusively used our own marble in combination with other stone to give a fascinating

look at our factory site Our managing director Mr Suresh Patni looks after the factory

and is known for his motto Customer Satisfaction

The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment

plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most

modern layout with completely automatic plant to recycle water for marble cutting

Latest gadgets like wireless hotlines modems computerized MIS and costing systems

are being used in order to accelerate quality control and production hence contributing

to cost affectivity

141) People-

R K Marble Group has always stood for quality without compromise It believes in

long-term business relations and works hand to hand with the customers to ensure that

11

it gets the best value of money Stringent in-house quality control measures are in place

and yet it is always willing for third party quality checks

The Company has adopted quality policy to standardize its systems procedures and

processes with adequate documentation R K Marble Private Limited is an ISO 9001

2000 certification for its various activities at mines and factory and ISO 14001

certification for Environment Management System

Highly motivated team of professionals is dedicated to work The team created the

records of completing large projects before given time frame

Needless to say the growth of R K Marble Group has been spurred by the spirit of the

individuals who work at various levels to keep ahead of the rest and constantly rise to

the challenges that beckon them at the frontiers of technology

142) Strengths-

The endeavor of the company is to provide quality products by imbibing the latest

international mining technology This can be gauged from the fact that the entire mine

operations are carried out with the help of latest equipment for marble extraction

Sophisticated software developed internally on RDBMS platform tracks and evaluates

all possible functions cost areas and productivity of the mining operations

The company has made an extensive use of wireless communication to synergies all

activities from drilling to loading of the end product The optimum utilization of the

countrys natural resources can be seen here The Director of Mines amp Geology

12

Udaipurrdquo reveals that the yield from companys mines is the highest per hectare

amongst all marble mines

AWARD NAME AWARDED BY YEAR

Guinness World Records Guinness World Records 1998 2000 2001

Appeared in Guinness World Record Books Guinness World Records 2003

ISO 9001 2000 BVQI USA 2003

ISO 14001 BVQI USA 2003

Entry in Limca Books of World Records Limca Books of World Records 1998 1999

Model Marble Quarry award - Best

Mechanized Quarry- First Prize

Federation of Indian Mineral

Industry (FIMI) amp All India Granite

amp Stone Association (AIGSA)

2003

The Best Stall for Stone amp Stone Products

(Outdoor)

Centre for Development of Stones

(CDOS)2003

Udyog Patra AwardInstitute of trade and Industrial

Development New Delhi2001

State Level Bhamashah Award Education Deptt Bikaner 2001

Highest Income tax payer Award (Individually

to Syt Ashok Patni Syt Suresh Patni

SytVimal Patni)

Income Tax Deptt Ajmer 2000

Best Annual Report Award for Rajasthan

Based Companies

Institute of Chartered Accountants of

India Jaipur2001

Indira Priyadarshini Award National Publication New Delhi 2001

Samman Patra Income Tax Deptt Udaipur 1998

Padm DivakarShree Digamber Jain Atishaya

Kshetra Padampura Jaipur1999

Social Welfare amp Development Lions Club Udaipur 2001

143) Quality Assurance-

13

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 2: Pratik

112) The largest state of India accounts for over 90 of total marble production

of the country Main varieties here are

1121) Makarana Marble-

The famous marble of which the Taj Mahal is made it is highly calcic Main sub-

varieties are Kumhari Doongri Alberta and Makaran WhiteThe largest mines are

Makrana marble Length of mines is 1350m

1122) Rajnagar Marble-

Worlds largest marble-producing area with over 2000 gang saw units located in the

nearby town of Kishangarh to process the material produced Agaria is the best variety

of this area with numerous other varieties and patterns primarily in white base The

marble is dolomites and often has quartz intrusions

1123) Andhi Marble-

Located near the capital city of the state of Jaipur (also known as the Pink City) it is

dolomitic marble with intrusions of tremolite and is commonly known by the name of

pista (pistachio) marble because of the green coloured tremolite against an off-white

background One of the famous varieties of this area was known as Indo-Italian owing

to its resemblance with Satvario Marble Most of the mining of this famous field is now

banned by the Supreme Court of India because of the vicinity of the area to the Sariska

Tiger Reserve

1124) Salumber Marble-

Also known as Onyx Marble it has thick bands of green and pink hint A resemblance

to Onyx Marble from Pakistan gives it this name This is also highly dolomitic

Yellow Marble Though it has not been metamorphosed and hence is still a

limestone it is Known as Yellow Marble in trade circles It is mined in the

Jaisalmer District

Bidasar Again this is not marble but is known as marble in trade circles These

are ultra basic rocks in shades of brown and green colour The criss-cross linear

pattern given it a remarkable resemblance to a photograph of dense forest

1125) Gujarat Amba Ji Marble

2

is one of the finest marble produced in India It can be easily compared with Makarana

Marble It is highly calcic and is produced in a town called Amba ji (famous for its

temple of Durga Devi) The marble has a very soft and waxy look and is often used by

sculptors

Madhya Pradesh Katni Range is famous for its beige coloured marble which is

dolomitic but highly crystalline with very fine grain size and some quartz intrusions

The marble accepts excellent polish Another variety of the same range is redmaroon-

colored marble

1126) Granite

India is endowed with one of the best granite deposits in the world having excellent

varieties comprising over 200 shades India accounts for over 20 of the world

resources in granite Granite reserves in India have now been estimated by the Indian

Bureau of Mines at over 42916 million cubic metres Splendid black and multicolour

varieties of granite are available in the states of Karnataka Andhra Pradesh Tamil

Nadu and Uttar Pradesh Granite deposits are also widespread over the provinces of

Rajasthan Bihar West Bengal and Gujarat India is the largest exporter of granite and

granite products in the world

1127) Sandstone

Sandstone reserves in India are spread over the states of Andhra Pradesh Assam

Bihar Gujarat Haryana Madhya Pradesh Meghalaya Mizoram Karnataka Orissa

Punjab Rajasthan Uttar Pradesh Tamil Nadu and West Bengal Over 90 of the

deposits of sandstone are in Rajasthan spread over the districts of Bharatpur Dholpur

Kota Jodhpur Sawai-Madhopur Bundi Chittorgarh Bikaner Jhalawar Pali and

Jaisalmer

1128) Slate

Slate reserves in India are found in Rajasthan Haryana Himachal Pradesh Andhra

Pradesh and Madhya Pradesh Deposits in Rajasthan are spread over the districts of

Alwar Ajmer Bharatpur Tonk Sawai Madhopur Pali Udaipur Churu and

Chittorgarh

3

1129) Flaggy limestone

Kota stone of Kota district and Yellow Limestone of Jaisalmer district of Rajasthan are

the prime limestone occurrences in India Other deposits include the Shahabad Stone of

Gulbarga and the Belgaum districts of Karnataka Cuddapah Stone of Kadapa Kurnool

and the Anantpur amp Guntur districts of Andhra Pradesh Milliolitic Limestone from

Saurashtra Region Gujarat and Yellow Limestone of Kutch district of Gujarat

amongst others

11210) Limestone deposits in Andhra Pradesh India

Andhra Pradesh has the privilege of possessing about 32 of the countrys total

reserves of limestone Commercial grade limestone deposits are being exploiting from

Bethamcherla Macherla Neereducherla Tandur Mudimanikyam of Kurnool Guntur

Anantapur Rangareddy and Nalgonda districts are widely used in our country for

panelling and flooring purposes Sullavai limestone of Karminagar and Warangal

districts massive limestones of Mudimanikyam Nalgonda districts Andhra Pradeshs

limestone reserves are estimated about 30424 million tonnes Total Indias limestones

are estimated about 93623 million tonnes Limestones are extensively utilized for

manufacturing of cement and also building stones particularly flooring and roofing

(Dept of Mines and Geology APVenkat Reddy2006)

11211) Other dimensional stones

There are some other dimensional stones being quarried and used in consumption in

addition to the dimensional stones already detailed above Laterite bricks are quarried

in huge quantities and are utilised as bricks in the construction of houses and for

pavements in the states of Orissa Karnataka Goa and in other parts of coastal states

The felspathic sandstone occurring with the coal seams as overburden is also used as

building stone The huge deposits of basalt in the states of Maharashtra Karnataka and

Gujarat are used as building stones since ancient times Other quartzitic bands

occurring with phyllites and schists are also utilised for building purposes Khondelites

from Eastern coast are being used widely in sculptures and as a building material

Felsite from Karnataka is being extensively used as a dimensional stone as well

4

113) Types-

Historically notable marble varieties and locations

1131) Sculpture-

White marble was prized for its use in sculptures since classical times This preference

has to do with the softness and relative isotropy and homogeneity and a relative

resistance to shattering Also the low index of refraction of calcite allows light to

penetrate several millimeters into the stone before being scattered out resulting in the

characteristic waxy look which gives life to marble sculptures of the human body

1132) Construction marble-

Construction marble is a stone which is composed of calcite dolomite or serpentine

which is capable of taking a polish More generally in construction specifically the

dimension stone trade the term marble is used for any crystalline calcitic rock (and

some non-calcitic rocks) useful as building stone For example Tennessee marble is

really a dense granular fossiliferous gray to pink to maroon Ordovician limestone that

geologists call the Holston Formation

114) Industrial use-

Blocks of cut marble at the historic mill in Marble ColoradoColorless or light-colored

marbles are a very pure source of calcium carbonate which is used in a wide variety of

industries Finely ground marble or calcium carbonate powder is a component in paper

and in consumer products such as toothpaste plastics and paints Ground calcium

carbonate can be made from limestone chalk and marble about three-quarters of the

ground calcium carbonate worldwide is made from marble Ground calcium carbonate

is used as a coating pigment for paper because of its high brightness and as a paper

filler because it strengthens the sheet and imparts high brightness Ground calcium

carbonate is used in consumer products such as a food additive in toothpaste and as an

inert filler in pills It is used in plastics because it imparts stiffness impact strength

dimensional stability and thermal conductivity It is used in paints because it is a good

filler and extender has high brightness and is weather resistant However the growth

in demand for ground calcium carbonate in the last decade has mostly been for a

coating pigment in paper

Calcium carbonate can also be reduced under high heat to calcium oxide (also known

as lime)

5

12) Company Profile-

The Company R K Marble Private Limited was established in 1989 by the Patni group

of Kishangarh-District Ajmer to help serve increasing National and international

demands for Indian marble Since then we have enjoyed exponential growth and export

too many markets worldwide including European Union countries the Middle East

Japan other parts of Asia China and North America etc

The seagull who sees farther flies higher living up to the immortal words of

Johanthan Swift Mr Ashok Patni established the first processing unit at Rajasthan

(with an installed capacity of one lakh cu ft marble slabs Per Annum) and never

looked back The company now has 14 Gangsaw machines In November 1993 was the

time when state government took a step forward to allot a virgin marble mine on lease

to R K Marble at Morwad Distt Rajsamand in Rajasthan

By the touch of sheer hard work guts burning inner desire to reach unprecedented

heights and fulfilling their dreams the trio converted these marble mines to gold

mines Morwad from which the stone takes its name is a remote village in the eastern

part of Rajasthan India

Today the name Morwad Marble from R K Marble group has become almost generic

for a whole range of white and semi-white types of marble which are extracted from

these locations

6

The popularity of this range of marble continues to grow at an astonishing rate and it is

marketed in large quantities The white background with light gray veins corresponds

with nearly everyones perception of the most beautiful marble and architects for many

of the Indias important buildings suggest it

Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic

fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the

largest producer of marble in the world Bedecked with most sought after gadgets the

exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder

Marble thats wondrous and splendid in myriad hues

Wonder Marbles colour panorama and innate design makes it the right choice for

flamboyant users Our fascinating range can be floored to encompass living rooms

drawing arrangements dining spaces hotel lobbys pool sites wall claddings special

lounges and many more Among its endless usages left for creative imagination some

could be - artifacts and decorative objects

A) Products-

Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone

Figure White marble Marble Flooring Marble Tiles

121) Wonder Marble-

The WONDER MARBLE produced at the RK Majoli mines comes to you in

heartwarming shades of deep and dark red brown to rose patches in creamy base

7

coupled with abrasion resistant fine grained form luster and reflective gloss which

makes it truly a masterpiece for a lifetime

~ Wonder Marble is available in 4 exotic colours-

bull Milky Opal Creamy base Shades of beige amp mauve

bull Pink Pearl Ecstatic pink amp brown tones

bull Garnet Rush Reddish

bull Jasper Jazz Chocolate red amp brown

122) White Marble -

Famous from antiquity for the high quality the incomparable clearness and resistance

the Morwad Marble from R K Marble Private Limited have constituted the base of

many big monuments and works of art in India RK Milky Coral is a captivating

splendor with generous splashes of green and grey on milky white marble

~ Marble Patterns amp Fixing-

R K Marble Private Limited offers decorative flooring patterns stone inlaid borders

and marble inlaid items The most popular choice with architects and interior designers

for flooring and wall cladding

8

13) Mines-

World famous Morwad Mines of RKMarble Private Limited are situated 15km from

Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-

maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68

Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20

Kms from mines Electrical power line of 11KV from State Viduyat Nigam is

extended up to mines Captive Power generation to the tune of 2500 KVA is standing

by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and

Explosive magazine with 500 kg storage capacity are maintained at mines

9

An over head tank of 15 lakh liters capacity along with a filter plant is maintained for

meeting the requirement of drinking water and domestic use The quality of water is

potable

Safety Management Committee meetings are organized regularly for tacking stock of

safety preparation accident analysis and suggestions for remedial measures for

achieving ZERO accident status The personal protective equipment and safety gadgets

are provided to employees and all out efforts are made to inculcate the habit of their

regular use

Facilities of Modern store and well equipped workshops for repair and maintenance of

HEMM and other field machinery are available at mines

Technology the core aspect at R K Marble Private Limited can be seen at mining

campus where all means of communication are available which hooks this remote site

to the rest of the world and make them feel a part of larger community of R K Group

Eight telephone connections with a fax connection and two hot line between Mines to

Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky

sets are well maintained for smooth communications amongst the

staffworkersofficers

A four-bed hospital with Para medical staff and Doctor along with an ambulance is

available at a well-equipped Group Vocational Training Center is established at site to

provide initial training to new entrants and refresher and special training to existing

employees OEMS and other service agencies training programmes were conducted

periodically

14) Factory-

10

Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM

from Jaipur the state capital of Rajasthan along the famous Makarana road We have

exclusively used our own marble in combination with other stone to give a fascinating

look at our factory site Our managing director Mr Suresh Patni looks after the factory

and is known for his motto Customer Satisfaction

The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment

plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most

modern layout with completely automatic plant to recycle water for marble cutting

Latest gadgets like wireless hotlines modems computerized MIS and costing systems

are being used in order to accelerate quality control and production hence contributing

to cost affectivity

141) People-

R K Marble Group has always stood for quality without compromise It believes in

long-term business relations and works hand to hand with the customers to ensure that

11

it gets the best value of money Stringent in-house quality control measures are in place

and yet it is always willing for third party quality checks

The Company has adopted quality policy to standardize its systems procedures and

processes with adequate documentation R K Marble Private Limited is an ISO 9001

2000 certification for its various activities at mines and factory and ISO 14001

certification for Environment Management System

Highly motivated team of professionals is dedicated to work The team created the

records of completing large projects before given time frame

Needless to say the growth of R K Marble Group has been spurred by the spirit of the

individuals who work at various levels to keep ahead of the rest and constantly rise to

the challenges that beckon them at the frontiers of technology

142) Strengths-

The endeavor of the company is to provide quality products by imbibing the latest

international mining technology This can be gauged from the fact that the entire mine

operations are carried out with the help of latest equipment for marble extraction

Sophisticated software developed internally on RDBMS platform tracks and evaluates

all possible functions cost areas and productivity of the mining operations

The company has made an extensive use of wireless communication to synergies all

activities from drilling to loading of the end product The optimum utilization of the

countrys natural resources can be seen here The Director of Mines amp Geology

12

Udaipurrdquo reveals that the yield from companys mines is the highest per hectare

amongst all marble mines

AWARD NAME AWARDED BY YEAR

Guinness World Records Guinness World Records 1998 2000 2001

Appeared in Guinness World Record Books Guinness World Records 2003

ISO 9001 2000 BVQI USA 2003

ISO 14001 BVQI USA 2003

Entry in Limca Books of World Records Limca Books of World Records 1998 1999

Model Marble Quarry award - Best

Mechanized Quarry- First Prize

Federation of Indian Mineral

Industry (FIMI) amp All India Granite

amp Stone Association (AIGSA)

2003

The Best Stall for Stone amp Stone Products

(Outdoor)

Centre for Development of Stones

(CDOS)2003

Udyog Patra AwardInstitute of trade and Industrial

Development New Delhi2001

State Level Bhamashah Award Education Deptt Bikaner 2001

Highest Income tax payer Award (Individually

to Syt Ashok Patni Syt Suresh Patni

SytVimal Patni)

Income Tax Deptt Ajmer 2000

Best Annual Report Award for Rajasthan

Based Companies

Institute of Chartered Accountants of

India Jaipur2001

Indira Priyadarshini Award National Publication New Delhi 2001

Samman Patra Income Tax Deptt Udaipur 1998

Padm DivakarShree Digamber Jain Atishaya

Kshetra Padampura Jaipur1999

Social Welfare amp Development Lions Club Udaipur 2001

143) Quality Assurance-

13

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 3: Pratik

is one of the finest marble produced in India It can be easily compared with Makarana

Marble It is highly calcic and is produced in a town called Amba ji (famous for its

temple of Durga Devi) The marble has a very soft and waxy look and is often used by

sculptors

Madhya Pradesh Katni Range is famous for its beige coloured marble which is

dolomitic but highly crystalline with very fine grain size and some quartz intrusions

The marble accepts excellent polish Another variety of the same range is redmaroon-

colored marble

1126) Granite

India is endowed with one of the best granite deposits in the world having excellent

varieties comprising over 200 shades India accounts for over 20 of the world

resources in granite Granite reserves in India have now been estimated by the Indian

Bureau of Mines at over 42916 million cubic metres Splendid black and multicolour

varieties of granite are available in the states of Karnataka Andhra Pradesh Tamil

Nadu and Uttar Pradesh Granite deposits are also widespread over the provinces of

Rajasthan Bihar West Bengal and Gujarat India is the largest exporter of granite and

granite products in the world

1127) Sandstone

Sandstone reserves in India are spread over the states of Andhra Pradesh Assam

Bihar Gujarat Haryana Madhya Pradesh Meghalaya Mizoram Karnataka Orissa

Punjab Rajasthan Uttar Pradesh Tamil Nadu and West Bengal Over 90 of the

deposits of sandstone are in Rajasthan spread over the districts of Bharatpur Dholpur

Kota Jodhpur Sawai-Madhopur Bundi Chittorgarh Bikaner Jhalawar Pali and

Jaisalmer

1128) Slate

Slate reserves in India are found in Rajasthan Haryana Himachal Pradesh Andhra

Pradesh and Madhya Pradesh Deposits in Rajasthan are spread over the districts of

Alwar Ajmer Bharatpur Tonk Sawai Madhopur Pali Udaipur Churu and

Chittorgarh

3

1129) Flaggy limestone

Kota stone of Kota district and Yellow Limestone of Jaisalmer district of Rajasthan are

the prime limestone occurrences in India Other deposits include the Shahabad Stone of

Gulbarga and the Belgaum districts of Karnataka Cuddapah Stone of Kadapa Kurnool

and the Anantpur amp Guntur districts of Andhra Pradesh Milliolitic Limestone from

Saurashtra Region Gujarat and Yellow Limestone of Kutch district of Gujarat

amongst others

11210) Limestone deposits in Andhra Pradesh India

Andhra Pradesh has the privilege of possessing about 32 of the countrys total

reserves of limestone Commercial grade limestone deposits are being exploiting from

Bethamcherla Macherla Neereducherla Tandur Mudimanikyam of Kurnool Guntur

Anantapur Rangareddy and Nalgonda districts are widely used in our country for

panelling and flooring purposes Sullavai limestone of Karminagar and Warangal

districts massive limestones of Mudimanikyam Nalgonda districts Andhra Pradeshs

limestone reserves are estimated about 30424 million tonnes Total Indias limestones

are estimated about 93623 million tonnes Limestones are extensively utilized for

manufacturing of cement and also building stones particularly flooring and roofing

(Dept of Mines and Geology APVenkat Reddy2006)

11211) Other dimensional stones

There are some other dimensional stones being quarried and used in consumption in

addition to the dimensional stones already detailed above Laterite bricks are quarried

in huge quantities and are utilised as bricks in the construction of houses and for

pavements in the states of Orissa Karnataka Goa and in other parts of coastal states

The felspathic sandstone occurring with the coal seams as overburden is also used as

building stone The huge deposits of basalt in the states of Maharashtra Karnataka and

Gujarat are used as building stones since ancient times Other quartzitic bands

occurring with phyllites and schists are also utilised for building purposes Khondelites

from Eastern coast are being used widely in sculptures and as a building material

Felsite from Karnataka is being extensively used as a dimensional stone as well

4

113) Types-

Historically notable marble varieties and locations

1131) Sculpture-

White marble was prized for its use in sculptures since classical times This preference

has to do with the softness and relative isotropy and homogeneity and a relative

resistance to shattering Also the low index of refraction of calcite allows light to

penetrate several millimeters into the stone before being scattered out resulting in the

characteristic waxy look which gives life to marble sculptures of the human body

1132) Construction marble-

Construction marble is a stone which is composed of calcite dolomite or serpentine

which is capable of taking a polish More generally in construction specifically the

dimension stone trade the term marble is used for any crystalline calcitic rock (and

some non-calcitic rocks) useful as building stone For example Tennessee marble is

really a dense granular fossiliferous gray to pink to maroon Ordovician limestone that

geologists call the Holston Formation

114) Industrial use-

Blocks of cut marble at the historic mill in Marble ColoradoColorless or light-colored

marbles are a very pure source of calcium carbonate which is used in a wide variety of

industries Finely ground marble or calcium carbonate powder is a component in paper

and in consumer products such as toothpaste plastics and paints Ground calcium

carbonate can be made from limestone chalk and marble about three-quarters of the

ground calcium carbonate worldwide is made from marble Ground calcium carbonate

is used as a coating pigment for paper because of its high brightness and as a paper

filler because it strengthens the sheet and imparts high brightness Ground calcium

carbonate is used in consumer products such as a food additive in toothpaste and as an

inert filler in pills It is used in plastics because it imparts stiffness impact strength

dimensional stability and thermal conductivity It is used in paints because it is a good

filler and extender has high brightness and is weather resistant However the growth

in demand for ground calcium carbonate in the last decade has mostly been for a

coating pigment in paper

Calcium carbonate can also be reduced under high heat to calcium oxide (also known

as lime)

5

12) Company Profile-

The Company R K Marble Private Limited was established in 1989 by the Patni group

of Kishangarh-District Ajmer to help serve increasing National and international

demands for Indian marble Since then we have enjoyed exponential growth and export

too many markets worldwide including European Union countries the Middle East

Japan other parts of Asia China and North America etc

The seagull who sees farther flies higher living up to the immortal words of

Johanthan Swift Mr Ashok Patni established the first processing unit at Rajasthan

(with an installed capacity of one lakh cu ft marble slabs Per Annum) and never

looked back The company now has 14 Gangsaw machines In November 1993 was the

time when state government took a step forward to allot a virgin marble mine on lease

to R K Marble at Morwad Distt Rajsamand in Rajasthan

By the touch of sheer hard work guts burning inner desire to reach unprecedented

heights and fulfilling their dreams the trio converted these marble mines to gold

mines Morwad from which the stone takes its name is a remote village in the eastern

part of Rajasthan India

Today the name Morwad Marble from R K Marble group has become almost generic

for a whole range of white and semi-white types of marble which are extracted from

these locations

6

The popularity of this range of marble continues to grow at an astonishing rate and it is

marketed in large quantities The white background with light gray veins corresponds

with nearly everyones perception of the most beautiful marble and architects for many

of the Indias important buildings suggest it

Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic

fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the

largest producer of marble in the world Bedecked with most sought after gadgets the

exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder

Marble thats wondrous and splendid in myriad hues

Wonder Marbles colour panorama and innate design makes it the right choice for

flamboyant users Our fascinating range can be floored to encompass living rooms

drawing arrangements dining spaces hotel lobbys pool sites wall claddings special

lounges and many more Among its endless usages left for creative imagination some

could be - artifacts and decorative objects

A) Products-

Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone

Figure White marble Marble Flooring Marble Tiles

121) Wonder Marble-

The WONDER MARBLE produced at the RK Majoli mines comes to you in

heartwarming shades of deep and dark red brown to rose patches in creamy base

7

coupled with abrasion resistant fine grained form luster and reflective gloss which

makes it truly a masterpiece for a lifetime

~ Wonder Marble is available in 4 exotic colours-

bull Milky Opal Creamy base Shades of beige amp mauve

bull Pink Pearl Ecstatic pink amp brown tones

bull Garnet Rush Reddish

bull Jasper Jazz Chocolate red amp brown

122) White Marble -

Famous from antiquity for the high quality the incomparable clearness and resistance

the Morwad Marble from R K Marble Private Limited have constituted the base of

many big monuments and works of art in India RK Milky Coral is a captivating

splendor with generous splashes of green and grey on milky white marble

~ Marble Patterns amp Fixing-

R K Marble Private Limited offers decorative flooring patterns stone inlaid borders

and marble inlaid items The most popular choice with architects and interior designers

for flooring and wall cladding

8

13) Mines-

World famous Morwad Mines of RKMarble Private Limited are situated 15km from

Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-

maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68

Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20

Kms from mines Electrical power line of 11KV from State Viduyat Nigam is

extended up to mines Captive Power generation to the tune of 2500 KVA is standing

by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and

Explosive magazine with 500 kg storage capacity are maintained at mines

9

An over head tank of 15 lakh liters capacity along with a filter plant is maintained for

meeting the requirement of drinking water and domestic use The quality of water is

potable

Safety Management Committee meetings are organized regularly for tacking stock of

safety preparation accident analysis and suggestions for remedial measures for

achieving ZERO accident status The personal protective equipment and safety gadgets

are provided to employees and all out efforts are made to inculcate the habit of their

regular use

Facilities of Modern store and well equipped workshops for repair and maintenance of

HEMM and other field machinery are available at mines

Technology the core aspect at R K Marble Private Limited can be seen at mining

campus where all means of communication are available which hooks this remote site

to the rest of the world and make them feel a part of larger community of R K Group

Eight telephone connections with a fax connection and two hot line between Mines to

Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky

sets are well maintained for smooth communications amongst the

staffworkersofficers

A four-bed hospital with Para medical staff and Doctor along with an ambulance is

available at a well-equipped Group Vocational Training Center is established at site to

provide initial training to new entrants and refresher and special training to existing

employees OEMS and other service agencies training programmes were conducted

periodically

14) Factory-

10

Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM

from Jaipur the state capital of Rajasthan along the famous Makarana road We have

exclusively used our own marble in combination with other stone to give a fascinating

look at our factory site Our managing director Mr Suresh Patni looks after the factory

and is known for his motto Customer Satisfaction

The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment

plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most

modern layout with completely automatic plant to recycle water for marble cutting

Latest gadgets like wireless hotlines modems computerized MIS and costing systems

are being used in order to accelerate quality control and production hence contributing

to cost affectivity

141) People-

R K Marble Group has always stood for quality without compromise It believes in

long-term business relations and works hand to hand with the customers to ensure that

11

it gets the best value of money Stringent in-house quality control measures are in place

and yet it is always willing for third party quality checks

The Company has adopted quality policy to standardize its systems procedures and

processes with adequate documentation R K Marble Private Limited is an ISO 9001

2000 certification for its various activities at mines and factory and ISO 14001

certification for Environment Management System

Highly motivated team of professionals is dedicated to work The team created the

records of completing large projects before given time frame

Needless to say the growth of R K Marble Group has been spurred by the spirit of the

individuals who work at various levels to keep ahead of the rest and constantly rise to

the challenges that beckon them at the frontiers of technology

142) Strengths-

The endeavor of the company is to provide quality products by imbibing the latest

international mining technology This can be gauged from the fact that the entire mine

operations are carried out with the help of latest equipment for marble extraction

Sophisticated software developed internally on RDBMS platform tracks and evaluates

all possible functions cost areas and productivity of the mining operations

The company has made an extensive use of wireless communication to synergies all

activities from drilling to loading of the end product The optimum utilization of the

countrys natural resources can be seen here The Director of Mines amp Geology

12

Udaipurrdquo reveals that the yield from companys mines is the highest per hectare

amongst all marble mines

AWARD NAME AWARDED BY YEAR

Guinness World Records Guinness World Records 1998 2000 2001

Appeared in Guinness World Record Books Guinness World Records 2003

ISO 9001 2000 BVQI USA 2003

ISO 14001 BVQI USA 2003

Entry in Limca Books of World Records Limca Books of World Records 1998 1999

Model Marble Quarry award - Best

Mechanized Quarry- First Prize

Federation of Indian Mineral

Industry (FIMI) amp All India Granite

amp Stone Association (AIGSA)

2003

The Best Stall for Stone amp Stone Products

(Outdoor)

Centre for Development of Stones

(CDOS)2003

Udyog Patra AwardInstitute of trade and Industrial

Development New Delhi2001

State Level Bhamashah Award Education Deptt Bikaner 2001

Highest Income tax payer Award (Individually

to Syt Ashok Patni Syt Suresh Patni

SytVimal Patni)

Income Tax Deptt Ajmer 2000

Best Annual Report Award for Rajasthan

Based Companies

Institute of Chartered Accountants of

India Jaipur2001

Indira Priyadarshini Award National Publication New Delhi 2001

Samman Patra Income Tax Deptt Udaipur 1998

Padm DivakarShree Digamber Jain Atishaya

Kshetra Padampura Jaipur1999

Social Welfare amp Development Lions Club Udaipur 2001

143) Quality Assurance-

13

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 4: Pratik

1129) Flaggy limestone

Kota stone of Kota district and Yellow Limestone of Jaisalmer district of Rajasthan are

the prime limestone occurrences in India Other deposits include the Shahabad Stone of

Gulbarga and the Belgaum districts of Karnataka Cuddapah Stone of Kadapa Kurnool

and the Anantpur amp Guntur districts of Andhra Pradesh Milliolitic Limestone from

Saurashtra Region Gujarat and Yellow Limestone of Kutch district of Gujarat

amongst others

11210) Limestone deposits in Andhra Pradesh India

Andhra Pradesh has the privilege of possessing about 32 of the countrys total

reserves of limestone Commercial grade limestone deposits are being exploiting from

Bethamcherla Macherla Neereducherla Tandur Mudimanikyam of Kurnool Guntur

Anantapur Rangareddy and Nalgonda districts are widely used in our country for

panelling and flooring purposes Sullavai limestone of Karminagar and Warangal

districts massive limestones of Mudimanikyam Nalgonda districts Andhra Pradeshs

limestone reserves are estimated about 30424 million tonnes Total Indias limestones

are estimated about 93623 million tonnes Limestones are extensively utilized for

manufacturing of cement and also building stones particularly flooring and roofing

(Dept of Mines and Geology APVenkat Reddy2006)

11211) Other dimensional stones

There are some other dimensional stones being quarried and used in consumption in

addition to the dimensional stones already detailed above Laterite bricks are quarried

in huge quantities and are utilised as bricks in the construction of houses and for

pavements in the states of Orissa Karnataka Goa and in other parts of coastal states

The felspathic sandstone occurring with the coal seams as overburden is also used as

building stone The huge deposits of basalt in the states of Maharashtra Karnataka and

Gujarat are used as building stones since ancient times Other quartzitic bands

occurring with phyllites and schists are also utilised for building purposes Khondelites

from Eastern coast are being used widely in sculptures and as a building material

Felsite from Karnataka is being extensively used as a dimensional stone as well

4

113) Types-

Historically notable marble varieties and locations

1131) Sculpture-

White marble was prized for its use in sculptures since classical times This preference

has to do with the softness and relative isotropy and homogeneity and a relative

resistance to shattering Also the low index of refraction of calcite allows light to

penetrate several millimeters into the stone before being scattered out resulting in the

characteristic waxy look which gives life to marble sculptures of the human body

1132) Construction marble-

Construction marble is a stone which is composed of calcite dolomite or serpentine

which is capable of taking a polish More generally in construction specifically the

dimension stone trade the term marble is used for any crystalline calcitic rock (and

some non-calcitic rocks) useful as building stone For example Tennessee marble is

really a dense granular fossiliferous gray to pink to maroon Ordovician limestone that

geologists call the Holston Formation

114) Industrial use-

Blocks of cut marble at the historic mill in Marble ColoradoColorless or light-colored

marbles are a very pure source of calcium carbonate which is used in a wide variety of

industries Finely ground marble or calcium carbonate powder is a component in paper

and in consumer products such as toothpaste plastics and paints Ground calcium

carbonate can be made from limestone chalk and marble about three-quarters of the

ground calcium carbonate worldwide is made from marble Ground calcium carbonate

is used as a coating pigment for paper because of its high brightness and as a paper

filler because it strengthens the sheet and imparts high brightness Ground calcium

carbonate is used in consumer products such as a food additive in toothpaste and as an

inert filler in pills It is used in plastics because it imparts stiffness impact strength

dimensional stability and thermal conductivity It is used in paints because it is a good

filler and extender has high brightness and is weather resistant However the growth

in demand for ground calcium carbonate in the last decade has mostly been for a

coating pigment in paper

Calcium carbonate can also be reduced under high heat to calcium oxide (also known

as lime)

5

12) Company Profile-

The Company R K Marble Private Limited was established in 1989 by the Patni group

of Kishangarh-District Ajmer to help serve increasing National and international

demands for Indian marble Since then we have enjoyed exponential growth and export

too many markets worldwide including European Union countries the Middle East

Japan other parts of Asia China and North America etc

The seagull who sees farther flies higher living up to the immortal words of

Johanthan Swift Mr Ashok Patni established the first processing unit at Rajasthan

(with an installed capacity of one lakh cu ft marble slabs Per Annum) and never

looked back The company now has 14 Gangsaw machines In November 1993 was the

time when state government took a step forward to allot a virgin marble mine on lease

to R K Marble at Morwad Distt Rajsamand in Rajasthan

By the touch of sheer hard work guts burning inner desire to reach unprecedented

heights and fulfilling their dreams the trio converted these marble mines to gold

mines Morwad from which the stone takes its name is a remote village in the eastern

part of Rajasthan India

Today the name Morwad Marble from R K Marble group has become almost generic

for a whole range of white and semi-white types of marble which are extracted from

these locations

6

The popularity of this range of marble continues to grow at an astonishing rate and it is

marketed in large quantities The white background with light gray veins corresponds

with nearly everyones perception of the most beautiful marble and architects for many

of the Indias important buildings suggest it

Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic

fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the

largest producer of marble in the world Bedecked with most sought after gadgets the

exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder

Marble thats wondrous and splendid in myriad hues

Wonder Marbles colour panorama and innate design makes it the right choice for

flamboyant users Our fascinating range can be floored to encompass living rooms

drawing arrangements dining spaces hotel lobbys pool sites wall claddings special

lounges and many more Among its endless usages left for creative imagination some

could be - artifacts and decorative objects

A) Products-

Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone

Figure White marble Marble Flooring Marble Tiles

121) Wonder Marble-

The WONDER MARBLE produced at the RK Majoli mines comes to you in

heartwarming shades of deep and dark red brown to rose patches in creamy base

7

coupled with abrasion resistant fine grained form luster and reflective gloss which

makes it truly a masterpiece for a lifetime

~ Wonder Marble is available in 4 exotic colours-

bull Milky Opal Creamy base Shades of beige amp mauve

bull Pink Pearl Ecstatic pink amp brown tones

bull Garnet Rush Reddish

bull Jasper Jazz Chocolate red amp brown

122) White Marble -

Famous from antiquity for the high quality the incomparable clearness and resistance

the Morwad Marble from R K Marble Private Limited have constituted the base of

many big monuments and works of art in India RK Milky Coral is a captivating

splendor with generous splashes of green and grey on milky white marble

~ Marble Patterns amp Fixing-

R K Marble Private Limited offers decorative flooring patterns stone inlaid borders

and marble inlaid items The most popular choice with architects and interior designers

for flooring and wall cladding

8

13) Mines-

World famous Morwad Mines of RKMarble Private Limited are situated 15km from

Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-

maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68

Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20

Kms from mines Electrical power line of 11KV from State Viduyat Nigam is

extended up to mines Captive Power generation to the tune of 2500 KVA is standing

by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and

Explosive magazine with 500 kg storage capacity are maintained at mines

9

An over head tank of 15 lakh liters capacity along with a filter plant is maintained for

meeting the requirement of drinking water and domestic use The quality of water is

potable

Safety Management Committee meetings are organized regularly for tacking stock of

safety preparation accident analysis and suggestions for remedial measures for

achieving ZERO accident status The personal protective equipment and safety gadgets

are provided to employees and all out efforts are made to inculcate the habit of their

regular use

Facilities of Modern store and well equipped workshops for repair and maintenance of

HEMM and other field machinery are available at mines

Technology the core aspect at R K Marble Private Limited can be seen at mining

campus where all means of communication are available which hooks this remote site

to the rest of the world and make them feel a part of larger community of R K Group

Eight telephone connections with a fax connection and two hot line between Mines to

Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky

sets are well maintained for smooth communications amongst the

staffworkersofficers

A four-bed hospital with Para medical staff and Doctor along with an ambulance is

available at a well-equipped Group Vocational Training Center is established at site to

provide initial training to new entrants and refresher and special training to existing

employees OEMS and other service agencies training programmes were conducted

periodically

14) Factory-

10

Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM

from Jaipur the state capital of Rajasthan along the famous Makarana road We have

exclusively used our own marble in combination with other stone to give a fascinating

look at our factory site Our managing director Mr Suresh Patni looks after the factory

and is known for his motto Customer Satisfaction

The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment

plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most

modern layout with completely automatic plant to recycle water for marble cutting

Latest gadgets like wireless hotlines modems computerized MIS and costing systems

are being used in order to accelerate quality control and production hence contributing

to cost affectivity

141) People-

R K Marble Group has always stood for quality without compromise It believes in

long-term business relations and works hand to hand with the customers to ensure that

11

it gets the best value of money Stringent in-house quality control measures are in place

and yet it is always willing for third party quality checks

The Company has adopted quality policy to standardize its systems procedures and

processes with adequate documentation R K Marble Private Limited is an ISO 9001

2000 certification for its various activities at mines and factory and ISO 14001

certification for Environment Management System

Highly motivated team of professionals is dedicated to work The team created the

records of completing large projects before given time frame

Needless to say the growth of R K Marble Group has been spurred by the spirit of the

individuals who work at various levels to keep ahead of the rest and constantly rise to

the challenges that beckon them at the frontiers of technology

142) Strengths-

The endeavor of the company is to provide quality products by imbibing the latest

international mining technology This can be gauged from the fact that the entire mine

operations are carried out with the help of latest equipment for marble extraction

Sophisticated software developed internally on RDBMS platform tracks and evaluates

all possible functions cost areas and productivity of the mining operations

The company has made an extensive use of wireless communication to synergies all

activities from drilling to loading of the end product The optimum utilization of the

countrys natural resources can be seen here The Director of Mines amp Geology

12

Udaipurrdquo reveals that the yield from companys mines is the highest per hectare

amongst all marble mines

AWARD NAME AWARDED BY YEAR

Guinness World Records Guinness World Records 1998 2000 2001

Appeared in Guinness World Record Books Guinness World Records 2003

ISO 9001 2000 BVQI USA 2003

ISO 14001 BVQI USA 2003

Entry in Limca Books of World Records Limca Books of World Records 1998 1999

Model Marble Quarry award - Best

Mechanized Quarry- First Prize

Federation of Indian Mineral

Industry (FIMI) amp All India Granite

amp Stone Association (AIGSA)

2003

The Best Stall for Stone amp Stone Products

(Outdoor)

Centre for Development of Stones

(CDOS)2003

Udyog Patra AwardInstitute of trade and Industrial

Development New Delhi2001

State Level Bhamashah Award Education Deptt Bikaner 2001

Highest Income tax payer Award (Individually

to Syt Ashok Patni Syt Suresh Patni

SytVimal Patni)

Income Tax Deptt Ajmer 2000

Best Annual Report Award for Rajasthan

Based Companies

Institute of Chartered Accountants of

India Jaipur2001

Indira Priyadarshini Award National Publication New Delhi 2001

Samman Patra Income Tax Deptt Udaipur 1998

Padm DivakarShree Digamber Jain Atishaya

Kshetra Padampura Jaipur1999

Social Welfare amp Development Lions Club Udaipur 2001

143) Quality Assurance-

13

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 5: Pratik

113) Types-

Historically notable marble varieties and locations

1131) Sculpture-

White marble was prized for its use in sculptures since classical times This preference

has to do with the softness and relative isotropy and homogeneity and a relative

resistance to shattering Also the low index of refraction of calcite allows light to

penetrate several millimeters into the stone before being scattered out resulting in the

characteristic waxy look which gives life to marble sculptures of the human body

1132) Construction marble-

Construction marble is a stone which is composed of calcite dolomite or serpentine

which is capable of taking a polish More generally in construction specifically the

dimension stone trade the term marble is used for any crystalline calcitic rock (and

some non-calcitic rocks) useful as building stone For example Tennessee marble is

really a dense granular fossiliferous gray to pink to maroon Ordovician limestone that

geologists call the Holston Formation

114) Industrial use-

Blocks of cut marble at the historic mill in Marble ColoradoColorless or light-colored

marbles are a very pure source of calcium carbonate which is used in a wide variety of

industries Finely ground marble or calcium carbonate powder is a component in paper

and in consumer products such as toothpaste plastics and paints Ground calcium

carbonate can be made from limestone chalk and marble about three-quarters of the

ground calcium carbonate worldwide is made from marble Ground calcium carbonate

is used as a coating pigment for paper because of its high brightness and as a paper

filler because it strengthens the sheet and imparts high brightness Ground calcium

carbonate is used in consumer products such as a food additive in toothpaste and as an

inert filler in pills It is used in plastics because it imparts stiffness impact strength

dimensional stability and thermal conductivity It is used in paints because it is a good

filler and extender has high brightness and is weather resistant However the growth

in demand for ground calcium carbonate in the last decade has mostly been for a

coating pigment in paper

Calcium carbonate can also be reduced under high heat to calcium oxide (also known

as lime)

5

12) Company Profile-

The Company R K Marble Private Limited was established in 1989 by the Patni group

of Kishangarh-District Ajmer to help serve increasing National and international

demands for Indian marble Since then we have enjoyed exponential growth and export

too many markets worldwide including European Union countries the Middle East

Japan other parts of Asia China and North America etc

The seagull who sees farther flies higher living up to the immortal words of

Johanthan Swift Mr Ashok Patni established the first processing unit at Rajasthan

(with an installed capacity of one lakh cu ft marble slabs Per Annum) and never

looked back The company now has 14 Gangsaw machines In November 1993 was the

time when state government took a step forward to allot a virgin marble mine on lease

to R K Marble at Morwad Distt Rajsamand in Rajasthan

By the touch of sheer hard work guts burning inner desire to reach unprecedented

heights and fulfilling their dreams the trio converted these marble mines to gold

mines Morwad from which the stone takes its name is a remote village in the eastern

part of Rajasthan India

Today the name Morwad Marble from R K Marble group has become almost generic

for a whole range of white and semi-white types of marble which are extracted from

these locations

6

The popularity of this range of marble continues to grow at an astonishing rate and it is

marketed in large quantities The white background with light gray veins corresponds

with nearly everyones perception of the most beautiful marble and architects for many

of the Indias important buildings suggest it

Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic

fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the

largest producer of marble in the world Bedecked with most sought after gadgets the

exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder

Marble thats wondrous and splendid in myriad hues

Wonder Marbles colour panorama and innate design makes it the right choice for

flamboyant users Our fascinating range can be floored to encompass living rooms

drawing arrangements dining spaces hotel lobbys pool sites wall claddings special

lounges and many more Among its endless usages left for creative imagination some

could be - artifacts and decorative objects

A) Products-

Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone

Figure White marble Marble Flooring Marble Tiles

121) Wonder Marble-

The WONDER MARBLE produced at the RK Majoli mines comes to you in

heartwarming shades of deep and dark red brown to rose patches in creamy base

7

coupled with abrasion resistant fine grained form luster and reflective gloss which

makes it truly a masterpiece for a lifetime

~ Wonder Marble is available in 4 exotic colours-

bull Milky Opal Creamy base Shades of beige amp mauve

bull Pink Pearl Ecstatic pink amp brown tones

bull Garnet Rush Reddish

bull Jasper Jazz Chocolate red amp brown

122) White Marble -

Famous from antiquity for the high quality the incomparable clearness and resistance

the Morwad Marble from R K Marble Private Limited have constituted the base of

many big monuments and works of art in India RK Milky Coral is a captivating

splendor with generous splashes of green and grey on milky white marble

~ Marble Patterns amp Fixing-

R K Marble Private Limited offers decorative flooring patterns stone inlaid borders

and marble inlaid items The most popular choice with architects and interior designers

for flooring and wall cladding

8

13) Mines-

World famous Morwad Mines of RKMarble Private Limited are situated 15km from

Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-

maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68

Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20

Kms from mines Electrical power line of 11KV from State Viduyat Nigam is

extended up to mines Captive Power generation to the tune of 2500 KVA is standing

by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and

Explosive magazine with 500 kg storage capacity are maintained at mines

9

An over head tank of 15 lakh liters capacity along with a filter plant is maintained for

meeting the requirement of drinking water and domestic use The quality of water is

potable

Safety Management Committee meetings are organized regularly for tacking stock of

safety preparation accident analysis and suggestions for remedial measures for

achieving ZERO accident status The personal protective equipment and safety gadgets

are provided to employees and all out efforts are made to inculcate the habit of their

regular use

Facilities of Modern store and well equipped workshops for repair and maintenance of

HEMM and other field machinery are available at mines

Technology the core aspect at R K Marble Private Limited can be seen at mining

campus where all means of communication are available which hooks this remote site

to the rest of the world and make them feel a part of larger community of R K Group

Eight telephone connections with a fax connection and two hot line between Mines to

Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky

sets are well maintained for smooth communications amongst the

staffworkersofficers

A four-bed hospital with Para medical staff and Doctor along with an ambulance is

available at a well-equipped Group Vocational Training Center is established at site to

provide initial training to new entrants and refresher and special training to existing

employees OEMS and other service agencies training programmes were conducted

periodically

14) Factory-

10

Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM

from Jaipur the state capital of Rajasthan along the famous Makarana road We have

exclusively used our own marble in combination with other stone to give a fascinating

look at our factory site Our managing director Mr Suresh Patni looks after the factory

and is known for his motto Customer Satisfaction

The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment

plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most

modern layout with completely automatic plant to recycle water for marble cutting

Latest gadgets like wireless hotlines modems computerized MIS and costing systems

are being used in order to accelerate quality control and production hence contributing

to cost affectivity

141) People-

R K Marble Group has always stood for quality without compromise It believes in

long-term business relations and works hand to hand with the customers to ensure that

11

it gets the best value of money Stringent in-house quality control measures are in place

and yet it is always willing for third party quality checks

The Company has adopted quality policy to standardize its systems procedures and

processes with adequate documentation R K Marble Private Limited is an ISO 9001

2000 certification for its various activities at mines and factory and ISO 14001

certification for Environment Management System

Highly motivated team of professionals is dedicated to work The team created the

records of completing large projects before given time frame

Needless to say the growth of R K Marble Group has been spurred by the spirit of the

individuals who work at various levels to keep ahead of the rest and constantly rise to

the challenges that beckon them at the frontiers of technology

142) Strengths-

The endeavor of the company is to provide quality products by imbibing the latest

international mining technology This can be gauged from the fact that the entire mine

operations are carried out with the help of latest equipment for marble extraction

Sophisticated software developed internally on RDBMS platform tracks and evaluates

all possible functions cost areas and productivity of the mining operations

The company has made an extensive use of wireless communication to synergies all

activities from drilling to loading of the end product The optimum utilization of the

countrys natural resources can be seen here The Director of Mines amp Geology

12

Udaipurrdquo reveals that the yield from companys mines is the highest per hectare

amongst all marble mines

AWARD NAME AWARDED BY YEAR

Guinness World Records Guinness World Records 1998 2000 2001

Appeared in Guinness World Record Books Guinness World Records 2003

ISO 9001 2000 BVQI USA 2003

ISO 14001 BVQI USA 2003

Entry in Limca Books of World Records Limca Books of World Records 1998 1999

Model Marble Quarry award - Best

Mechanized Quarry- First Prize

Federation of Indian Mineral

Industry (FIMI) amp All India Granite

amp Stone Association (AIGSA)

2003

The Best Stall for Stone amp Stone Products

(Outdoor)

Centre for Development of Stones

(CDOS)2003

Udyog Patra AwardInstitute of trade and Industrial

Development New Delhi2001

State Level Bhamashah Award Education Deptt Bikaner 2001

Highest Income tax payer Award (Individually

to Syt Ashok Patni Syt Suresh Patni

SytVimal Patni)

Income Tax Deptt Ajmer 2000

Best Annual Report Award for Rajasthan

Based Companies

Institute of Chartered Accountants of

India Jaipur2001

Indira Priyadarshini Award National Publication New Delhi 2001

Samman Patra Income Tax Deptt Udaipur 1998

Padm DivakarShree Digamber Jain Atishaya

Kshetra Padampura Jaipur1999

Social Welfare amp Development Lions Club Udaipur 2001

143) Quality Assurance-

13

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 6: Pratik

12) Company Profile-

The Company R K Marble Private Limited was established in 1989 by the Patni group

of Kishangarh-District Ajmer to help serve increasing National and international

demands for Indian marble Since then we have enjoyed exponential growth and export

too many markets worldwide including European Union countries the Middle East

Japan other parts of Asia China and North America etc

The seagull who sees farther flies higher living up to the immortal words of

Johanthan Swift Mr Ashok Patni established the first processing unit at Rajasthan

(with an installed capacity of one lakh cu ft marble slabs Per Annum) and never

looked back The company now has 14 Gangsaw machines In November 1993 was the

time when state government took a step forward to allot a virgin marble mine on lease

to R K Marble at Morwad Distt Rajsamand in Rajasthan

By the touch of sheer hard work guts burning inner desire to reach unprecedented

heights and fulfilling their dreams the trio converted these marble mines to gold

mines Morwad from which the stone takes its name is a remote village in the eastern

part of Rajasthan India

Today the name Morwad Marble from R K Marble group has become almost generic

for a whole range of white and semi-white types of marble which are extracted from

these locations

6

The popularity of this range of marble continues to grow at an astonishing rate and it is

marketed in large quantities The white background with light gray veins corresponds

with nearly everyones perception of the most beautiful marble and architects for many

of the Indias important buildings suggest it

Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic

fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the

largest producer of marble in the world Bedecked with most sought after gadgets the

exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder

Marble thats wondrous and splendid in myriad hues

Wonder Marbles colour panorama and innate design makes it the right choice for

flamboyant users Our fascinating range can be floored to encompass living rooms

drawing arrangements dining spaces hotel lobbys pool sites wall claddings special

lounges and many more Among its endless usages left for creative imagination some

could be - artifacts and decorative objects

A) Products-

Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone

Figure White marble Marble Flooring Marble Tiles

121) Wonder Marble-

The WONDER MARBLE produced at the RK Majoli mines comes to you in

heartwarming shades of deep and dark red brown to rose patches in creamy base

7

coupled with abrasion resistant fine grained form luster and reflective gloss which

makes it truly a masterpiece for a lifetime

~ Wonder Marble is available in 4 exotic colours-

bull Milky Opal Creamy base Shades of beige amp mauve

bull Pink Pearl Ecstatic pink amp brown tones

bull Garnet Rush Reddish

bull Jasper Jazz Chocolate red amp brown

122) White Marble -

Famous from antiquity for the high quality the incomparable clearness and resistance

the Morwad Marble from R K Marble Private Limited have constituted the base of

many big monuments and works of art in India RK Milky Coral is a captivating

splendor with generous splashes of green and grey on milky white marble

~ Marble Patterns amp Fixing-

R K Marble Private Limited offers decorative flooring patterns stone inlaid borders

and marble inlaid items The most popular choice with architects and interior designers

for flooring and wall cladding

8

13) Mines-

World famous Morwad Mines of RKMarble Private Limited are situated 15km from

Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-

maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68

Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20

Kms from mines Electrical power line of 11KV from State Viduyat Nigam is

extended up to mines Captive Power generation to the tune of 2500 KVA is standing

by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and

Explosive magazine with 500 kg storage capacity are maintained at mines

9

An over head tank of 15 lakh liters capacity along with a filter plant is maintained for

meeting the requirement of drinking water and domestic use The quality of water is

potable

Safety Management Committee meetings are organized regularly for tacking stock of

safety preparation accident analysis and suggestions for remedial measures for

achieving ZERO accident status The personal protective equipment and safety gadgets

are provided to employees and all out efforts are made to inculcate the habit of their

regular use

Facilities of Modern store and well equipped workshops for repair and maintenance of

HEMM and other field machinery are available at mines

Technology the core aspect at R K Marble Private Limited can be seen at mining

campus where all means of communication are available which hooks this remote site

to the rest of the world and make them feel a part of larger community of R K Group

Eight telephone connections with a fax connection and two hot line between Mines to

Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky

sets are well maintained for smooth communications amongst the

staffworkersofficers

A four-bed hospital with Para medical staff and Doctor along with an ambulance is

available at a well-equipped Group Vocational Training Center is established at site to

provide initial training to new entrants and refresher and special training to existing

employees OEMS and other service agencies training programmes were conducted

periodically

14) Factory-

10

Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM

from Jaipur the state capital of Rajasthan along the famous Makarana road We have

exclusively used our own marble in combination with other stone to give a fascinating

look at our factory site Our managing director Mr Suresh Patni looks after the factory

and is known for his motto Customer Satisfaction

The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment

plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most

modern layout with completely automatic plant to recycle water for marble cutting

Latest gadgets like wireless hotlines modems computerized MIS and costing systems

are being used in order to accelerate quality control and production hence contributing

to cost affectivity

141) People-

R K Marble Group has always stood for quality without compromise It believes in

long-term business relations and works hand to hand with the customers to ensure that

11

it gets the best value of money Stringent in-house quality control measures are in place

and yet it is always willing for third party quality checks

The Company has adopted quality policy to standardize its systems procedures and

processes with adequate documentation R K Marble Private Limited is an ISO 9001

2000 certification for its various activities at mines and factory and ISO 14001

certification for Environment Management System

Highly motivated team of professionals is dedicated to work The team created the

records of completing large projects before given time frame

Needless to say the growth of R K Marble Group has been spurred by the spirit of the

individuals who work at various levels to keep ahead of the rest and constantly rise to

the challenges that beckon them at the frontiers of technology

142) Strengths-

The endeavor of the company is to provide quality products by imbibing the latest

international mining technology This can be gauged from the fact that the entire mine

operations are carried out with the help of latest equipment for marble extraction

Sophisticated software developed internally on RDBMS platform tracks and evaluates

all possible functions cost areas and productivity of the mining operations

The company has made an extensive use of wireless communication to synergies all

activities from drilling to loading of the end product The optimum utilization of the

countrys natural resources can be seen here The Director of Mines amp Geology

12

Udaipurrdquo reveals that the yield from companys mines is the highest per hectare

amongst all marble mines

AWARD NAME AWARDED BY YEAR

Guinness World Records Guinness World Records 1998 2000 2001

Appeared in Guinness World Record Books Guinness World Records 2003

ISO 9001 2000 BVQI USA 2003

ISO 14001 BVQI USA 2003

Entry in Limca Books of World Records Limca Books of World Records 1998 1999

Model Marble Quarry award - Best

Mechanized Quarry- First Prize

Federation of Indian Mineral

Industry (FIMI) amp All India Granite

amp Stone Association (AIGSA)

2003

The Best Stall for Stone amp Stone Products

(Outdoor)

Centre for Development of Stones

(CDOS)2003

Udyog Patra AwardInstitute of trade and Industrial

Development New Delhi2001

State Level Bhamashah Award Education Deptt Bikaner 2001

Highest Income tax payer Award (Individually

to Syt Ashok Patni Syt Suresh Patni

SytVimal Patni)

Income Tax Deptt Ajmer 2000

Best Annual Report Award for Rajasthan

Based Companies

Institute of Chartered Accountants of

India Jaipur2001

Indira Priyadarshini Award National Publication New Delhi 2001

Samman Patra Income Tax Deptt Udaipur 1998

Padm DivakarShree Digamber Jain Atishaya

Kshetra Padampura Jaipur1999

Social Welfare amp Development Lions Club Udaipur 2001

143) Quality Assurance-

13

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 7: Pratik

The popularity of this range of marble continues to grow at an astonishing rate and it is

marketed in large quantities The white background with light gray veins corresponds

with nearly everyones perception of the most beautiful marble and architects for many

of the Indias important buildings suggest it

Zoom into the corner stone of Majoli In Madhya Pradesh India to scale the magnetic

fascination of an ISO 9001 2000 adorned Guinness Record Holder engaged as the

largest producer of marble in the world Bedecked with most sought after gadgets the

exotic Majoli mine is the most coveted breeding ground of worlds choicest Wonder

Marble thats wondrous and splendid in myriad hues

Wonder Marbles colour panorama and innate design makes it the right choice for

flamboyant users Our fascinating range can be floored to encompass living rooms

drawing arrangements dining spaces hotel lobbys pool sites wall claddings special

lounges and many more Among its endless usages left for creative imagination some

could be - artifacts and decorative objects

A) Products-

Dealing in Products like Marble Flooring Patterns Marble Stone Marble Stone

Figure White marble Marble Flooring Marble Tiles

121) Wonder Marble-

The WONDER MARBLE produced at the RK Majoli mines comes to you in

heartwarming shades of deep and dark red brown to rose patches in creamy base

7

coupled with abrasion resistant fine grained form luster and reflective gloss which

makes it truly a masterpiece for a lifetime

~ Wonder Marble is available in 4 exotic colours-

bull Milky Opal Creamy base Shades of beige amp mauve

bull Pink Pearl Ecstatic pink amp brown tones

bull Garnet Rush Reddish

bull Jasper Jazz Chocolate red amp brown

122) White Marble -

Famous from antiquity for the high quality the incomparable clearness and resistance

the Morwad Marble from R K Marble Private Limited have constituted the base of

many big monuments and works of art in India RK Milky Coral is a captivating

splendor with generous splashes of green and grey on milky white marble

~ Marble Patterns amp Fixing-

R K Marble Private Limited offers decorative flooring patterns stone inlaid borders

and marble inlaid items The most popular choice with architects and interior designers

for flooring and wall cladding

8

13) Mines-

World famous Morwad Mines of RKMarble Private Limited are situated 15km from

Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-

maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68

Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20

Kms from mines Electrical power line of 11KV from State Viduyat Nigam is

extended up to mines Captive Power generation to the tune of 2500 KVA is standing

by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and

Explosive magazine with 500 kg storage capacity are maintained at mines

9

An over head tank of 15 lakh liters capacity along with a filter plant is maintained for

meeting the requirement of drinking water and domestic use The quality of water is

potable

Safety Management Committee meetings are organized regularly for tacking stock of

safety preparation accident analysis and suggestions for remedial measures for

achieving ZERO accident status The personal protective equipment and safety gadgets

are provided to employees and all out efforts are made to inculcate the habit of their

regular use

Facilities of Modern store and well equipped workshops for repair and maintenance of

HEMM and other field machinery are available at mines

Technology the core aspect at R K Marble Private Limited can be seen at mining

campus where all means of communication are available which hooks this remote site

to the rest of the world and make them feel a part of larger community of R K Group

Eight telephone connections with a fax connection and two hot line between Mines to

Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky

sets are well maintained for smooth communications amongst the

staffworkersofficers

A four-bed hospital with Para medical staff and Doctor along with an ambulance is

available at a well-equipped Group Vocational Training Center is established at site to

provide initial training to new entrants and refresher and special training to existing

employees OEMS and other service agencies training programmes were conducted

periodically

14) Factory-

10

Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM

from Jaipur the state capital of Rajasthan along the famous Makarana road We have

exclusively used our own marble in combination with other stone to give a fascinating

look at our factory site Our managing director Mr Suresh Patni looks after the factory

and is known for his motto Customer Satisfaction

The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment

plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most

modern layout with completely automatic plant to recycle water for marble cutting

Latest gadgets like wireless hotlines modems computerized MIS and costing systems

are being used in order to accelerate quality control and production hence contributing

to cost affectivity

141) People-

R K Marble Group has always stood for quality without compromise It believes in

long-term business relations and works hand to hand with the customers to ensure that

11

it gets the best value of money Stringent in-house quality control measures are in place

and yet it is always willing for third party quality checks

The Company has adopted quality policy to standardize its systems procedures and

processes with adequate documentation R K Marble Private Limited is an ISO 9001

2000 certification for its various activities at mines and factory and ISO 14001

certification for Environment Management System

Highly motivated team of professionals is dedicated to work The team created the

records of completing large projects before given time frame

Needless to say the growth of R K Marble Group has been spurred by the spirit of the

individuals who work at various levels to keep ahead of the rest and constantly rise to

the challenges that beckon them at the frontiers of technology

142) Strengths-

The endeavor of the company is to provide quality products by imbibing the latest

international mining technology This can be gauged from the fact that the entire mine

operations are carried out with the help of latest equipment for marble extraction

Sophisticated software developed internally on RDBMS platform tracks and evaluates

all possible functions cost areas and productivity of the mining operations

The company has made an extensive use of wireless communication to synergies all

activities from drilling to loading of the end product The optimum utilization of the

countrys natural resources can be seen here The Director of Mines amp Geology

12

Udaipurrdquo reveals that the yield from companys mines is the highest per hectare

amongst all marble mines

AWARD NAME AWARDED BY YEAR

Guinness World Records Guinness World Records 1998 2000 2001

Appeared in Guinness World Record Books Guinness World Records 2003

ISO 9001 2000 BVQI USA 2003

ISO 14001 BVQI USA 2003

Entry in Limca Books of World Records Limca Books of World Records 1998 1999

Model Marble Quarry award - Best

Mechanized Quarry- First Prize

Federation of Indian Mineral

Industry (FIMI) amp All India Granite

amp Stone Association (AIGSA)

2003

The Best Stall for Stone amp Stone Products

(Outdoor)

Centre for Development of Stones

(CDOS)2003

Udyog Patra AwardInstitute of trade and Industrial

Development New Delhi2001

State Level Bhamashah Award Education Deptt Bikaner 2001

Highest Income tax payer Award (Individually

to Syt Ashok Patni Syt Suresh Patni

SytVimal Patni)

Income Tax Deptt Ajmer 2000

Best Annual Report Award for Rajasthan

Based Companies

Institute of Chartered Accountants of

India Jaipur2001

Indira Priyadarshini Award National Publication New Delhi 2001

Samman Patra Income Tax Deptt Udaipur 1998

Padm DivakarShree Digamber Jain Atishaya

Kshetra Padampura Jaipur1999

Social Welfare amp Development Lions Club Udaipur 2001

143) Quality Assurance-

13

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 8: Pratik

coupled with abrasion resistant fine grained form luster and reflective gloss which

makes it truly a masterpiece for a lifetime

~ Wonder Marble is available in 4 exotic colours-

bull Milky Opal Creamy base Shades of beige amp mauve

bull Pink Pearl Ecstatic pink amp brown tones

bull Garnet Rush Reddish

bull Jasper Jazz Chocolate red amp brown

122) White Marble -

Famous from antiquity for the high quality the incomparable clearness and resistance

the Morwad Marble from R K Marble Private Limited have constituted the base of

many big monuments and works of art in India RK Milky Coral is a captivating

splendor with generous splashes of green and grey on milky white marble

~ Marble Patterns amp Fixing-

R K Marble Private Limited offers decorative flooring patterns stone inlaid borders

and marble inlaid items The most popular choice with architects and interior designers

for flooring and wall cladding

8

13) Mines-

World famous Morwad Mines of RKMarble Private Limited are situated 15km from

Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-

maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68

Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20

Kms from mines Electrical power line of 11KV from State Viduyat Nigam is

extended up to mines Captive Power generation to the tune of 2500 KVA is standing

by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and

Explosive magazine with 500 kg storage capacity are maintained at mines

9

An over head tank of 15 lakh liters capacity along with a filter plant is maintained for

meeting the requirement of drinking water and domestic use The quality of water is

potable

Safety Management Committee meetings are organized regularly for tacking stock of

safety preparation accident analysis and suggestions for remedial measures for

achieving ZERO accident status The personal protective equipment and safety gadgets

are provided to employees and all out efforts are made to inculcate the habit of their

regular use

Facilities of Modern store and well equipped workshops for repair and maintenance of

HEMM and other field machinery are available at mines

Technology the core aspect at R K Marble Private Limited can be seen at mining

campus where all means of communication are available which hooks this remote site

to the rest of the world and make them feel a part of larger community of R K Group

Eight telephone connections with a fax connection and two hot line between Mines to

Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky

sets are well maintained for smooth communications amongst the

staffworkersofficers

A four-bed hospital with Para medical staff and Doctor along with an ambulance is

available at a well-equipped Group Vocational Training Center is established at site to

provide initial training to new entrants and refresher and special training to existing

employees OEMS and other service agencies training programmes were conducted

periodically

14) Factory-

10

Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM

from Jaipur the state capital of Rajasthan along the famous Makarana road We have

exclusively used our own marble in combination with other stone to give a fascinating

look at our factory site Our managing director Mr Suresh Patni looks after the factory

and is known for his motto Customer Satisfaction

The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment

plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most

modern layout with completely automatic plant to recycle water for marble cutting

Latest gadgets like wireless hotlines modems computerized MIS and costing systems

are being used in order to accelerate quality control and production hence contributing

to cost affectivity

141) People-

R K Marble Group has always stood for quality without compromise It believes in

long-term business relations and works hand to hand with the customers to ensure that

11

it gets the best value of money Stringent in-house quality control measures are in place

and yet it is always willing for third party quality checks

The Company has adopted quality policy to standardize its systems procedures and

processes with adequate documentation R K Marble Private Limited is an ISO 9001

2000 certification for its various activities at mines and factory and ISO 14001

certification for Environment Management System

Highly motivated team of professionals is dedicated to work The team created the

records of completing large projects before given time frame

Needless to say the growth of R K Marble Group has been spurred by the spirit of the

individuals who work at various levels to keep ahead of the rest and constantly rise to

the challenges that beckon them at the frontiers of technology

142) Strengths-

The endeavor of the company is to provide quality products by imbibing the latest

international mining technology This can be gauged from the fact that the entire mine

operations are carried out with the help of latest equipment for marble extraction

Sophisticated software developed internally on RDBMS platform tracks and evaluates

all possible functions cost areas and productivity of the mining operations

The company has made an extensive use of wireless communication to synergies all

activities from drilling to loading of the end product The optimum utilization of the

countrys natural resources can be seen here The Director of Mines amp Geology

12

Udaipurrdquo reveals that the yield from companys mines is the highest per hectare

amongst all marble mines

AWARD NAME AWARDED BY YEAR

Guinness World Records Guinness World Records 1998 2000 2001

Appeared in Guinness World Record Books Guinness World Records 2003

ISO 9001 2000 BVQI USA 2003

ISO 14001 BVQI USA 2003

Entry in Limca Books of World Records Limca Books of World Records 1998 1999

Model Marble Quarry award - Best

Mechanized Quarry- First Prize

Federation of Indian Mineral

Industry (FIMI) amp All India Granite

amp Stone Association (AIGSA)

2003

The Best Stall for Stone amp Stone Products

(Outdoor)

Centre for Development of Stones

(CDOS)2003

Udyog Patra AwardInstitute of trade and Industrial

Development New Delhi2001

State Level Bhamashah Award Education Deptt Bikaner 2001

Highest Income tax payer Award (Individually

to Syt Ashok Patni Syt Suresh Patni

SytVimal Patni)

Income Tax Deptt Ajmer 2000

Best Annual Report Award for Rajasthan

Based Companies

Institute of Chartered Accountants of

India Jaipur2001

Indira Priyadarshini Award National Publication New Delhi 2001

Samman Patra Income Tax Deptt Udaipur 1998

Padm DivakarShree Digamber Jain Atishaya

Kshetra Padampura Jaipur1999

Social Welfare amp Development Lions Club Udaipur 2001

143) Quality Assurance-

13

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 9: Pratik

13) Mines-

World famous Morwad Mines of RKMarble Private Limited are situated 15km from

Rajnagar on Udaipur ndash Rajnagar - Ajmer National Highway No8 Connected by well-

maintained by metalled road from Rajnagar The nearest Airport at Dabok which is 68

Kms from mines and 19 Kms from udaipur Nearest Railway station at Kankroli is 20

Kms from mines Electrical power line of 11KV from State Viduyat Nigam is

extended up to mines Captive Power generation to the tune of 2500 KVA is standing

by Four Captive Diesel Dispensing pumps with 120 KL storage capacity and

Explosive magazine with 500 kg storage capacity are maintained at mines

9

An over head tank of 15 lakh liters capacity along with a filter plant is maintained for

meeting the requirement of drinking water and domestic use The quality of water is

potable

Safety Management Committee meetings are organized regularly for tacking stock of

safety preparation accident analysis and suggestions for remedial measures for

achieving ZERO accident status The personal protective equipment and safety gadgets

are provided to employees and all out efforts are made to inculcate the habit of their

regular use

Facilities of Modern store and well equipped workshops for repair and maintenance of

HEMM and other field machinery are available at mines

Technology the core aspect at R K Marble Private Limited can be seen at mining

campus where all means of communication are available which hooks this remote site

to the rest of the world and make them feel a part of larger community of R K Group

Eight telephone connections with a fax connection and two hot line between Mines to

Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky

sets are well maintained for smooth communications amongst the

staffworkersofficers

A four-bed hospital with Para medical staff and Doctor along with an ambulance is

available at a well-equipped Group Vocational Training Center is established at site to

provide initial training to new entrants and refresher and special training to existing

employees OEMS and other service agencies training programmes were conducted

periodically

14) Factory-

10

Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM

from Jaipur the state capital of Rajasthan along the famous Makarana road We have

exclusively used our own marble in combination with other stone to give a fascinating

look at our factory site Our managing director Mr Suresh Patni looks after the factory

and is known for his motto Customer Satisfaction

The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment

plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most

modern layout with completely automatic plant to recycle water for marble cutting

Latest gadgets like wireless hotlines modems computerized MIS and costing systems

are being used in order to accelerate quality control and production hence contributing

to cost affectivity

141) People-

R K Marble Group has always stood for quality without compromise It believes in

long-term business relations and works hand to hand with the customers to ensure that

11

it gets the best value of money Stringent in-house quality control measures are in place

and yet it is always willing for third party quality checks

The Company has adopted quality policy to standardize its systems procedures and

processes with adequate documentation R K Marble Private Limited is an ISO 9001

2000 certification for its various activities at mines and factory and ISO 14001

certification for Environment Management System

Highly motivated team of professionals is dedicated to work The team created the

records of completing large projects before given time frame

Needless to say the growth of R K Marble Group has been spurred by the spirit of the

individuals who work at various levels to keep ahead of the rest and constantly rise to

the challenges that beckon them at the frontiers of technology

142) Strengths-

The endeavor of the company is to provide quality products by imbibing the latest

international mining technology This can be gauged from the fact that the entire mine

operations are carried out with the help of latest equipment for marble extraction

Sophisticated software developed internally on RDBMS platform tracks and evaluates

all possible functions cost areas and productivity of the mining operations

The company has made an extensive use of wireless communication to synergies all

activities from drilling to loading of the end product The optimum utilization of the

countrys natural resources can be seen here The Director of Mines amp Geology

12

Udaipurrdquo reveals that the yield from companys mines is the highest per hectare

amongst all marble mines

AWARD NAME AWARDED BY YEAR

Guinness World Records Guinness World Records 1998 2000 2001

Appeared in Guinness World Record Books Guinness World Records 2003

ISO 9001 2000 BVQI USA 2003

ISO 14001 BVQI USA 2003

Entry in Limca Books of World Records Limca Books of World Records 1998 1999

Model Marble Quarry award - Best

Mechanized Quarry- First Prize

Federation of Indian Mineral

Industry (FIMI) amp All India Granite

amp Stone Association (AIGSA)

2003

The Best Stall for Stone amp Stone Products

(Outdoor)

Centre for Development of Stones

(CDOS)2003

Udyog Patra AwardInstitute of trade and Industrial

Development New Delhi2001

State Level Bhamashah Award Education Deptt Bikaner 2001

Highest Income tax payer Award (Individually

to Syt Ashok Patni Syt Suresh Patni

SytVimal Patni)

Income Tax Deptt Ajmer 2000

Best Annual Report Award for Rajasthan

Based Companies

Institute of Chartered Accountants of

India Jaipur2001

Indira Priyadarshini Award National Publication New Delhi 2001

Samman Patra Income Tax Deptt Udaipur 1998

Padm DivakarShree Digamber Jain Atishaya

Kshetra Padampura Jaipur1999

Social Welfare amp Development Lions Club Udaipur 2001

143) Quality Assurance-

13

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 10: Pratik

An over head tank of 15 lakh liters capacity along with a filter plant is maintained for

meeting the requirement of drinking water and domestic use The quality of water is

potable

Safety Management Committee meetings are organized regularly for tacking stock of

safety preparation accident analysis and suggestions for remedial measures for

achieving ZERO accident status The personal protective equipment and safety gadgets

are provided to employees and all out efforts are made to inculcate the habit of their

regular use

Facilities of Modern store and well equipped workshops for repair and maintenance of

HEMM and other field machinery are available at mines

Technology the core aspect at R K Marble Private Limited can be seen at mining

campus where all means of communication are available which hooks this remote site

to the rest of the world and make them feel a part of larger community of R K Group

Eight telephone connections with a fax connection and two hot line between Mines to

Udaipur and Kishangarh office are available at mines site Base mobile and walky-talky

sets are well maintained for smooth communications amongst the

staffworkersofficers

A four-bed hospital with Para medical staff and Doctor along with an ambulance is

available at a well-equipped Group Vocational Training Center is established at site to

provide initial training to new entrants and refresher and special training to existing

employees OEMS and other service agencies training programmes were conducted

periodically

14) Factory-

10

Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM

from Jaipur the state capital of Rajasthan along the famous Makarana road We have

exclusively used our own marble in combination with other stone to give a fascinating

look at our factory site Our managing director Mr Suresh Patni looks after the factory

and is known for his motto Customer Satisfaction

The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment

plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most

modern layout with completely automatic plant to recycle water for marble cutting

Latest gadgets like wireless hotlines modems computerized MIS and costing systems

are being used in order to accelerate quality control and production hence contributing

to cost affectivity

141) People-

R K Marble Group has always stood for quality without compromise It believes in

long-term business relations and works hand to hand with the customers to ensure that

11

it gets the best value of money Stringent in-house quality control measures are in place

and yet it is always willing for third party quality checks

The Company has adopted quality policy to standardize its systems procedures and

processes with adequate documentation R K Marble Private Limited is an ISO 9001

2000 certification for its various activities at mines and factory and ISO 14001

certification for Environment Management System

Highly motivated team of professionals is dedicated to work The team created the

records of completing large projects before given time frame

Needless to say the growth of R K Marble Group has been spurred by the spirit of the

individuals who work at various levels to keep ahead of the rest and constantly rise to

the challenges that beckon them at the frontiers of technology

142) Strengths-

The endeavor of the company is to provide quality products by imbibing the latest

international mining technology This can be gauged from the fact that the entire mine

operations are carried out with the help of latest equipment for marble extraction

Sophisticated software developed internally on RDBMS platform tracks and evaluates

all possible functions cost areas and productivity of the mining operations

The company has made an extensive use of wireless communication to synergies all

activities from drilling to loading of the end product The optimum utilization of the

countrys natural resources can be seen here The Director of Mines amp Geology

12

Udaipurrdquo reveals that the yield from companys mines is the highest per hectare

amongst all marble mines

AWARD NAME AWARDED BY YEAR

Guinness World Records Guinness World Records 1998 2000 2001

Appeared in Guinness World Record Books Guinness World Records 2003

ISO 9001 2000 BVQI USA 2003

ISO 14001 BVQI USA 2003

Entry in Limca Books of World Records Limca Books of World Records 1998 1999

Model Marble Quarry award - Best

Mechanized Quarry- First Prize

Federation of Indian Mineral

Industry (FIMI) amp All India Granite

amp Stone Association (AIGSA)

2003

The Best Stall for Stone amp Stone Products

(Outdoor)

Centre for Development of Stones

(CDOS)2003

Udyog Patra AwardInstitute of trade and Industrial

Development New Delhi2001

State Level Bhamashah Award Education Deptt Bikaner 2001

Highest Income tax payer Award (Individually

to Syt Ashok Patni Syt Suresh Patni

SytVimal Patni)

Income Tax Deptt Ajmer 2000

Best Annual Report Award for Rajasthan

Based Companies

Institute of Chartered Accountants of

India Jaipur2001

Indira Priyadarshini Award National Publication New Delhi 2001

Samman Patra Income Tax Deptt Udaipur 1998

Padm DivakarShree Digamber Jain Atishaya

Kshetra Padampura Jaipur1999

Social Welfare amp Development Lions Club Udaipur 2001

143) Quality Assurance-

13

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 11: Pratik

Our factory is located about 26 KM from the holy city of Ajmer and about 107 KM

from Jaipur the state capital of Rajasthan along the famous Makarana road We have

exclusively used our own marble in combination with other stone to give a fascinating

look at our factory site Our managing director Mr Suresh Patni looks after the factory

and is known for his motto Customer Satisfaction

The RK Marble Processing Centre houses 14 Gang saw machines Two Resin treatment

plants an edge-cutting unit and 18 head-polishing unit from Breton It has the most

modern layout with completely automatic plant to recycle water for marble cutting

Latest gadgets like wireless hotlines modems computerized MIS and costing systems

are being used in order to accelerate quality control and production hence contributing

to cost affectivity

141) People-

R K Marble Group has always stood for quality without compromise It believes in

long-term business relations and works hand to hand with the customers to ensure that

11

it gets the best value of money Stringent in-house quality control measures are in place

and yet it is always willing for third party quality checks

The Company has adopted quality policy to standardize its systems procedures and

processes with adequate documentation R K Marble Private Limited is an ISO 9001

2000 certification for its various activities at mines and factory and ISO 14001

certification for Environment Management System

Highly motivated team of professionals is dedicated to work The team created the

records of completing large projects before given time frame

Needless to say the growth of R K Marble Group has been spurred by the spirit of the

individuals who work at various levels to keep ahead of the rest and constantly rise to

the challenges that beckon them at the frontiers of technology

142) Strengths-

The endeavor of the company is to provide quality products by imbibing the latest

international mining technology This can be gauged from the fact that the entire mine

operations are carried out with the help of latest equipment for marble extraction

Sophisticated software developed internally on RDBMS platform tracks and evaluates

all possible functions cost areas and productivity of the mining operations

The company has made an extensive use of wireless communication to synergies all

activities from drilling to loading of the end product The optimum utilization of the

countrys natural resources can be seen here The Director of Mines amp Geology

12

Udaipurrdquo reveals that the yield from companys mines is the highest per hectare

amongst all marble mines

AWARD NAME AWARDED BY YEAR

Guinness World Records Guinness World Records 1998 2000 2001

Appeared in Guinness World Record Books Guinness World Records 2003

ISO 9001 2000 BVQI USA 2003

ISO 14001 BVQI USA 2003

Entry in Limca Books of World Records Limca Books of World Records 1998 1999

Model Marble Quarry award - Best

Mechanized Quarry- First Prize

Federation of Indian Mineral

Industry (FIMI) amp All India Granite

amp Stone Association (AIGSA)

2003

The Best Stall for Stone amp Stone Products

(Outdoor)

Centre for Development of Stones

(CDOS)2003

Udyog Patra AwardInstitute of trade and Industrial

Development New Delhi2001

State Level Bhamashah Award Education Deptt Bikaner 2001

Highest Income tax payer Award (Individually

to Syt Ashok Patni Syt Suresh Patni

SytVimal Patni)

Income Tax Deptt Ajmer 2000

Best Annual Report Award for Rajasthan

Based Companies

Institute of Chartered Accountants of

India Jaipur2001

Indira Priyadarshini Award National Publication New Delhi 2001

Samman Patra Income Tax Deptt Udaipur 1998

Padm DivakarShree Digamber Jain Atishaya

Kshetra Padampura Jaipur1999

Social Welfare amp Development Lions Club Udaipur 2001

143) Quality Assurance-

13

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 12: Pratik

it gets the best value of money Stringent in-house quality control measures are in place

and yet it is always willing for third party quality checks

The Company has adopted quality policy to standardize its systems procedures and

processes with adequate documentation R K Marble Private Limited is an ISO 9001

2000 certification for its various activities at mines and factory and ISO 14001

certification for Environment Management System

Highly motivated team of professionals is dedicated to work The team created the

records of completing large projects before given time frame

Needless to say the growth of R K Marble Group has been spurred by the spirit of the

individuals who work at various levels to keep ahead of the rest and constantly rise to

the challenges that beckon them at the frontiers of technology

142) Strengths-

The endeavor of the company is to provide quality products by imbibing the latest

international mining technology This can be gauged from the fact that the entire mine

operations are carried out with the help of latest equipment for marble extraction

Sophisticated software developed internally on RDBMS platform tracks and evaluates

all possible functions cost areas and productivity of the mining operations

The company has made an extensive use of wireless communication to synergies all

activities from drilling to loading of the end product The optimum utilization of the

countrys natural resources can be seen here The Director of Mines amp Geology

12

Udaipurrdquo reveals that the yield from companys mines is the highest per hectare

amongst all marble mines

AWARD NAME AWARDED BY YEAR

Guinness World Records Guinness World Records 1998 2000 2001

Appeared in Guinness World Record Books Guinness World Records 2003

ISO 9001 2000 BVQI USA 2003

ISO 14001 BVQI USA 2003

Entry in Limca Books of World Records Limca Books of World Records 1998 1999

Model Marble Quarry award - Best

Mechanized Quarry- First Prize

Federation of Indian Mineral

Industry (FIMI) amp All India Granite

amp Stone Association (AIGSA)

2003

The Best Stall for Stone amp Stone Products

(Outdoor)

Centre for Development of Stones

(CDOS)2003

Udyog Patra AwardInstitute of trade and Industrial

Development New Delhi2001

State Level Bhamashah Award Education Deptt Bikaner 2001

Highest Income tax payer Award (Individually

to Syt Ashok Patni Syt Suresh Patni

SytVimal Patni)

Income Tax Deptt Ajmer 2000

Best Annual Report Award for Rajasthan

Based Companies

Institute of Chartered Accountants of

India Jaipur2001

Indira Priyadarshini Award National Publication New Delhi 2001

Samman Patra Income Tax Deptt Udaipur 1998

Padm DivakarShree Digamber Jain Atishaya

Kshetra Padampura Jaipur1999

Social Welfare amp Development Lions Club Udaipur 2001

143) Quality Assurance-

13

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 13: Pratik

Udaipurrdquo reveals that the yield from companys mines is the highest per hectare

amongst all marble mines

AWARD NAME AWARDED BY YEAR

Guinness World Records Guinness World Records 1998 2000 2001

Appeared in Guinness World Record Books Guinness World Records 2003

ISO 9001 2000 BVQI USA 2003

ISO 14001 BVQI USA 2003

Entry in Limca Books of World Records Limca Books of World Records 1998 1999

Model Marble Quarry award - Best

Mechanized Quarry- First Prize

Federation of Indian Mineral

Industry (FIMI) amp All India Granite

amp Stone Association (AIGSA)

2003

The Best Stall for Stone amp Stone Products

(Outdoor)

Centre for Development of Stones

(CDOS)2003

Udyog Patra AwardInstitute of trade and Industrial

Development New Delhi2001

State Level Bhamashah Award Education Deptt Bikaner 2001

Highest Income tax payer Award (Individually

to Syt Ashok Patni Syt Suresh Patni

SytVimal Patni)

Income Tax Deptt Ajmer 2000

Best Annual Report Award for Rajasthan

Based Companies

Institute of Chartered Accountants of

India Jaipur2001

Indira Priyadarshini Award National Publication New Delhi 2001

Samman Patra Income Tax Deptt Udaipur 1998

Padm DivakarShree Digamber Jain Atishaya

Kshetra Padampura Jaipur1999

Social Welfare amp Development Lions Club Udaipur 2001

143) Quality Assurance-

13

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 14: Pratik

Chapter-2 Project Profile21) Introduction of Working capital management-

Working capital management is concerned with the problems arise in attempting to

manage the current assets the current liabilities and the inter relationship that exist

between them The term current assets refers to those assets which in ordinary course of

business can be or will be turned in to cash within one year without undergoing a

diminution in value and without disrupting the operation of the firm

The major current assets are cash marketable securities account receivable and

inventory Current liabilities are those liabilities which intended at there inception to be

14

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 15: Pratik

paid in ordinary course of business within a year out of the current assets or earnings

of the concern

The basic current liabilities are account payable bill payable bank over-draft and

outstanding expenses The goal of working capital management is to manage the firmrsquos

current assets and current liabilities in such way that the satisfactory level of working

capital is mentioned

The current should be large enough to cover its current liabilities in order to ensure a

reasonable margin of the safety

22) Definition-

bull According to Guttmann amp Douglas-

ldquoExcess of current assets over current liabilitiesrdquo

bull According to Park amp Gladson-

ldquoThe excess of current assets of a business (ie cash accounts receivables inventories)

over current items owned to employees and others (Such as salaries amp wages payable

accounts payable taxes owned to Government)rdquo

221) Need of working capital management-

The need for working capital gross or current assets cannot be over emphasized As

already observed the objective of financial decision making is to maximize the

shareholders wealth

To achieve this it is necessary to generate sufficient profits can be earned will

naturally depend upon the magnitude of the sales among other things but sales cannot

convert into cash

There is a need for working capital in the form of current assets to deal with the

problem arising out of lack of immediate realization of cash against goods sold

Therefore sufficient working capital is necessary to sustain sales activity

Technically this is refers to operating or cash cycle If the company has certain amount

of cash it will be required for purchasing the raw material may be available on credit

basis Then the company has to spend some amount for labour and factory overhead to

convert the raw material in work in progress and ultimately finished goods

15

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 16: Pratik

These finished goods convert in to sales on credit basis in the form of sundry debtors

Sundry debtors are converting into cash after expiry of credit period Thus some

amount of cash is blocked in raw materials WIP finished goods and sundry debtors

and day to day cash requirements

However some part of current assets may be financed by the current liabilities also The

amount required to be invested in this current assets is always higher than the funds

available from current liabilities This is the precise reason why the needs for working

capital arise

23) Gross working capital and Net working capital-

There are two concepts of working capital management

231) Gross working capital-

Gross working capital refers to the firmrsquos investment I current assets Current assets are

the assets which can be convert in to cash within year includes cash short term

securities debtors bills receivable and inventory

232) Net working capital-

Net working capital refers to the difference between current assets and current

liabilities Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors bills payable and

outstanding expenses

Net working capital can be positive or negative Efficient working capital management

requires that firms should operate with some amount of net working capital the exact

amount varying from firm to firm and depending among other things on the nature of

industriesNet working capital is necessary because the cash outflows and inflows do

not coincide The cash outflows resulting from payment of current liabilities are

relatively predictableThe cash inflow are however difficult to predictThe more

predictable the cash inflows are the less net working capital will be required

The concept of working capital was first evolved by Karl Marx Marx used the term

lsquovariable capitalrsquo means outlays for payrolls advanced to workers before the completion

of work He compared this with lsquoconstant capitalrsquo which according to him is nothing

but lsquodead labourrsquo This lsquovariable capitalrsquo is nothing wage fund which remains blocked

16

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 17: Pratik

in terms of financial management in working-process along with other operating

expenses until it is released through sale of finished goods Although Marx did not

mentioned that workers also gave credit to the firm by accepting periodical payment of

wages which funded a portioned of WIP the concept of working capital as we

understand today was embedded in his lsquovariable capitalrsquo

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those Assets which can convert in to cash within a short

period normally one accounting year

234) CONSTITUENTS OF CURRENT ASSETS-

o Cash in hand and cash at bank

o Bills receivables

o Sundry debtors

o Short term loans and advances

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

In a narrow sense the term working capital refers to the net working Net working

capital is the excess of current assets over current liability or say

NET WORKING CAPITAL = CURRENT ASSETS ndash CURRENT LIABILITIES

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 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

235) CONSTITUENTS OF CURRENT LIABILITIES-

Accrued or outstanding expenses

1 Short term loans advances and deposits

2 Dividends payable

17

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 18: Pratik

3 Bank overdraft

4 Provision for taxation if it does not amt to app Of profit

5 Bills payable

6 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

bull It enables the enterprise to provide correct amount of working capital at correct

time

bull Every management is more interested in total current assets with which it has to

operate then the source from where it is made available

bull It take into consideration of the fact every increase in the funds of the enterprise

would increase Its working capital

bull This concept is also useful in determining the rate of return on investments in

working capital

2351) The net working capital concept is also important for following reasons-

bull It is qualitative concept which indicates the firmrsquos ability to meet to its operating

expenses and short-term liabilities

bull IT indicates the margin of protection available to the short term creditors

bull It is an indicator of the financial soundness of enterprises

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

permanent sources of funds

236) ADVANTAGE OF ADEQUATE WORKING CAPITAL-

18

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 19: Pratik

2361) SOLVENCY OF THE BUSINESS-

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production

2362) Goodwill

Sufficient amount of working capital enables a firm to make prompt payments and

makes and maintain the goodwill

2363) Easy loans

Adequate working capital leads to high solvency and credit standing can arrange loans

from banks and other on easy and favorable terms

2364) Cash Discounts

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence reduces cost

2365) Regular Supply of Raw Material

Sufficient working capital ensures regular supply of raw material and continuous

production

2367) Regular Payment Of Salaries Wages And Other Day TO Day

Commitments-

It leads to the satisfaction of the employees and raises the morale of its employees

increases their efficiency reduces wastage and costs and enhances production and

profits

2368) Exploitation Of Favorable Market Conditions-

If a firm is having adequate working capital then it can exploit the favorable market

conditions such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices

19

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 20: Pratik

2369) Quick And Regular Return On Investments-

Sufficient working capital enables a concern to pay quick and regular of dividends to

its investors and gains confidence of the investors and can raise more funds in future

24) Type of working capital-

The operating cycle creates the need for current assets (working capital) However the

need does not come to an end after the cycle is completed to explain this continuing

need of current assets a destination should be drawn between permanent and temporary

working capital

241) Permanent working capital-

The need for current assets arises as already observed because of the cash cycle To

carry on business certain minimum level of working capital is necessary on continues

and uninterrupted basis For all practical purpose this requirement will have to be met

permanent as with other fixed assets This requirement refers to as permanent or fixed

working capital

242) Temporary working capital-

Any amount over and above the permanent level of working capital is temporary

fluctuating or variable working capital This portion of the required working capital is

needed to meet fluctuation in demand consequent upon changes in production and sales

as result of seasonal changes

20

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 21: Pratik

However when the business is growing the level of permanent working capital

also grows The working capital graph will be rising one as given in figure

below

25) Determinants of working capital management- the amount of working capital is depends upon a following factors

251) Nature of business-

Some businesses are such due to their very nature that their requirement of fixed

capital is more rather than working capital These businesses sell services and not the

commodities and that too on cash bases As such no founds are blocked in piling

inventories and also no funds are blocked in receivables Eg public utility services like

railways infrastructure oriented project etc

21

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 22: Pratik

There requirement of working capital is less On the other hand there are some

businesses like trading activity where requirement of fixed capital is less but more

money is blocked in inventories and debtors

252) Length of production cycle-

In some business like machine tools industry the time gap between the acquisition of

raw material till the end of final production of finished products itself is quite high As

such amount may be blocked either in raw material or work in progress or finished

goods or even in debtors Naturally there need of working capital is high

253) Size and growth of business-

In very small company the working capital requirement is quit high due to high

overhead higher buying and selling cost etc as such medium size business positively

has edge over the small companies

But if the business start growing after certain limit the working capital requirements

may adversely affect by the increasing size

254) Business Trade cycle-

If the company is the operating in the time of boom the working capital requirement

may be more as the company may like to buy more raw material may increase the

production and sales to take the benefit of favorable market due to increase in the

sales there may more and more amount of funds blocked in stock and debtors etc

bullIn the case of depressions also working capital may be high as the sales terms of value

and quantity may be reducing there may be unnecessary piling up of stack without

getting sold the receivable may not be recovered in time etc

255) Terms of purchase and sales-

Some time due to competition or custom it may be necessary for the company to

extend more and more credit to customers as result which more and more amount is

locked up in debtors or bills receivables which increase the working capital

requirement

22

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 23: Pratik

On the other hand in the case of purchase if the credit is offered by suppliers of goods

and services A part of working capital requirement may be financed by them but it is

necessary to purchase on cash basis the working capital requirement will be higher

256) Profitability-

The profitability of the business may be vary in each and every individual case which

is in turn its depend on numerous factors but high profitability will positively reduce

the strain on working capital requirement of the company because the profits to the

extend that they earned in cash may be used to meet the working capital requirement of

the company

257) Operating efficiency-

If the business is carried on more efficiently it can operate in profits which may reduce

the strain on working capital it may ensure proper utilization of existing resources by

eliminating the waste and improved coordination etc

26) Inventory Management-

261) Raw materials inventory

1048766 Stores of items used in production

1048766 Quantity discounts by large quantity to get discount on price

1048766 Assure supply in times of scarcity

262) Work-in-process inventory

1048766 Items at some intermediate state of completion

1048766 Size related to length and complexity of production cycle

263) Finished goods inventory

23

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 24: Pratik

1048766 Items ready and available for sale

1048766 Permits prompt filling of orders

264) Costs Associated with an Inventory Policy-

1048766 Ordering costs Costs of placing and receiving an order of goods including

inspecting Shipments handling payment follow up calls and letters

1048766 Carrying costs Costs of holding inventory for a given period of time including

Storage and handling cost obsolescence and deterioration cost and opportunity cost

of funds invested inventory

1048766 Stock out costs Incurred when a firm is unable to fill an order including losing sales

and the extra cost of placing special orders or work overtime to produce the needed

product

1048766 just-in-time inventory (JIT) The firm does not carry inventory Once the order is

received from customers the order for raw material is placed with the supplier and

the product is manufactured JIT method is used to reduce inventory cost by

supplying Inventory at exactly the right time and in exactly the right quantities

Example- Dell Computer Co

27) Cash and Marketable Securities Management-Are the most liquid of a firmrsquos assets Cash consists of currency and deposits in

checking accounts Marketable securities consist of S-T investments made with idle

cash

271) Investing Idle Cash The Money Market

The securities normally used for temporary investments are usually purchased in the

Money market-

Where short-term high quality marketable securities are traded When cash needs are

known securities of specific short-term maturity may be selected If cash is needed

24

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 25: Pratik

money market securities may be sold quickly and because there is little price

variability if market interest rates Change the cost of selling the securities is kept at a

minimumOne choice of short-term is Treasury bills which mature less than 6 months

and are the safestmoney market securities Another choice is high quality investment is

commercial paper the short-term notes (maturities usually less than 270 days) issued

by industrial and financial corporations

Certificates of deposits (CDs) are short-term notes issued by commercial banks

Repurchase agreements (repos) the purchase of securities under agreement to resell (at

a higher price) are issued by commercial banks when the checking account of the

business is higher than desired The money stays in the bank and the business has a

temporary earning investment

272) Reasons for Holding Cash and Marketable Securities-

Transactions Firms use cash to make transactions (pay bills) until they receive

cash from customers

Precautionary firms hold cash as a precaution to meet any unexpected demand

for cash

Future requirements firms hold cash to meet future planned needs (eg Capital

expenditure tax payments dividend payments loan payments)

Speculative firms hold cash to be more flexible in case any good investment

opportunity comes

273) Holding cash and marketable Securities incur an opportunity cost-

The cash in the bank earn very low rate of return The firm could have earned higher

return by investing this cash in the firmrsquos operation

274) Running short of cash and marketable Securities also incurs shortage costs-

Foregone cash discounts Suppliers frequently offer trade discounts for paying

bills early From a financing standpoint the cost of not taking these discounts is

very high so firms should always have enough cash on hand to take advantage

of them

Deterioration of the firmrsquos credit rating

25

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 26: Pratik

Credit rating take into account the level of liquid assets in the firm (quick ratio and

current ratio) An adequate supply of cash helps keep the firmrsquos current and quick ratios

high enough to maintain a good credit rating

High interest expense

if the firm is not able to pay bills on time it will have to pay high financing

charges

Possible financial insolvency Bankruptcy

Collection and Disbursement of Cash-

Managers always try to speed up the collection of cash from customers and to slow

down the disbursements of cash to supplies and other parties

28) Working Capital Cycle-281) Introduction-

The working capital cycle can be defined as-

The period of time which elapses between the point at which cash begins to be

expended on the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm The

upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm Each of the boxes in the upper part of the diagram can be seen as a

tank through which funds flow

These tanks which are concerned with day-to-day activities have funds constantly

flowing into and out of them

bull The chain starts with the firm buying raw materials on credit

bull In due course this stock will be used in production work will be carried out on the

stock and it will become part of the firmrsquos work in progress (WIP)

bull Work will continue on the WIP until it eventually emerges as the finished product

26

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 27: Pratik

bull As production progresses labour costs and overheads will need to be met

bull Of course at some stage trade creditors will need to be paid

bull When the finished goods are sold on credit debtors are increased

bull They will eventually pay so that cash will be injected into the firm

Each of the areas ndash stocks (raw materials work in progress and finished goods) trade

debtors cash (positive or negative) and trade creditors ndash can be viewed as tanks into

and from which funds flow

27

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 28: Pratik

Working capital is clearly not the only aspect of a business that affects the amount of

cash

bull The business will have to make payments to government for taxation

bull Fixed assets will be purchased and sold

bull Lessors of fixed assets will be paid their rent

bull Shareholders (existing or new) may provide new funds in the form of cash

bull Some shares may be redeemed for cash

bull Dividends may be paid

bull Long-term loan creditors (existing or new) may provide loan finance loans will need

to be repaid from time to time and

bull Interest obligations will have to be met by the business

282) Goals Of Working Capital Management-

~ Manage Firmrsquos Current Assets And Current Liabilities-

Main goal of WCM is to provide cash whenever there arise any liability It is not easy

to convert fixed assets into cash quickly so current assets are used for WCM If the firm

maintains very high level of current assets then it will not able to invest in fixed asset

this will tend to high level of block up of cash in current assets and firm will not be able

to increase its wealth this in turn can create problems at the time of liquidation

If the firm will maintain low level of CA then it will not able to meet its current

obligations So to manage current asset according to the current liabilities is very

essential for any company

~ Maintain Level Of Working Capital-

Working Capital is important for any firm whether big or small Working Capital helps

to maintain liquidity in the firm Not only liquidity but also to pay day-to-day expenses

If firm does not maintain a specific level of working capital then it can create problems

for the firm Sometimes due to lack of working capital even firm can face solvency or

bankruptcy

~ Trade Off Between Liquidity And Profitability-

28

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 29: Pratik

One of the objectives of working capital management is balancing the ldquoliquidityrdquo and

ldquoprofitabilityrdquo criteria while taking into consideration the attitude of management

toward risk

29) WORKING CAPITAL FINANCING-A firm must tap the right sources in financing its current assets requirements Figure

given below shows the financing-mix or sources-mix or working capital

A source is said to be spontaneous when its use is automatic or arise in the normal

course of business activities

A source is said to be negotiated when its use depends on prior deliberations between

the borrower and the lender The major sources of such financing are trade credit

(creditors and bill payable) and outstanding expenses Spontaneous sources of finances

are cost free

Therefore a firm would like o finance its curre3nt assets with spontaneous sources as

much as possible

29

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 30: Pratik

(1) Trade Credit (1) BODCash Credit (1) Share Capital

(2) Outstanding (2) Public Deposit (2) Retained

(3) Short-loans Earnings (3) Bills payable etc (3) Debentures

(4) Bill Discounting (4) Other Long-

(5) Commercial Paper

(6) Factory etc term funds

~ Long-term Financing -

Long-term working capital should be provided in such a manner that the enterprise

might have its uninterrupted use for a long time It can be conveniently financed by

shares debentures loans from financial Institution term loans from banks reserve

surplus etc

~ Short-term financing -

The category of funds covers the need of working capital for financing day-to-day

business requirements It includes Bank Credit Commercial papers Certificate of

deposit Commercial Bills Market and Factoring

~ Spontaneous Financing -

It refers to the automatic sources of short-term funds arising in the normal course of

business

The major sources of such financing are trade credit (creditors and bill payable) and

outstanding expenses Spontaneous sources of finances are cost free Therefore a firm

would like o finance its curre3nt assets with spontaneous sources as much as possible

30

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 31: Pratik

Chapter-3

3) Research Methodology-

A research design is the arrangement of the condition for collection amp analysis of data

It is the blue print of data

~ Introduction-

Research methodology is a way to systematically solve the research problem It may be

understood as a science of studying now research is done systematically In that various

steps those are generally adopted by a researcher in studying his problem along with

the logic behind them

It is important for research to know not only the research method but also know

methodology rdquoThe procedures by which researcher go about their work of describing

explaining and predicting phenomenon are called methodologyrdquo

Methods comprise the procedures used for generating collecting and evaluating data

All this means that it is necessary for the researcher to design his methodology for his

problem as the same may differ from problem to problem Data collection is important

31

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 32: Pratik

step in any project and success of any project will be largely depend upon now much

accurate you will be able to collect and how much time money and effort will be

required to collect that necessary data this is also important step

Data collection plays an important role in research work Without proper data available

for analysis you cannot do the research work accurately

31) Objectives of the study-

Study of the working capital management is important because unless the working

capital is managed effectively monitored efficiently planed properly and reviewed

periodically at regular intervals to remove bottlenecks if any the company cannot earn

profits and increase its turnover With this primary objective of the study the following

further objectives are framed for a depthanalysis

1 To study the working capital management of RKMarble Pvt Ltd

2 To study the optimum level of current assets and current liabilities of the company

3 To study the liquidity position through various working capital related ratios

4 To study the working capital components such as receivables accounts cash

management Inventory position

5 To study the way and means of working capital finance of the RKMarble PvtLtd

6 To estimate the working capital requirement of RKMarble Pvt Ltd

7 To study the operating and cash cycle of the company

32) Research Design-

321) Exploratory Research Design-

32

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 33: Pratik

Exploratory research helps determine the best research design data collection method

and selection of subjects Given its fundamental nature exploratory research often

concludes that a perceived problem does not actually exist

33) Data collection Tool-There are two types of data collection methods available

331) Primary data-

The primary data is that data which is collected fresh or first hand and for first time

which is original in nature Primary data can collect through personal interview

questionnaire etc to support the secondary data But in this project report there is no

use of primary data And even not used any primary data

332) Secondary data collection method-

The secondary data are those which have already collected and stored Secondary data

easily get those secondary data from records journals annual reports of the company

etc It will save the time money and efforts to collect the data Secondary data also

made available through trade magazines balance sheets books etc

This project is based on primary data collected through personal interview of head of

account department other concerned staff member of finance department But primary

data collection had limitations such as matter confidential information thus project is

based on secondary information collected through five years annual report of the

company supported by various books and internet sides The data collection was aimed

at study of working capital management of the company

34) SCOPE amp LIMITATIONS OF THE STUDY-

341) Scope of the study-

1 To study of working capital based on tools like working capital through ratio

analysis cash management performance evaluation management inventory

management

2 The study is based on last 4 years Annual Reports of RKMarble Pvt Ltd

33

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 34: Pratik

342) Limitations of the study-

3421) Due to confidentiality project report only contains data which was

available in annual reports balance sheet and company website

3422) Limited period-

This project is based on four year annual reports Conclusions and recommendations

are based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

3423) Limited area-

Also it was difficult to collect the data regarding the competitors and their financial

information Industry figures were also difficult to get

Chapter-4

4) Interpretation and analysis-

41) Balance Sheet and Size of Working Capital -

A balance sheet is often described as a ldquosnapshotrdquo of the companyrsquos financial condition

on a given date It does not show the flows into and out of the accounts during the

period

A balance sheet provides detailed information about a companyrsquos assets liabilities and

shareholdersrsquo equity

Assets are things that a company owns and can either be sold or used by the company

to make products or provide services Assets include physical property such as plants

trucks equipment and inventory things that canrsquot be touched such as trademarks and

patents And cash itself is an asset So are investments a company makes

Liabilities are amounts of money that a company owes to others This can include all

kinds of obligations like money borrowed from a bank rent for use of a building

money owed to suppliers for materials payroll a company owes to its employees

34

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 35: Pratik

environmental cleanup costs or taxes owed to the government Liabilities also include

obligations to provide goods or services to customers in the future

Shareholdersrsquo equity is part of the companyrsquos liabilities

They are funds ldquoowingrdquo to shareholders (after payment of all other liabilities) In other

words it is the money that would be left if a company sold all of its assets and paid off

all of its liabilities This leftover money belongs to the shareholders or the owners of

the company

The following formula summarizes what a balance sheet shows

ASSETS = LIABILITIES + SHAREHOLDERSrsquo EQUITY

A companyrsquos assets have to equal or ldquobalancerdquo the sum of its liabilities and

Shareholdersrsquo equity

~ In this project report only those methods and points have taken by which company

measures his position of current assets and liabilities Because company thinks that

there is no requirement of all the calculation They calculate only those ratios and

working capital methods which actually shows companies current position Although

this company make all those financial assessment statements which are required in

under Companies Act-1956

Project is based on-

This project is based on five year annual reports Conclusions and recommendations are

based on such limited data

The trend of last four year may or may not reflect the real working capital position of

the company

35

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 36: Pratik

1 Annual report of RKMARBLE PVTLTD 2006-07

2 Annual report of RKMARBLE PVTLTD 2007-08

3 Annual report of RKMARBLE PVTLTD 2008-09

4 Annual report of RKMARBLE PVTLTD 2009-10

The requirement of companyrsquos last four year Balance Sheet As follows-

PARTICULARS 2009 2008 2007 2006

Rs Rs Rs Rs(A) SOURCES

OF FUNDS

Shareholderrsquos

Fund

a Share Capital 631557000 631557000 210519000 210519000b Reserves amp

Surplus 1222272101726218351 757178319 533353633

1853829101 1357775351 967697319 743872633Loan Funds

a Secured Loans 21213810 465286672 177734222 476408145b Unsecured

Loans 212101522Nil 1005846 52381270

233315332 465286672 178740068 528789415Deferred tax

liability -- Nil 8095252

2087144433 1823062023 1146437387 1280757300APPLICATION

OF FUNDS

36

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 37: Pratik

Fixed Assets-

Gross Block 1317744204 1288819047 1515317426 1467404371Less

Depreciation -808478678(839919465) (921224640) -824547062

Net Block 509265526 448899582 594092786 642857309Capital work In

Progress 289066212633 6773177 79998466

Investments 116165596 63117050 32743750 319000Current Assets

Loans amp

Advances

a Inventories 162919124 59525304 80072275 84762968b Sundry

Debtors 186536141128915638 160808613 156660599

c Cash amp Bank

Balance 9953334588999018 71041834 31650698

d Other Current

Assets 1785808 1680502 950825 1032760

e Loans amp

Advances 10156632531403702208 463788031 512924855

Lesscurrent

iabilities amp

provisions

a Current

liabilities 4364190940781632 40370679 86742524

b Provision 14992437 12388575 232527392 142706831 net current

assets 14078033251252547679 503763507 557582525

Deferred tax

assets 5388108055285079 9064167 Nil

Total 2087144433 1823062023 1146437387 1280757300 Size Of Working Capital

SCHG Current assets

loans and advances

2009 2008 2007 2006

Inventories

Block amp Laffars 64092260 3503050 22547046 25642814

37

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 38: Pratik

Marble slabs 96721253 53460214 54258193 57423643

Consumables amp stores 2105611 2562040 3267036 1696511

162919124 59525304 80072275 84762968

Sundry Debtors

(unsecured and

considered good)

More than six months

old

47378424 22227386 66938222 39015642

Others 139157717 106688252 93870391 117644957

186536141 128915638 160808613 156660599

Cash and bank balance

Balance in scheduled

bank in

Current account 62383407 30770043 40538052 6705052

Fixed deposit account 22108300 32131693 12318300 11908300

Cash in hand 15041638 26097282 18115482 12992346

99533345 88999018 71041834 36150698

Loans and advances

Advance recov in cash

or in kind or for value

to be received

1011893909 1026597424 463788031 512924855

Custom duty

recoverable

1080941 Nil _ _

Service tax paid under

GTA paid under protest

2688403 Nil _ _

Other current assets 1785808 1680502 950825 1032760

1017449061 1028277926 464738856 513957615

Total Assets(A) 1466437671 1305717886 776661578 787031880

SCH Current liabilities

amp provision

Current liabilities

Sundry creditors-due of

micro and small

enterprise

265377 1097616 811387 2979269

Sundry creditors others 4994392 2845435 11483134 53951229

Outstanding liabilities 21921452 12855903 22114586 25086944

Advance from

customer

594970 2425956 4735369 3618143

Earnest and retention 1033301 1105506 1236203 1106939

38

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 39: Pratik

money

Income tax fringe

benefit amp wealth

tax(net of provision)

14832417 20451216 _ _

43641909 40781632 40370679 86742524

Provision

Provision for taxation _ _ 220406000 133535000

Provision for gratuity 14581720 12082206 12121392 9171831

Provision for leave

encashment

410717 306369 _ _

14992437 12388575 232527392 142706831

Total current

liabilities(B)

58634346 53170207 272898071 229449355

Total (A-B) 1407803325 1252547679 503763507 557582525

42) Calculation of Working Capital Management-

A) Assessment of current assets-

RKMARBLE PVTLTD is increasing his assets every year and it is very important

because market of marble industry have huge demand of transport facility cash

payment and receipt because this market all most 60 running on credit basis This is

very good thing that company is having sufficient cash in hand and bank

39

Year Increasedecrease Current Assets Growth

2006-2007 Base year 274107025 100

2007-2008 Increase 312873547 14

2008-2009 Decrease 279120465 -11

2009-2010 Increase 450774418 61

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 40: Pratik

2007-08 2008-09 2009-10

-20

-10

0

10

20

30

40

50

60

70

Assesment of CA

B) Assessment of current liabilities-

Year Liability Decrease

2006-2007 86762968 100

2007-2008 40370679 -5347

2008-2009 40781632 101

2009-2010 43641437 701

Companyrsquos liabilities are increasing manner but it doesnrsquot effect on the company

because in respect of liabilities assets are also increasing

40

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 41: Pratik

2007-2008 2008-2009 2009-2010

-60

-50

-40

-30

-20

-10

0

10

CL

C) Net Working Capital-

The amount of gross working capital during last four years is given in following table

Year Increasedecrease Net working cap Growth

2006-07 Base year 187344057 100

2007-08 Increase 272502868 45

2008-09 Decrease 238338833 -125

2009-10 Increase 407132981 7082

41

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 42: Pratik

2007-2008 2008-2009 2009-2010

-20

-10

0

10

20

30

40

50

60

70

80

Working Capital Evaluation

D) Net Working Capital to Net Assets Ratio-

Net working capital is difference between current assets and current liabilities This

ratio measures firmrsquos potential reservoir funds relate to net assets

Year Net working capital Net asset Ratio(In times)

2006-07 187344057 787031880 Base year

2007-08 272502868 776661578 035

2008-09 238338833 1305717886 018

2009-10 407132981 1466437671 028

42

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 43: Pratik

2007-08 2008-09 2009-10

0

005

01

015

02

025

03

035

NWC to NA

43) MANAGEMENT OF INVENTORY-

Inventory constitute major portion of current asset of public Ltd Companies in

India The manufacturing companies hold inventories in the form of Raw material

work-in-process and finish good

~ There are at least three motives for holding inventories-

(1) To facilitate smooth production and sales operation (Transaction motive)

1 average inventory 111222214 69798790 82417622

2 total current assets 312873547 279120465 450774418

3 cost of goods sold 752424441 873776892 688157782

43

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 44: Pratik

Ratiorsquos

a) inventory to gross

working capital(12)

035 025 018

b) inventory turnover

(31)

676 13 834

c) inventory

conversion period

(365b)

54 28 44

(2) To guard against the risk of unpredictable changes in usage rate and delivery time

(Precautionary Motive)

(3) To take advantage of price fluctuations (Speculative Motive) Inventories represent

investment of a firms funds and that is why management of inventory is necessary for

the maximization of the value of the firm The firm should therefore consider

(a) Costs (b) Return (c) Risk

Factors in establishing its inventory policy

~ EVALUATION OF INVENTORY MANAGEMENT PERFORMANCE-

A) Inventory turnover-

44

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 45: Pratik

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

B) Inventory conversion period-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

44) MANAGEMENT OF RECEIVABLE-

When firm sell goods for cash payments are received immediately and therefore no

receivables are created However when a firm sells goods or services on credit

45

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 46: Pratik

payments are received only at a future date and receivables are created It is an

essential marketing tool in modern

business trade Credit creates receivables which the firm is expected to collect in near

future A firm grants credit to its customers so that its sales are its customers so that its

sales are not lost to competitors

Account receivable constitutes a significant portion of the total current assets of the

business after inventories

~ Receivables arising out of credit has three characteristics-

I It involves an element of risk which should be carefully analyzed

II It is based on economic value To the buyer the economic value goods or services

pass immediately at the time of sale white the seller expects an equivalent value to be

received later on

III It implies futurity The customers from whom receivables have to collected in

future are called debtors and represents the firmrsquos claim or asset

A) Debtorrsquos turnover ratio-

This is also called ldquoDebtors velocityrdquo or ldquoReceivable Turnoverrdquo A firm sells goods on

credit and cash basis When firm extends credit to its customers book debts are created

in firms Ac debtors expected to converted in to cash over short period and thus

included in current assets

It is used to measure liquidity of the receivables or to find out period over which

receivables remain uncollected

Receivable turnover Ratio = Total Salesaverage debtors

Debt collection period = 365 Receivable turnover ratio

Year Sales Avg debtors Ratio Collection

Period

2007-2008 1716898385 158734606 1082 100

2008-2009 1908959105 144862126 1318 82

46

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 47: Pratik

2009-2010 2336174835 157725890 1481 73

Debtorrsquos turnover ratio-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

B) Debtorrsquos Collection Period-

2007-08 2008-09 2009-100

2

4

6

8

10

12

14

16

45) MANAGEMENT OF CASH -

Cash in the important current assets for the operations of the business Cash is the basic

input needed to keep the business running on continuous basis it is also the ultimate

47

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 48: Pratik

output expected to be realized by selling the service or product manufactured by the

firm The firm should keep sufficient cash neither more or less

Cash shortage will disrupt the firmrsquos manufacturing operation while excessive cash

will simply remain idle without contributing anything towards firmrsquos profitability

Thus a major function of the financial managers is to maintain a sound financial

position

~ Cash management involves following four factors -

1 Ascertainment of the minimum cash balance and controlling the levels of cash

2 Controlling cash in flows

3 Controlling cash outflows

4 Optimum utilization of surplus cash

Cash is required to meet a firmrsquos transactions and precautionary needs

A firm needs cash to make payment for acquisition of resources and services for the

normal conduct of business It keeps additional funds to meet any emergency situation

Some firms maintain cash for taking advantages of speculative changes in price of

input and output

~ EVALUATION OF CASH MANAGEMENT PERFORMANCE-

The following ratios have been used to evaluate different aspects of cash management

(1) Cash to Current Assets Ratio

(2) Cash turnover Ration

(3) Average age of Cash

~ The figures of cash and Bank Balance total current assets and current liabilities for

the year 2007 2008 and 2009 are given in the table

Item 2010-2009 2009-2008 2008-2007

48

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 49: Pratik

1 cash and bank

balance

99533345 88999018 71041834

2 current assets 312873547 279120465 450774418

3 current liabilities 43641909 40781632 40370679

Ratio

a) Cash to Current

Asset

Ratio (12)

32 32 16

b) Cash Turnover Ratio

(31)

44 46 57

c) Average age of cash

(365b) days

829 8 6

A) Cash turnover in percentage-

2007-2008 2008-2009 2009-20100

10

20

30

40

50

60

B) Average age of cash (days)-

49

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 50: Pratik

2007-2008 2008-2009 2009-20100

05

1

15

2

25

46) Analysis through working capital ratio-

A study of the causes of changes in uses and sources of Working Capital is necessary to

observe that whether working capital is serving the purpose for which it has been

created or not In this technique for each aspect of analysis certain ratios are computed

and then results are compared with standard ratio or industry average

The ratio analysis provides guides and clues especially in sporting trends towards better

or poorer performance and in finding out significant deviation for any average or

relatively applicable standards

~ The following are the important ratios to measure the efficiency of working capital-

461) Ratios relating to liquidity of working capital -

Liquidity ratios are used to measure the ability of firm to pay its maturing obligation in

time This ratio helpful for both short-term creditors and internal management of the

firm

~ The following are types of ratios relating to liquidity of working capital-

A Current Ratio -

50

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 51: Pratik

It is most common measure for measuring liquidity It is also called ldquoWorking Capital

Ratiordquo It expresses relationship between CA amp CL

Current Assets

Current Ratio = ----------------------

Current Liabilities

Year Current assets Current liabilities Ratios

2007-2008 312873547 40370679 81

2008-2009 279120465 40781632 71

2009-2010 450774418 43641437 101

The acceptable norms for this ratio is 21 considering this it can be said that company

has maintained sound ratio over three year

B Quick Ratio -

It is also known as liquid ratio or acid test ration It is a relation between quick assets

and quick liabilities It is more useful in knowing the liquidity of firm than current

ratio

Quick Assets

Quick Ratio = ----------------------

Current Liabilities

Year Quick assets Current liabilities Ratios(times)

2007-2008 696589303 40370679 171

2008-2009 326192582 40781632 81

2009-2010 1303518547 43641437 291

The acceptable norm for this ratio is 11 but the company as already maintained it

above the norms which indicate sound financial position

C) Current Liabilities to Total Assets Ratio -

This ratio shows the relationship between current liability and total assets

[Net Fixed Assets + Investment + Current Assets]

51

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 52: Pratik

Current Liabilities

Current Liabilities to Total Assets Ratio = ----------------------

Total Assets

Year Current Liabilities Total Assets Ratio (times)

2007-2008 40370679 1146437387 0035

2008-2009 40781632 1823062023 0022

2009-2010 43641437 2087144433 0020

D) Current Assets to Total Assets Ratio -

The ratio brings out the percentage of current assets to total net assets of the business

This ratio indicates the extent of liquidity nature of assets required in comparison with

total net assets The formal for ratio is given below

Current Assets

Current Assets to Total Assets Ratio = ----------------------

Total Assets

Year Current assets Total Assets Ratio (times)

2007-2008 312873547 1146437387 027

2008-2009 279120465 1823062023 015

2009-2010 450774418 2087144433 021

E) Defensive interval Ratio-

Liquidity ratio revealing the ability of the business to meet its current debts It indicates

the period of time the entity can operate on its current liquid assets without needing

52

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 53: Pratik

revenues from next periods sources The ratio equals defensive assets (cash

marketable securities and receivables) divided by projected daily operational

expenditures less noncash charges

2007-2008 2008-2009 2009-2010

F) Capital turnover Ratio-

A companys annual sales divided by its average stockholders equity Capital turnover

is used to calculate the rate of return on common equity and is a measure of how well a

53

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 54: Pratik

company uses its stockholders lsquoequity to generate revenue The higher the ratio is the

more efficiently a company is using its capital Also called equity turnover

Sales

Capital turnover - --------------------

capital employed

2007-2008 2008-2009 2009-2010

Capital Turnover

47) My working at RKMarble PvtLtd

54

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 55: Pratik

Besides that it is very important to learn external things related to office

work In this thing I was checking daily sales report which is on an average

40 lakhday and this is a big deal for a company and all the report which I

was checking of sale these are very confidential reports And to arrange

them in sequence Other than that I was checking purchase report of the

company it was also a very good work because we can analyse that how

much transportation services and other lubricants machinery Equipments

Company purchasing For the fulfillment of their daily requirement I was

learning tally programme also to learn how to do entries in computer and

their adjustment in software The sub accountant of the finance department

was helping me to learn everything Few days I was with data analysis

department who was teaching me everything related to primary stage work

that how to arrange data related to marble Laffars blocks these are in

tones Along with that I was checking the all billing payments and receipts

of the company I was getting problem in checking the bills because

sometimes I have to adjust them with previous related bill Than some time

I was with the head of department to know about the internal tricks like

how to reduce expenditure and what we can do at the time of raising

royalty and how they are arranging the salary of the employees And all

these works are very important to understand day to day working of

company and working capital management

Chapter-5

55

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 56: Pratik

~ Findings-1 Current assets are in good position it increases by 51 which is a symbol of strong

position

2 Current liabilities also increase by 6 But it doesnrsquot matter because in respect of it

current assets are more than that which is very high

3 Net working capital is also in good position It is increased by 5832

4 Inventory turnover is 44 times but turnover is also increased

5 Debtorrsquos turnover ratio is decreased by 9 times from last year It means company is

doing transaction on cash basis rather than credit basis it is also a good sign for

company

6 Cash is also increased

7 Current ratiorsquos acceptable norm is 21 and companyrsquos last year ratio is 101 it means

company is doing very well It is increasing its assets every year

8 Quick ratiorsquos acceptable norm is 11 and ratio of last yearrsquos average ratio is

approximate 18331 it means it is also acceptable

CONCLUSION-

56

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 57: Pratik

On the basis of above calculation it is noticed that solvency position of the company

does not differ significantly from the set std of sound financial status So the first

hypothesis stand accepted in term of conclusion that the companyrsquos solvency status is

safe and sound Company current ratio is also in sound and safe

The calculation particularly tested with respect of evaluation of management

receivables performance and it is also accepted leading to the conclusion that the

company has followed a sound financial policy during period of study

Chapter-6

57

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58

Page 58: Pratik

SUGGESTIONS-

Company has excess assets so that it can use its assets in other investment can

purchase more mining land for more production

Company can convert its assets in cash and can easily pay its pending debts So

that liabilities can decrease

Company should make better marketing strategy (promotion strategy) So that it

can increase itrsquos selling all over the world

Company can improve upon its brand lsquoWonder Marblersquo

58