VALI Project 25-5-12

Working Capital Management Nandi Pipes

INTRODUCTION

Capital required for a business can be classified under two main categories viz.,

(i) Fixed capital, and

(ii) Working capital

Every business needs funds for two purposes- for its establishment and

to carry out its day-to-day operations. Long-term funds are required to create

production facilities through purchase of fixed assets such as plant and

machinery, land, building, furniture, etc. Investments in these assets represent

that part of firm’s capital which is blocked on a permanent or fixed basis and is

called fixed capital. Funds are also needed foe short-term purposes for the

purchase of raw materials, payment of wages and other day-to-day expenses,

etc. These funds are known as working capital. In simple words, working

capital refers to tat part of the firm’s capital which is required for financing

short term or current assets keep revolving fast and being constantly converted

into cash and this cash flows out again in exchange for other current assets.

Hence, it is also known as revolving or circulating capital or short-term capital.

In the words of Shubin, “working capital is the amount of funds

necessary to cover the cost of operating the enterprise. “

According to Genestenberg, “Circulating capital means current assets of

a company that are changed in the ordinary course of business from to another,

as for example, from cash to inventories, inventories to receivables, receivables

into cash.

Meanings and Definition of working capital

The term “working capital” stands for that part of the capital, which is

required for the finance of working or current needs of the company. Working

capital is life blood of every company whether it is manufacturing and non

manufacturing one without adequate working capital, there can be no progress

in the industry. The term describes a category of management decisions on

AVR&SVR CET. NANDYAL 1


specific types of assets and current liabilities. In turn those decisions should be

routed in the overall valuation of the firm.

Definitions

According to West And Brigham,

“Working capital refers to a firm’s investment in short term assets –

cash, short term securities, accounts receivables and inventories.”

According to Hoagland,

“Working capital is description of that capital which is not fixed but th

more common use of the working capital to consider it as the difference

between book value of assets and current liabilities.

According to Bonneville,

“Any acquisition of funds which increase the current assets increase the

working capital also, for they are one and the same”.



NEED FOR THE STUDY

To maximise the shareholder’s wealth a firm should earn efficient

returns from its operations, largely from sales. Thus adequate amount of funds

are to be invested in current assets for successful sales and smooth &

uninterrupted production process. Because of circulating nature of current

assets, working capital is also called as “Circulating Capital”. The

management of Working Capital should be prompt to initiate an action and

correct imbalances otherwise, this lead to excess or inadequate working capital.

Both the conditions are not desirable as they impact the profitability and short-

term solvency of the firm. Hence, the present study is needed to evaluate the

working capital management at Sujala Pipes Pvt. Ltd.,.



OBJECTIVES OF THE STUDY

The main objective of the study is to evaluate the working capital

management at SUJALA PIPES PVT LIMITED during the period 2007-2010.

The following are the sub-objectives of the study.

To study the liquidity position of the Sujala Pipes Pvt. Ltd

To examine the efficiency of working capital management with the

help of turnover ratios.

To understand the structure of operating cycle at Sujala Pipes.



SCOPE OF THE STUDY

The scope of the study is defined below terms of concepts adopted and

period under focus.

First, the study “management of working capital” i.e “gross” and “net”

is used in measuring profitability and liquidity respectively and also to arrive at

various objectives of the study.

Secondly, the study is based on the annual reports of the company for a

period of five years from 2006-2007 to 2010-2010 (so we study 2007, 2008,

2009, 2010, 2010).



RESEARCH METHODOLOGY

Research plan: For these study the research plan is essentially a

combination of qualitative and quantitative aspects of Analytical

research.

Data collection: The sources of data is collected mainly from

Secondary data : The profit and loss and balance sheet statements are

collected from

o Company’s annual reports and

o Finance section

Tools of analysis

The tools used for analysis are

o Financial ratios

o Operating cycle analysis



LIMITATIONS OF THE STUDY

The study has been carried out at APCW and hence access to company

level data (apart from the data available in the annual reports) was

restricted.

There is only one months period two finish the project, due to lack of

time in depth of financial matters have not been touched.

The information available in the balance sheet have taken from the

published annual reports,



WORKING CAPITAL MANAGEMENT

INDUSTRIAL PROFILE

Plastics which are used for the industrial purpose is called industrial

plastics. It is of 2 types.

1. Structural Foams.

2. Sheets and Films.

01. Structural Foam

It is of two Types

a) Rigid Foam b) Flexible Foams.

Rigid Foams

Rigid polyether foams in sandwich foams have wide application a

building component because of the stiffness imparted by the thick foam center

for a given weight. They are also best insolvent known today and so have wide

applicable in fitted slabs and are formed into cavities at the building site. A

very important use of rigid foam is fur furniture parts to reproduce wood

structures.

Flexible Foams

Flexible Foams, usually polyether urethane are made in slab foam up to

8 feet (2.4 meters) in which and, as much as 5 feet (1.5 meters) high, these are

cut to required shapes or sizes or molded. Used almost exclusively by the

automobile industry for crash pads, arm sets and dash board covers.

Sheet and Films

These include vinyl’s plastics and cellulose acetate vinyl. Plasticized

poly vinyl chloride by a calendaring process, can be sawn, heat sealed or



electrically sealed, it is used for apparel, door curtains. Protective clothing are

made in many colored, transparent, translucent, or opaque. Polyvinyl chloride

can be with sensitive adhesives and printed with decorative patterns. Thicker

Sheet is colored and embossed for women handbags, luggage and seat covers.

This film is used for packaging, especially for meat and fruits. If biaxial

stretched, it forms a shrink film that retracts up to 60%. Another important use

is, as a laminate for printed paper. Flooring tiles, largely made of PVC are

built up by lamination and decorated either by printing or by rolling in color

chips. The common title is vinyl asbestos, pressed into sheets on calendars and

ten embossed and cut into titles. Rigid PVC Sheets has dimensional stability

ad flame redundancy and is often used in corrugated form for building

construction, partitions, drainage gutters, industrial lightening panels are the

other uses. Styrene film, is widely used for rigid containers, Laminating by

press and casting especially packing, molding.

Laminating by Press and Casting

Formed plastics are produced by forming gas bubbles in the molten

material. Plastic Products are further shaped and finished by means of ranging

from mechanical through laser machining ultrasonic welding and radiation

processing. Vinyl Chloride, discovered in 1815, is formed by the reaction of

acetylene with hydrochloric acid. The polymer Vinyl Chloride (PVC) was first

produced in 1912. Plastic research and manufacture was proceedings on a

considerable scale in the US Study of Polymers in the laboratory of E.I.

DuPont De Nemours and Company from 1928 onwards, which led to the super

polyamide or Nylon.

Vinyl Chloride is made from ethylene and chlorine. Though acetylene

can also be used. Then polymer is mainly processed in a highly plasticized

from with varying degrees of flexibility, by a calendaring, extraction molding,

often by “ dry blends ”, mixtures made below temperature from polymer

plasticizer and pigments plasticizer are chosen to maintain flexibility at low

temperature. The range of applications of flexible poly vinyl chloride is



enormous and cover flouring, wire insulation, home furnishing, piping etc.,

Acrylonitrile – Butanide – Styrene posses a wide range of properties,

notably scuff resistance, refrigerator linings, food and detergent, containers

because of its chemical resistance to heat. Thick acroconistsle butanide-styrene

sheet is used for sports car, bodies and automobiles door. Nylon films mostly

from nylon 6.6 are ideal for food packaging, because of strength,

impermeability to oils and Greases and high melting point. As such film is

stream strippable; they find many uses in hospitals. They are frequently used

in laminations. Acrylic films have resistance to ultraviolet light and external

exposure, there prime use in surfacing laminations..

PVC PIPES IN INDIA

Chief occupation in India is agriculture. For the developing country like

India, modernization of the agriculture practices has a pivotal place in

improving the economy states and the process of modernization includes usage

of high productive tools and agriculture practices. By using pipes, water can be

transported efficiently with lesser no wastages, from the place where there is

plenty of water available to the place where there is no less scarcity necessity

of water. Pipes have been manufactured in India from the 1960’s on imported

lines and thereafter indigenous plans were also established. There are few pipe

manufactures up to 1978 to 1979 and production capacity was increased

rustically during 1979 – 1983 Cement pipes were the conventional pipes used

for irrigation in the lift irrigation schemes. Now a day’s PVC pipes replaced

the conventional pipes and they constitute almost 90% in the respect (because

of breakdowns, difficulty in immovability etc.). The use of polymer Vinyl

Chloride pipes in agricultural fields has lessened the water seepage which was

predominant in earlier days.

The Government of India allowed the imports of sophisticated

machinery of technology, which are not available indigenously. The

companies Europe and West Germany have competition in machinery

producing plastics and it is an essential need for them to carry out continuous



research for the up-to-date technology, which given higher output and good

quality products.

The State Government of A.P. is using rigid PVC pipes for irrigation

and water supplies for the past few years. The State Government is producing

PVC Pipes through APSIDC (Andhra Pradesh State Irrigation Development

Corporation) for its lift irrigation schemes and other development schemes.

The Panchayatraj Development is procuring pipes for the public water supply

schemes. The main distributors and individual connections can use these pipes.



COMPANY PROFILE

Mr.S.P.Y.Reddy (MP) started with a small plastic container

manufacturing around 30 years ago and soon graduated into pipes

manufacturing. With focus on quality and innovative marketing the group had

grown into a mutli product, mutli vocational entity.

We are into Manufacturing of PVC Pipes, HDPE Pipes, Storage

Containers, Flexible Hoses, Fittings and processing of dairy products.

The group had acquired majority stake in Panyam Cements two years ago.

After resolving all issues, production was restarted in the month of May 2007.

We believe with infrastructure and construction boom all around, the prospects

are excellent for this unit.

We have also initiated construction of Ethanol unit. We hope to

commence production by January, 2008. Our Vision is to have three successful

vertical entities plastics. Cement and Ethanol by 2008.

Our aim is to provide quality products, service to our customers and

enhance living standards of workforce.

ORIGIN

Rayalaseema, economically backward part of the Andhra Pradesh (state)

was has been identified fro-rapid industrialization to boost up the economic

level of the region. Nandyal Town in Rayalaseema was industrially developed

by the dynamic entrepreneur Sri.S.P.Y.Reddy, who is basically a Mechanical

Engineer, by setting up an Unit at Nandyal and manufactured black pipes in

1977. His determination and hard work has helped to him in overcoming the

problems faced in the initial years. With the financial assistance by the local

commercial banks.

Later he started a manufacturing of black pipes. This resulted in the

formation of a private limited company called “Sujala Pipes Private Limited,



by S.P.Y.Reddy as the Managing Director and group promoter. He got

financial assistance and Institutional assistance, which motivated him to setup a

unit at Nandyal. With a great hope and expectations he has started production

PVC Pipes for improving the water transport system.

Nandi Pipes, which are famous all over the country, stand for testimony

to Zeal, Perseverance, and hard work and for sighted vision of the one

individual. He is Mr.S.P.Y. Reddy, the Founder and Managing Director and

eminent techno entrepreneur and excellent mechanical engine. He left his plum

job at bar to bring to dynamism and energy and aspirations started

manufacturing of LDPE Pipes and later switched to PVC achieving

incomparable success. Sujala Pipes Private Limited is the Manufacturing of the

largest and most comprehensive range of UPVC Pipes in India.

PRODUCTION CAPACITY

Production Capacity of 22,200 metric tones per annul.

Nandi rigid PVC at a glance:

Color : Light Gray

Length : 6 Meters

Pressure Rating : 2.5 Kg., 4Kg, 6Kg, 10Kg, & 15 Kg/cm*cm.

Range Available : 20mm to 400mm O.

Manufactured with ISI mark is 4985: 2000

ESTEEMED CUSTOMERS

Nandi Pipes are proud to present list of customer, which includes big water

pipe line projects, dot projects panchayati Raj and industrial development

corporation. Etc.,

Satya Sai Water Schemes

Lorhen Project

NABARD Water Schemes

Karnataka Land Army Department



And also we undertake turkey projects for pipelines.



GROWTH AND DEVELOPMENT OF THE ORGANIZATION

The Sujala Pipes Private Limited to record an excellent growth from

1977 onwards.

1977 - Nandyal Region (Polythene Pipes)

1984 – 1985 - P.V.C. Pipes Rayalaseema Region.

1985 – 1987 - Rayalaseema, Telangana Region.

1987 – 1988 - Andre and Karnataka Region.

1989 – 1990 - Andre, Tamilnadu and Karnataka States.

1990 – 1992 - Andre, Kerala and Karnataka States.

Sizes

Various sizes rangin from ½ to 10 are offered to Customers. But for the

purpose of cubic space utilization in truck while transport organization is

adopting the technique like pipe in pipe.

Payment Period

The Company adopts zero credit policy and goods are not delivered

unless cash remittance is made. The same policy is also applicable to

authorized dealers of Sujala Pipes Private Limited.



TECHNICAL DETAILS ABOUT PVC PIPES

INGRADIENTS

PVC Resin

D.B.L.S.

T.B.L.S.

L.S.

C.S.

Static Acid

Hydro Carbon

Calcium Carbonate

Titanic Dioxide.

FUNCTIONAL DEPARTMENT OF THE COMPANY

Financial Department

Though initially the company approached the external sources for

financial aid, now the financial status of the company is very sound and is

being run only with self-finance except the loans taken on hypothecation of

machinery and stock from S.B.I. Nandyal and Karur Vysya Bank, Nandyal.

The Financial Departments is headed by the Financial Manager with the

help of four Accountants and other Clerks of the Department. The company

follows cash & carry policy. The product is not delivered until the cash is paid

and these transaction are look after financial department with the help of

marketing department.

Marketing Department

Executive Director heads Marketing Department. Marketing Manager is

in charge of all the operations who reports to Executive Director. Marketing

Manager and 35 Sales Representatives are under immediate control of

Executive Director. There are also 20 Salesmen who have to report to the sales



representatives above them.

Personnel Department

The Personal Department consists the details of the Executives and

Workers of the Organization. The organization in formed with

Sri.S.P.Y.Reddy. The General Manager of Executive Director who reports to

Managing Director. Two Marketing Managers. Financial Manager, Public

Relations Officer and Quality Control Officer who all Reports to Executive

Director. Other than Executives there are 1,500 Workers in the organization.

Panel consisting of Managing Director, Executive Director, General Manager

and Managers of concerned department makes the Recruitment and selection.

Apart from the attractive salaries company provides meals and health care

facilities.

Purchasing Department

The Perplexing situation that is confronted by the Manufacturer of the

PVC Pipes is Scarcity of resin. Though the Government of India has taken

various steps to improve Supply Conditions of PVC resin, the Indian

Manufacturers could meet only 50% of demand and remaining 50% is met

from imports.

The Major Petrochemical Companies are

Sri ram Vijay Limited.

Chem. – Plast Limited.

Reliance Petro Chemicals Ltd.,

National Organic Chemical Industries Ltd.,

Finale

Indina Petro Chemical Industries Ltd.,

The lead – time for the acquisition of raw material is 4 days.



HUMAN RESOURCES POLICIES AND PRACTICES

The following lines are highlights the human resources policies and

practices.

Effective Utilization of Manpower

To Provide good working condition.

To Promote industrial development.

Nandi Group of Organizations

1. Sujala Pipes Private Limited, Nandyal.

2. Sri Kanth Water Containers, Nandyal.

3. Mahanandi SWR Fitters, Nandyal.

4. Nandi Solvent Cement, Nandyal.

5. Mahanandi Mineral Water, Nandyal.

6. Nandi Milk Dairy Products, Nandyal.

7. S.P.Y.Reddy Educational Institutions, Nandyal.

PVC Pipes

Sujala Pipes Private Limited, Nandyal a premier enterprise of Nandi

Group is the well known manufacturer of the largest and most comprehensive

range of UPVC Pipes in India. Nandi Gold Pipes, with a diameter upto 400mm

are suitable for water tranportations, irrigation, plumbing, drainage, cable

ducting, bore wells, transfer of industrial effluents and electrical conduits.

The gamut of products covers all applications in which PVC Pipes can

be used. Nandi UPVC Systems are more cost effective than conventional. GI,

CI or AC systems besides being light in weight, durable and no corrosive.

They are also easy to handle, offer excellent flow characteristics and can be

transported and installed anywhere. With world class quality and customized

product development support, they enjoy the satisfaction of millions of

customers.



The unit also has world class qualify assurance systems ensuring products of uncompromising excellence, meeting all relevant ISI, BS, DIN and ASTM standards.

In addition to these features, extensive R & D facilities provide reliable

and committed support for new product development, implying that even if a

Nandi Customer is unable to acquire his precise requirement from our elaborate

ranges, Nandi also could supply customized products as per his own exclusive

specifications.

The two major types of plastics are

Thermosetting resins.

Thermoplasting resins.

THERMOSETTING RESINS

They become insoluble and infusible on heating. They are phonetic

resins, furnaresins amino plastics, alkyls and polyesters of unsaturated acids,

epoxy resins, polytehane’s and silicones.

THERMOPLASTICS RESINS

These can be melted and solidified repeatedly, unlikely thermosetting

resins. They include cellulose derivates and additional polymers. Other types

of resins include oil soluble or modified resins, plastics such as casein and

lignin extracted from natural products and special application synthetics such

as resins used as adhesives and as additives to paper and textiles.

Pipes Manufacturer in A.P.

The Major PVC Manufacturers in A.P.

Nandi Pipes

Finolex Pipes

Supreme Pipes

Monarch Pipes

Jam Sudhakar Pipes



Sri Lakshmi Venkateshwara PVC Pipes

Hasthi Pipes

And Many local manufacturers.

Factors contribution to the boom of PVC pipes market:

Less Weight

Non Corrosiveness

Excellent pressure resistance

Good Chemical and thermal Stability

Simple installation probability in handing

Super Weathering and

Economical.

Present Marketing Situation of PVC pipes:

Existence of large number of firms

Product differentiation.

Freedom of entry and exist of firms

Easy Availability.

BENEFITS OF PVC PIPES

Corrosion Resistance

Amuse to galvanic or electrolyte corrosion.

Chemical Resistance

PVC Pipes are not attacked by low or high concentration of acids.

Oxidizing agents, alkalis, oils facts and halogens.

Maintenance free

No Painting coating required.

Fire Resistance

Self Extinguishing

Flexibility



Flexibility in underground piping.

Variety of Joining Methods

Cementing, Heat Fusing, Threading, Flanged Compression fitting.

Biological Resistance

Fit for high purity water applications, and resist to rodent attack.

DETAILS OF NANDI PVC PIPES

Pipe Diameter Class Flow Range

mm inches class Pressure liter/sec.

20 0.5 5 10 0.07 – 0.13

25 0.75 5 10 0.13 – 0.25

32 1 5 10 0.25 – 0.50

40 1025 3 6 0.50 – 1.00

50 1.5 3 4 1.00 – 1.80

63 2 2 4 1.80 – 3.00

75 2.5 2 4 3.00 – 5.00

90 3 2 4 5.00 – 15.00

110 4 2 4 8.00 – 15.00

140 5 2 4 15.00 – 20.00

160 6 2 4 20.00 – 30.00

180 7 2 4 30.00 – 40.00

200 8 2 4 40.00 – 50.00

225 9 2 4 50.00 – 60.00

250 10 2 4 60.00 – 70.00

HDPE PIPES



SALIENT FEATURES OF NANDI HDPE PIPES

Manufactured as per ISI 4948: 1995 onwards

Pipes are manufactured either in long coils or 6 meter length

Depending on pipe dimension and customer requirements.

Best Quality pipes at most reasonable prices.

Pipes that meet your needs.

Special customer requirements are accepted.

STANDARD PIPE COIL LENGTHS OF VARIOUS SIZES

Pipe Size Available Coil Length

20 – 25mm 1000mtrs.

30 – 40mm 600 mtrs.

50mm 400 mtrs.

63 – 75mm 300 mtrs.

90 – 110mm 50mtrs.

125mm & above 12 & 6 mtrs (single length)

WHAT NANDI OFFERS YOU...?

Our job goes beyond just selling pipes, as we are committed to the

complete customer service.

We take up pipeline projects on ‘TURNKEY’ basis.

We offer HDPE pipes solutions in place of conventional pipes (PVC,

GI, Concrete etc.,) at competitive prices guaranteed service.

We provide water lines for agricultural needs with free but jointing and

testing.

We extend service free of cost any future leakages / defects in the pipe

line caused by faculty manufacturing or faulty jointing for a period of 20

years.

We offer proclaim facility (for earth work) to farmers who buy

minimum 100 lengths (6mtrs length) at concessional rates.



Physical and Chemical Properties of Nandi HDPE Pipes:

More Flexible

Light in Weight

Corrosion Resistant

Chemically Inert

Economical

Smooth inner and outer finishing resulting in low flow resistance and

low power consumption.

Availability of pipes in long coils reduces much of the cost of laying.

Jointing and additional couplers.

APPLICATIONS OF NANDI HDPE PIPES

Agriculture and Drinking water lines.

As delivery pipes for single phase & 3 phase submersible pumps.

As suction and delivery pipes for jet pumps

As suction and delivery for centrifugal & monoblock pumps

As delivery pipe for open well submersible pumps.

Telecom & Electrical ducting.

Slurry disposal.

Industrial Flow applications.

Sewage Pipe Systems.

PRODUCT PROFILE

We shall look at the basic data about plastics and particularly these

properties. Which are of use in practical working with plastics, plastics are

manmade materials. The oldest raw materials for producing plastics are carbon

materials obtained from coal tar. Today the majority of raw materials are

obtained from petrochemicals sources and they can be economically produced

in large quantities. Plastics have change out world day by day. They are



become more important. They own their success to whole series of advantages,

which they have over conventional materials such as

Light Weight

Excellent Mouldability

Attractive Colours

Low Energy Requirement for Conversion

Low Labour

Less Cost of Manufacturing

Low Maintance

High Strength of Manufacturing

Corporation Resistant

Aesthetics without Surface Treatment

Compatibility with Reinforcing Materials

EMERGENCY OF PVC CONCEPT AND ITS SOCIALIZATION

Growing domestic agricultural and industrials requirements of the

modern Words werer in quest for the new substance, which could serve the

needs and wants of the to days man although metals were meeting major chunk

of the fabrication demands of the modern world, formability and weight

constraints were real impediments in light of this situation the substance called

plastic which has got all desired characteristics to serve the modern man was



discovered this carbonaceous substance with excellent physical stability could

replace most of the earlier used metals wood etc.,

Although acceptance and socialization or this new innovation or this

new innovation was slow it has shown a study encroachment into the life of the

todays an Now plastics are omnipresent and serving numerous fields

agricultural heavily modernized communication, optical liners in

communication sector fiber equipment are only few application in multi

various uses of the plastic.

PVCPIPES AND ITS ECONOMICROLE

Chief occupation in India is agriculture. For the developing countries

like India, modernization of the agricultural practices assumes pivotal place in

improving the economic status and the processes of modernization include

usage of high productive plastic supplement of great extent manufacturing of

tools required for new agricultural practices.

The usage of Poly Viny Chloride pipes in agricultural fields, lessen

water seepage, which was predominate in earlier practices. With the services of

PVC pipes, water can be transported efficiently with lesser losses. From the

place or higher water potential to the place of lower potential.

Presently the revolutionary tried in water management speaks much

about drip irrigation, which is developed in Israel and is practiced by all

agriculture based nations in the world. Drip irrigation greatly used PVC pipes

as core tools of implementation with the service or this sort, PVC pipes one

way or the other strengthening the hands of country’s economy.



A part with the referred PVC pipes supplemented with fitting used in

houses for electric connections. Sewage connections and other domestic

purposes. A part from these two applications it has got wide application even in

industrial sector. PVC pipes with much unique heart, chemical and physical

characteristics serve many industrial purposes.



STERICAID

HYDROCARBON

CALCIUM CARBONATE

TITANIC DIOXIDE

MANUFACTURING PROCESS

Hot forward extrusion is employed for the manufacturing of PVC pipes

resin with weighted amounts of other ingredients, which are carried to the hot

chambers, the high temperature of hot chamber melts ingredient and content of

the given forward transit to get hallow pipes of required dimension. As the

pipes come out of the heat chamber, cool the pipes immediately. Pipes of

desired length are cut with the aid of stop and power hacksaw. Production is

made in various sizes ranging from “½ to 10” according to usage.

REINFORCED PLASTIC

Although plastic have high strength to ratio, they are not as strong as

metals and deform permanently under load it cannot he placed under extremely

high or low temperature like metals and other and black as reinforcing fillers

have a way for making strength bearing plastic and they are at a times replace

steel.

ALLOYS

Physical mixture of two polymers is termed as alloys physical blending

of two polymers is needed because every polymer has certain set of good



properties design of a specials products which should have specific set

properties may not obtain if it is made only from one polymer by blending two

polymers is highly amorphous and rigid but has low impact strength if it is

blended with, materials product will he of high strength rigid

Thus by alloying a wide range of product can be made although ugh

alloys are physical mixture of polymers hydrogen bonds formed between some

special ionic groups with hydrogen atom of the carbon of the chain such a

bound is very useful in alloy formation because it impacts processing flexibility

with and use of cross linked products.



ORGANISATION STRUCTURE

OF

NANDI BRAND PIPES PVT. LTD.,

FFF


Managing Director

Public

Relation

Officer

Marketing

Manager

Production

Manager

Purchase

Manager

Financial

Manager

MachineTechnician

QualityControl

ProductionSupervisor

Foreman MachineOperator

LabTechnician


REVIEW OF LITERATURE

Classifications of working capital

Working capital may be classified in two ways:

(a) On the basis of concept.

(b) On the basis of time.

On the basis of concept,working capital may be classified as:

Gross working capital

Net working capital

Gross working capital

The gross working capital refers to the firms' investment in the total

current assets of the enterprise. The current assets are those assets with in the

ordinary course of business can converted into cash with in the short period of

normally one accounting year.

Net working capital

The net working capital can be defined into two ways the most common

definition of working capital is difference between current assets and current

liabilities.

Net working capital can also be defined as that portion of firm's current

assets. Which are financed with long-term funds?

On the basis of concept, working capital is classified as gross working capital

and net working capital as discussed earlier. This classification is important

from the point of view of the financial manager.

On the basis of time, working capital may be classified as:

1. Permanent or fixed working capital.

2. Temporary or variable working capital.



1. Permanent or fixed working capital.

Permanent or fixed working capital is the minimum amount which is

required to ensure effective utilization of fixed facilities and for maintaining the

circulation of current assets. There is always a minimum level of current assets

which is continuously required by the enterprise to carry out its normal

business operations..

2. Temporary or variable working capital.

Temporary or variable working capital is the amount of working capital

which is required to meet the seasonal demands and some special exigencies.

Most of the enterprises have to provide additional working capital to meet the

seasonal and special needs. The capital required to meet the seasonal needs of

the enterprise is called seasonal working capital.

IMPORTANCE OR ADVANTAGES OF ADEQUATE WORKING

CAPITAL

Working capital is the life of blood and nerve canter of a business. Just as

circulation of blood is essential in the human body for maintaining life,

working capital is very essential to maintain the smooth running of a business.

No business can run successfully without an adequate amount of working

capital. The main advantages of maintaining adequate amount of working

capital are as follows:

1. Solvency of the business. Adequate working capital helps in

maintaining solvency of the business by providing uninterrupted

flow of production.

2. Good will. Sufficient working capital enables a business concern

to make prompt payments and hence helps in creating and

maintaining goodwill.

3. Easy loans. A concern having adequate working capital, high

solvency and good credit standing can arrange loans from banks and

others on easy and favourable terms.



4. Cash discounts. Adequate working capital also enables a

concern to avail cash discounts on the purchase and hence it reduces

costs.

5. Regular supply of raw materials. Sufficient working capital

ensures regular supply of raw materials and continuous production.

6. Regular payment of salaries, wages and other day-to-day

commitments. A company which has ample working capital can

make regular payment of salaries, wages and other day-to-day

commitments which raises the morale of its employees, increases

their efficiency, reduces wastages and costs and enhances production

and profits.

7. Exploitation of favorable market conditions. Only concerns

with adequate working capital can exploit favorable market

conditions such as purchasing its requirement in bulk when the

prices are lower and by holding its inventories for higher prices.

8. Ability to face crisis. Adequate working capital enables a

concern to face business crisis in emergencies such as depression

because during such periods, generally, there is much pressure on

working capital.

THE NEED OR OBJECTS OF WORKING CAPITAL

The needs for working capital cannot be over emphasized. Every

business needs some amount of working capital. The needs for working capital

arises due to the time gap between productions and realization of cash from

sales. There is an operating cycle involved in the sales and realization of cash.

There are time gaps in purchase of raw materials and production; production

and sales; and sales and realization of cash. Thus working capital is needed for

the following purpose:

1. For the purchase of raw materials, components and spares.

2. To pay wages and salaries.



3. To incur day- to-day expenses and overhead costs such as fuel,

power and office expenses, etc.

4. To meet the selling costs as packing, advertising, etc.

5. To provide credit facilities to the customers.

6. To maintain the inventories of raw material, work-in-progress, stores

and spares and finished stock.

FACTORS DETERMINING THE WORKING CAPTIAL

REQUIREMENTS

1. Nature or Character of Business. The working capital requirements of a

firm basically depend upon the nature of its business. Public utility

undertakings like Electricity, Water Supply and Railways need very limited

working capital because they offer cash sales only and supply services, not

products, and as such no funds are tied up in inventories and receivables.

2. Size of Business/Scale of Operations. The working capital requirements of

a concern are directly influenced by the size of its business which may be

measured in terms of scale of operations. Greater the size of a business unit,

generally larger will be the requirements of working capital.

3. Production Policy. In certain industries the demand is subject to wide

fluctuations due to seasonal variations. The requirements of working

capital, in such cases, depend upon the production policy. The production

could be kept either steady by accumulating inventories during slack

periods with a view to meet high demand during the peak season or the

production could be curtailed during the slack season and increased during

the peak season.

4. Manufacturing Process/Length of Production Cycle. In manufacturing

business, the requirements of working capital increase in direct proportion

to length of manufacturing process. Longer the process period of

manufacture, larger is the amount of working capital required



5. Seasonal Variations. In certain industries raw materials is not available

throughout the year. They have to buy raw materials in bulk during the

season to ensure an uninterrupted flow and process them during the entire

year. A huge amount is, thus, blocked in the form of material inventories

during such season, which gives rise to more working capital requirements.

6. Working Capital Cycle. In a manufacturing concern, the working capital

cycle starts with the purchase of raw material and ends with the realization

of cash from the sale of finished products. The cycle involves purchase of

raw materials and stores, its conversion into stocks of finished goods

through work-in-progress with progressive increment of labour and services

costs, conversion of finished stock into sales, debtors and receivables and

ultimately realization of cash and this cycle continues again from cash to

purchase of raw material and so on.

ESTIMATED WORKING CAPITAL REQUIREMENT

“Working capital is the life-blood and controlling nerve centre of

business.” No business can be successfully run without an adequate amount of

working capital. To avoid the shortage of working capital at once, an estimate

of working capital requirements should be made in advance so that

arrangements can be made to procure adequate working capital. But estimation

of working capital requirements is not an easy task and a large number of

factors have to be considered before starting this exercise.

COMPONENTS OF CURRENT ASSETS:

(i) Cash (in hand, in bank, and in transit)

(ii) Investments (short-term only, and not long-term)

(iii) Inventories (raw materials and consumable stores and

spares, work-in-process, and finished goods)

(iv) Sundry Debtors (also known Bills Receivable and

Accounts Receivable)

(v) Loans and advances (granted by the Company)



COMPONENTS OF CURRENT LIABILITIES

(i) Sundry Creditors (also known as Bills Payable and

Accounts Payable)

(ii) Trade Advances (given to the company for supply of

goods)

(iii) Short-term Borrowings from Banks and Others

(iv) Provisions (for taxes, bad debts, exchange rate

fluctuations, etc.)

Better business sense, however, calls for keeping the currents assets at

the minimal level, whereby minimum sources of funds, (both current and non-

current Liabilities), may be required to finance them, and thereby, the

“inventory carrying Costs”, and the “interests outgo” may as well be kept at the

minimal level

WORKING CAPITAL MANAGEMENT

Effective management and control of the various components of

working capital has been rated as one of the most important and vital functions

of financial management in any of the industrial and business units, based on

varied parameters, discussed hereunder:

A. Flexibility:

Working capital Management is highly flexible in nature, so much so

that it can very easily be adapted to suit even extreme conditions, like rising

and falling demands in peak and off seasons, buoyant and sluggish economic

and market conditions, etc. Further, if some inappropriate policy or procedure

is detected at a later stage, remedial and right steps can be adopted henceforth,

any time. This, however, is not the position in the case of project management.



B. Level of investments in various components of current assets

Investments in current assets constitute a very substantial percentage

(Usually more than 50%) of the total investments in most of the Indian

companies and firms.

C. Criticality

The under mentioned fact itself can bring home the extent of crucially

and Criticality of Working Capital Management. One of the components of the

Working Capital can make such a dramatic difference, the importance of

meticulous management of all the components of the Working Capital (viz.

Current Assets, Current Liabilities and even a portion of the deferred liabilities)

can very well be imagined and appreciated

D. Quantum of efforts and time

Empirical study and observations have revealed that a major portion of

the time of the Finance Managers, in most of the companies, is devoted (and

rightly so) towards the management of the various components of the working

capital, with a view to maximizing their profitability, and the prospects and

prosperity therewith.

Working capital Operating cycle

,

s


Inventory

Sales

Cash

Semi-Finished Goods

Finished Goods

Debtors


Working capital cycle is more popularly known as the Operating cycle .

The title is more expressive in the sense that the normal business operations

of a manufacturing and trading company start with cash , go through with the

successive segments of the operating cycle, viz, raw materials storage period

conversion period, finished goods storage period and average collection period

before getting back cash along with profit. The total duration of all segments

mentioned above is known as gross operating cycle . in case the company is

placed in an advantageous position of being able to sell its products for cash

then the segment of average collection period will disappear from the gross

operating cycle period and to that extent the total duration of the cycle gets

reduced. In case advance payments are to be made for procuring materials, the

operating cycle period increases. The purchase of raw materials, components

etc., are usually made on a credit basis, thereby giving rise to the spontaneous

current liability , viz, accounts payable. When the average payment period of

the company to its suppliers is deducted from the gross operating cycle period

the resultant period or simply operating cycle period. It becomes obvious that

shorter the duration of operating cycle period , faster will be transformation of

current assets into cash. The operating cycle approach is quite useful both in

controlling and forecasting working capital.

The duration time required to complete the following sequence of

events, in case of manufacturing firm is called the operating cycle.

1. Conversion of cash into raw materials.

2. Conversion of raw materials into work in progress.

3. Conversion of work in progress into finished goods.

4. Conversion of finished goods into debtors and bills receivables

through sale.

5. Conversion of debtors and bills receivables into cash.

The firm needs working capital because the production sales and cash

flows are not instantaneous. The firm needs cash to purchase raw materials and



pay expenses as there may not be perfect matching between each inflow and

outflow. cash may also be held to meet the future exigencies

INVENTORY MANAGEMENT

Inventories constitute the most significant part of constitute of a large

majorities of company in India. On an average, inventories are approximately

60% of the current assets in public limited companies in India. Because of the

large size of industries maintained by firms, a considerable amount of funds is

required to be committed to them. It is, therefore, absolutely imperative to

manage inventories efficiently and effectively in order to avoid unnecessary

investment.

Nature of inventories: Inventories are stock of the product a company is

manufacturing for sale and components that makeup the product the various

firms in which inventories exist in a manufacturing company are raw materials,

work-in-process and finishes goods.

Raw materials are those basic inputs that are converted in to finished

products through the manufacturing process. Raw materials inventories

are those units which have been purchased and stored for future

production.

Work-in- process .inventories are semi- manufactured products. They

represent products that need more work before they become finished

products for sale.

Finished goods inventories are those completely manufactured products

which are ready for sale. Stocks of raw materials work-in-process

facilitate production, while stock of finished goods is required for

smooth marketing operations. Thus, inventory serves as a link between

the production and consumption of goods.

The levels of three kinds of inventories of a firm depend on the nature of

its business. Firms also maintain a forth kind of inventory, supplies or stores

and spares. Supplies include office and plant cleaning materials like soaps,



brooms, oil, fuel, light bulbs etc. These materials do not directly enter

production but are necessary for production process.

Objectives of inventory management

In the context of inventory management the firm is faced with the

problem of meeting two conflicting needs.

To maintain a large size of inventories of large materials and work-in-

process for efficient and smooth production and of finished goods for

uninterrupted sales operations.

To maintain a minimum investment to maximize profitability.

CASH MANAGEMENT

Cash is the important current asset for the operations of the business .

Cash is the basic input needed to keep the business running on a continuous

basis. It is also the ultimate output needed to keep the business running on the

continuous basis. It is also ultimate output expected to be realized by selling the

service or product manufacturing by the firm. The firm should keep sufficient

cash neither more nor less

Cash is the vital component of working capital. Steady and healthy

circulation of cash in entire business operations is the basis of business

running on a continuous basis. Cash management is concerned with the

managing of Cash management.

Cash flows into and out of the firm

Cash flows within the firm

Cash balance held by the firm at a point of time.

Need of cash management: Cash, either in hard or at bank, is the most

liquid of all the current assets. Thus larger cash and bank balances indicates

high liquidity position of a company. It must, however, be noted that cash lying

in the current account of banks fetches no return to the company.

Consequently, the higher liquidity position attained by holding a large amount



of cash will result in lower profitability as idle cash fetches no return, while the

same when invested in the assets of the company will results in profits.

The firm should evolve strategies regarding the following four facts of

cash management.

Cash planning

Managing the cash flows

Optimum cash level

Investing idle cash

Objectives of cash management

To make short term forecasts about to cash inflows and outflows of the

firm.

To find profitable avenues for investing surplus cash. Arranging finance

Receivables Management

Trade credit arises when a firm sales its products or services on credit

and does not receive cash immediately. Trade credit is used by firm to protect

its sales from competitors and to attract potential customers to buy products

and favorable terns. Trade credit creates receivables or book debts that the firm

is expected to collect in the near future. The customers from whom book debts

have to be collected in the future are known as trade debtors.

Receivables helps the firm in the increasing sales level as clients will

prefer credit sales to cash helps the firm in sales. It also helps the firm in

maintaining the sales at an appropriate level in situation where there is intense

competition. As credit sales comprise a high profit margin. They generate more

profit than cash sales.

The objective of receivables management is to help the firm to manage

the receivables in an efficient manner such that the benefits arising as the result

of extending credit sales should be more than the cost associated with it.



The Receivables arising out of delivery of goods or rendering of services on

credit and include

Book debts or accounts

Notes and bills

Accrued receivables

However in a broader sense the term receivables is used to include further.

o Any pre payents made against purchase and expense contract.

o Advances to subsidiaries employees and officers

Purpose of Receivables

The purpose of receivables is directly connected with the companies

objectives of making credit sales which are

To increase total sales: because when a company sells goods on credit it

will be in a position to sell more goods than if it insist on immediate

cash payment.

To increase profits: Because this results in an increasing sales not only

in volume but also because company charge a higher margin of profit on

credit sales as compared to cash sales.

To meet increasing competition: For this the company may have to grant

better credit facilities than those offered by its competitors.

Goals of credit management

The basic goal of credit management is to maximize the value of firm

achieving the trade of between equitability and profitability. The purpose of

credit management is not to maximize sales, not to minimize the risk of bad

debt. If the Objective was to maximize sales then the firm would sell on credit

to all.



To achieve the goal of maximizing the value the firm should manage its

trade credit:

To obtain optimum volume of sales.

To control the cost of credit and keep it at minimum

To maintain investment in debtors at optimum level.

The purpose of credit management is not sales maximization. But

efficient and effective credit management does help to expand sales and can

prove to be an effective tool of marketing.



DATA ANALYSIS AND INTERPRETATIONSStatement showing changes in working capital during the period 2007-08

PARTICULARS 2006-07 2007-08CHANGES IN W.C

INCREASE DECREASE

Current assets

Inventories 283.71 379.57 95.86 -

Sundry debtors 171.95 172.55 0.60 -

Cash & bank 56.26 61.60 5.34 -

Loans & advances 325.73 158.80 166.93

Total current assets 837.65 772.52 - -

Current liabilities

Liabilities 415.43 516.87 - 101.44

Provisions 23.87 39.18 - 15.31

Total current liabilities 439.30 556.05 - -

NET Working capital 398.35 216.47 - -

CHANGES IN W.C 188.88 188.88

398.35 398.35 283.68 283.68

Interpretation:

The above statement reveals that the net working capital decreases

188.88 crores. Due to the loans and advances are deceased more by 166.93

crores and also the current liabilities are increased by 101.44 crores



Statement showing changes in working capital during the period 2008-09

PARTICULORS 2007-08 2008-09CHANGES IN W.C

INCREASE DECREASE

Current assets

Inventories 379.57 433.58 54.01

Sundry debtors 172.55 183.50 10.95

Cash & bank 61.60 89.59 27.99

Loans & advances 158.80 253.50 94.7

Total current assets 772.52 960.17

Current liabilities

Liabilities 516.87 736.7 219.83

Provisions 39.18 18.47 20.71

Total current liabilities 556.05 755.18

NET Working capital 216.47 204.99

CHANGES IN W.C 11.48 11.48

216.47 216.47 219.83 219.83

Interpretation:

In this above statement the total current assets are increased by

Rs.187.65 crores and current liabilities are increased by Rs.199.13 crores.

Hence the working capital is decreased by Rs.11.48 crores.




PARTICULORS 2008-09 2009-10CHANGES IN W.C

INCREASE DECREASE

Current assets

Inventories 433.58 609.76 176.18

Sundry debtors 183.50 216-61 33.11

Cash & bank 89.59 100.69 11.1

Loans & advances 253.50 376.83 123.33


Current liabilities

Liabilities 736.7 1153.01 416.31

Provisions 18.47 125.55 107.08



CHANGES IN W.C 179.67 179.67

204.99 204.99 523.39 523.39

Interpretation:

This statement reveals that the net working capital decreases to 179.67

crores due to the liabilities and provisions are increased by 523.39.




PARTICULORS 2009-10 2010-11CHANGES IN W.c

INCREASE DECREASE

Current assets

Inventories 609.76 705.55 95.79

Sundry debtors 216-61 188.88 27.73

Cash & bank 100.69 104.68 3.99

Loans & advances 376.83 390.89 14.06


Current liabilities

Liabilities 1153.01 1128.97 24.04

Provisions 125.55 122.18 3.37



CHANGES IN W.C 113.52 113,52

138,85 138.85 141.25 141.25

Interpretation:

This statement reveals that the net working capital increases to 113.52

crores due to the decrease in sundry debtors and current liabilities



RATIO ANALYSIS

TYPES OF RATIOS:

Several ratios calculated from the accounting data can be grouped in to

various classes according to financial activity or function to be evaluated. As

stated earlier, the parties interested in financial analysis are short-term and

long-term creditors, owners and management. Short-term creditors. Main

interest in the liquidity position or the short-term solvency of the firm long

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

and profitability of the firm.

We may classifies them in to the following from important categories

1. Liquidity ratios

2. Leverage ratios

3. Activity ratios

4. Profitability ratios

1. LIQUIDITY RATIOS

Liquidity ratios measure the firm’s ability to meet current obligations.

2. LEVERAGE RATIOS

Leverage ratios show the proportion of debt and equity in financing the

firm’s assets.

3. ACTIVITY RATIO

Activity ratios reflect the firm’s efficiency in utilizing its assets

4. PROFITABILITY RATIOS

Profitability ratios measure overall performance and Effectiveness of

the firm.



Current ratio

Current ratio may be defined as the relationship between current assets

and current liabilities. This ratio also known as working capital ratio. Current

assets include cash and these assets which can be converted in to cash with in a

one year such as cash & bank, marketable securities, debtors, inventories,

prepaid expenses include the represent the payments that will be made in future

obligation like creditors, bills payable etc.

Current assets

Current ratio = -------------------------------

Current liabilities

A relatively high current ratio is an indication that the firm is liquid and

has the ability to pay its current obligation in time as ad when they become due.

On the other hand a relatively low current ratio represents that the liquidity of

the is not good and the firm shall not be able to pay its current liabilities in time

without facing difficulties.

Standard ratio= current assets : current liabilities = 2:1

The following table shows the result of the current assets and current

liabilities of Sujala Pipes Pvt. Ltd.,



Table No.4.1

Year Current assets Current liabilities Current ratio

2006-07 837.65 439.30 1.90

2007-08 772.52 556.05 1.38

2008-09 960.17 755.18 1.27

2009-10 1303.89 1278.56 1.01

2010-11 1390.00 1251.15 1.11

Graph No.4.1

Interpretation :

The current ratio gradually decreases due to increasing current liabilities

and decreasing loans and advances. For the last five years the liquidity position

of the firm is precarious.



QUICK RATIO

It is defined as the relationship between quick assets and current

liabilities. This ratio is also known as “acid-test ratio”. While computing

current ratio, inventory is included as a of current assets.. Quick ratio provides

a better measure of liquidity unlike current ratio; it does not take inventories

into account. Standard ratio=1:1

Current assets-inventories

Quick ratio= --------------------------------------

Current liabilities

The following table shows the result of the Quick Ration of Sujala Pipes Pvt.

Ltd.,

Table No.4.2

Year Quick assets current liabilities

Quick ratio

2006-07 553.94 439.30 1.26

2007-08 392.95 556.05 0.70

2008-09 526.59 755.18 0.69

2009-10 694.13 1278.56 0.54

2010-11 684.45 1251.15 0.55

Graph No.4.2

Interpretation:

The Quick ratio gradually decreases from 2007 – 10 due to increasing in

inventories year by year. The Quick ratio was better in the year 2006-06 when

compare with the other years



Cash Ratio

Cash is the most important liquid asset, a financial analyst may examine

cash ratio and its equivalent to current liabilities. Trade investment and

marketable securities are equivalent of cash.

Cash+ marketable securities

Cash ratio = ----------------------------------------

Current liabilities

Table No.4.3

Year CashCurrent

LiabilitiesCash Ratio

2006-07 56.26 439.30 12.81

2007-08 61.60 556.05 11.08

2008-09 89.59 755.18 11.86

2009-10 100.69 1278.56 7.88

2010-11 104.68 1251.15 8.37

Graph No.4.3

Interpretation:

During the period 2006-11 the cash ratio declined gradually due to the

current liabilities are more than the cash but it highly declines in the year

2008-09.



Net working capital ratio

The difference between current assets and current liabilities excluding

short-term borrowings is called Net working capital (NWC) Or net current

assets (NCA). NWC is sometimes used as a measure of a firm liquidity.

Net working capital

Net working capital ratio =-------------------------------------

Net current assets

Table No.4.4

Graph No.4.4

Interpretation

The net working capital ratio was decreases gradually because of

increasing Net assets. But specifically in the year 2009-10 the working capital

highly decreased due to current assets are approximately equals to current

liabilities.


YearNet working

capitalNet assets

Net working capital ratio

2006-07 398.35 837.65 0.47

2007-08 216.47 772.52 0.28

2008-09 204.99 960.17 0.21

2009-10 25.33 1303.89 0.01

2010-11 138.85 1390.00 0.09


DEBTORS TURNOVER RATIO

The ratio indicates the average time in number of days between sales

and cash collections from debtors. It explains the number of days of credit

enjoyed by the debtor

Net credit sales

Debtors turnover =------------------------

Average debtors

Opening debtors +closing debtors

Average debtors =------------------------------------------------

2

Table No.4.5

Year salesaverage debtors

Debtors turnover

ratio

2006-07 2681.05 174.76 15.34

2007-08 3299.45 172.25 19.15

2008-09 4910.83 178.02 27.58

2009-10 5509.22 200.05 27.53

2010-2011 6563.64 195.75 33.53Graph No.4.5

Interpretation:

The debtors turnover ratio gradually increases year-by-year. It shows

that management is efficient in maintaining debtors.



Inventory turnover ratio

The inventory turnover ratio indicates the efficiency of the firm in

providing and selling its product. It is calculated by dividing cost of good sold

by the average inventory. The average inventory is the average of opening and

closing balances of inventory.

Cost of goods sold

Inventory turnover ratio= -----------------------------

Average inventory

Table No.4.6

Yearcost of goods

soldAverage

inventoryInventory

turnover ratio

2006-07 1772.61 253.44 6.9

2007-08 2004.14 331.64 6.04

2008-09 2468.23 406.57 6.07

2009-10 2760.72 521.67 5.29

2010-11 3741.52 662.60 5.64

Graph No.4.6

Interpretation

The inventory turnover ratio gradually decreases because of

increasing cost of goods sold as well as inventory.



CURRENT ASSETS TURNOVER RATIO

Assets are used to generate sales. Therefore, the firm should manage

its assets efficiently to maximize sales. The relationship between sales and

current assets called as current assets turnover ratio.

Sales

Current assets turnover ratio =---------------------

Current assets

Table No.4.7

Year salesCurrent

assetsCurrent assets turnover

ratio

2006-07 2681.05 837.65 3.20

2007-08 3299.45 772.52 4.27

2008-09 4910.83 960.17 5.11

2009-10 5509.22 1303.89 4.22

2010-11 6563.64 1390.00 4.72

Graph No.4.7

Interpretation:

In the 2008-08, the current assets as well as sales are increases highly

that will leads to increasing the current assets turnover.

WORKING CAPITAL TURNOVER RATIO



This ratio measures the relationship between working capital and sales.

The ratio shows the number of times the working capital results. In sales

working capital as usual is the excess of current assets over the current

liabilities.

Sales

Working capital turnover ratio = --------------------------

Working capital

Table No.4.8

Year Sales working capital WCTR

2006-07 2681.05 398.35 6.73

2007-08 3299.45 216.47 15.24

2008-09 4910.83 204.99 23.95

2009-10 5509.22 25.33 217.49

2010-11 6563.64 138.85 47.27

Graph No.4.8

Interpretation:

This ratio gradually increases because of increasing sales. But in the

year 2009-09 the working capital decreases to 25.33 this will leads to highly

increases in working capital turnover

DEBTORS COLLECTION PERIOD



It indicates the time taken to collect money from the debtors. If this

average collection period is more than credit period granted to the debtors, it

indicates liberal policy and the firm is inefficient in collecting the due and vice

versa. It is computed as follows.

360

Holding period = ------------------------

Debtors turnover

Table No.4.9

Year Debtors turnover ratio

Debtors collection period

2006-07 15.34 23

2007-08 19.15 19

2008-09 27.58 13

2009-10 27.53 13

2010-11 33.53 11

Graph No.4.9

Interpretation:

The debtor’s collection period gradually decreases from 23 days to

11days.for the last five years. It indicates that the firm is efficient to collect

money from debtors. Hence, it is more profitable to the firm.

CREDITORS TRNOVER RATIO

Purchases



Creditors turnover ratio= --------------------------

Average creditors

Table No.4.10

Year PurchasesAverage

creditors

Creditors

turnover ratio

2006-07 243.25 317.99 0.76

2007-08 284.06 283.89 1.00

2008-09 403.68 391.06 1.03

2009-10 556.60 620.39 0.90

2010-11 709.70 749.94 0.95

Graph No.4.10

Interpretation:

The creditors turnover gradually increases from 2006 to 08 and then it

slightly decreases because the purchases are increases year by year.

FINDINGS



1. The current ratio and quick ratio of the firm for the last five years it is

found that the liquidity position of the company is precarious. Protection

for short term lenders is very marginal.

2. Inventory turnover has marginally declined from 6.9 times to 5.6 times

during the period 2006-11 indicating higher blockage of funds in

inventory.

3. Debtors collection period has come down from 23 days to11 days in the

last five years. This is a good sign as it improves profitability of the

firm.

4. The payment deferral period is very high in this firm (380-560 days).

Sujala is enjoying trade credit from its group and subsidiary companies

and this do not have any pressure to pay up. This is not a good practice

as it leads to lethargy and managerial complacency in the organization.

5. The cash ratio gradually declined from 12.81 to 8.37 during the period

2006-11 due to current liabilities more than the cash.

6. The debtors turnover ratio gradually increases year-by-year. It shows

that management is efficient in maintaining debtors.

7. In the year 2008-09 the current assets are approximately equals to

current liabilities, that means the firm does not maintain standard current

ratio

SUGGESTIONS



Company should decreases reliance on funds from group and subsidiary

companies for working capital needs as this will affect the profitability

of those companies

Suggested to improve its current assets in relation to current liabilities to

improve liquidity and safety for trade and short term creditors

The working capital management is not proactive, the company needs to

concentrate on forecasting the working capital needs based on sales and

manage the current assets in a better way to improve liquidity as well as

profitability of the firm.

The company may reduce the length of operating cycle to improve the

asset utilization and profitability.



CONCLUSION

Under the light of the inferences drawn from the analysis, it is no

exaggeration to conclude with information that the overall working capital

management of Sujala pvc pipes pvt ltd is fair and reasonably good and thus

promising future awaits the company.



BIBLIOGRAPHY

Bhattacharya,Hrishikes, “Short term funds Management–Strategies and

Techniques”,2001

Pandey,I M(1978), ”Financial management” , 2009

Damodran, Aswath ,”Corporate finance”,2004

ICMR , “Financial Management”, 2007

www.google.com

www.wikipidia.com


VALI Project 25-5-12

Documents

human resources policies

variable working capital

working capital refers

lift irrigation schemes

sujala pipes pvt

net working capital

adequate working capital

working capital cycle