WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd 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 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 firm’s current assets and current liabilities in such way that the satisfactory level of working capital is mentioned. The current assets should be large enough to cover its current THE OXFORD COLLEGE OF BUSINESS MANAGEMENT 1
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
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 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 firm’s current assets
and current liabilities in such way that the satisfactory level of working capital is
mentioned. The current assets should be large enough to cover its current liabilities in
order to ensure a reasonable margin of the safety.
Definition:-1. According to Guttmann & Dougall -
“Excess of current assets over current liabilities.”
2. According to Park & Gladson -
“The excess of current assets of a business (i.e. cash, accounts receivables, inventories)
over current items owned to employees and others (such as salaries & wages payable,
accounts payable, taxes owned to government)”.
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Working capital is regarded as the lifeblood of a business. It’s effective provision can do
much to ensure the success of a business while it’s inefficient management can lead not
only to loss of profits but also to the ultimate downfall of what otherwise might be
considered as a promising concern.
A study of working capital is of major importance to the internal and external analysis
because of its close relationship with the day-to-day operations of a business. As pointed
out by Ralph, Kennedy and Steward Mc Muller, the inadequacy or mismanagement of
working capital is the leading cause of business failures. Working capital is that portion
of the assets of a business that are used in or related to current operations, and is
represented at any time by the operating cycle of such items as against receivables,
inventories of raw materials, stores, work-in-progress, finished goods, merchandise, notes
or bills receivables and cash.
In accounting, Working capital is the difference between the inflow and outflow of funds.
In other words, it is the net cash inflow. It is defined as the excess of current assets over
current liabilities and provisions.
Net Current Assets = Current Assets – Current Liabilities
Working capital represents the total of all current assets. In other words, it is “gross
working capital”.
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It is also known as circulating capital or current capital for current assets that are rotating
in nature. The use of term “circulating capital” instead of “working capital” indicates its
flow is circular in nature.
THEORETICAL BACKGROUND OF WORKING CAPITAL
MANAGEMENT
Funds are needed for 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.
Working capital represents the total of all current assets. In other words, it is “gross
working capital”. It is also known as circulating capital or current capital for current
assets that are rotating in nature. The use of term “circulating capital” instead of “working
capital” indicates its flow is circular in nature.
SIGNIFICANCE OF WORKING CAPITAL MANAGEMENT
The working capital is important for several reasons. Like the current assets of a typical
manufacturing firm account for half of its total assets. For a distribution company, they
account even more. Executive levels of current assets can easily result in a firm realizing
the sub-standard return on investment. Working capital management affects the
company’s risk, return, and share price.
However, firms with too few current assets may incur shortages and difficulties in
maintaining smooth operations.
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CONCEPTS OF WORKING CAPITAL
There are two concepts of working capital:
1. Gross working capital
2. Net working capital
Gross working capital: Simply called as working capital, refers to the investment in
current assets. Current assets are the assets, which can be converted into cash within an
accounting year (or operating cycle) and include cash, short-term securities, debtors, bills
receivables and stock (inventory).
Net working capital: Refers to the difference between current assets and current
liabilities. Current liabilities are those claims from outsiders, which are expected to
mature for payment within an accounting year and include creditors, bills payable and
outsider’s expenses.
PROFITABILITY AND RISK
Under laying the sound working capital management, lays two fundamental decision
issues for the firm. They are for the determination of:
1. The optimum level of investment in current asset.
2. The appropriate mix of short-term and long-term financing used to support this
investment in current assets.
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In turn, these decisions are influenced by the trade-off that must be made between
profitability and risk. Lowering the level of investment in current assets, while still being
able to support sales, would lead to an increase in the firms’ return of total assets. To the
extent that the explicit costs of short-term financing, the greater the proportion of short-
term debt to total debt, the higher is the profitability of the firm.
The working capital is essentially the circulating capital has been admirably summed up
by Brown and Howard, who compare it with a river which is always there but, whose
water level is constantly changing. However some transactions are totally independent of
the circular process, for they have no line with operational flows. Borrowing from one
such source to repay the past loans from another source is one such transactions,
redeeming capital or debentures by a fresh issue of share is another. Working capital is
one segment of the capital structure of the business but constitutes an inter-woven part of
the total integrated business system. Therefore, neither is regarded as an independent
entity nor can the working capital decisions be taken in isolation.
“Float” is the amount of money required to get into business. This is the minimum
amount necessary for maintaining a going concern, which is in a position to serve its
customers. This amount of float in the form of cash, inventory and other current assets is
the minimum cushion needed to support the business. A business needs a working capital
over and above the float. The requirements of a business moreover, are governed by the
rate of its turnover, type of credit, the seasonality of its operations, break even point and
other general considerations.
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Apart from these, the management strategies planned extent of growth due to vast
unexplored market etc also largely influence the requirement of working capital.
NEED FOR WORKING CAPITAL
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 profit. Earning
a steady amount of profit requires successful sales activities. 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 labor and factory overhead to convert the raw material in work in progress, and
ultimately finished goods. 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.
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Working capital is needed for the following purposes:
For the purchase of raw material, components and spares.
To pay wages.
To incur day-to-day expenses and overhead costs such as fuel, power and office
expenses, etc.
To meet the selling costs as packing, advertising, etc.
To provide credit facilities to the customers.
To maintain the inventories of raw material, work-in-progress, stores and spares
and finished stock.
OPERATING CYCLE
The duration of time required to complete the following cycle of events in case of a
manufacturing firm is called a operating cycle.
1. Conversion of cash into raw materials.
2. Conversion of raw material into work in progress.
3. Conversion of work in progress into finished goods.
4. Conversion of finished goods into debtors and bills receivable through sales.
5. Conversion of debtors and bills receivable into cash.
It can be expressed in the following way by using symbols:
O=R+W+F+D-C
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Where, O = Time duration for operating cycle.
R = Raw materials and storage period.
W = Work in process period.
F = Finished goods storage period.
D = Debtors collection period.
C = Creditors period.
The components of operating cycle referred to above can be calculated as follows:
R= Average stock of raw materials and stores
Average raw materials and stores consumption per day
W= Average work in progress inventory
Average cost of production per day
F= Average finished goods inventory
Average costs of goods sold per day
D= Average book debts
Average credit sales per day
C= Average trade creditors
Average credit purchases per day
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Since, the cash inflows and cash outflows do not match, the firm has to necessarily keep
Cash or invest in short-term marketable (liquid) securities so that they will be in a
position to meet the obligations when they become due. Similarly, the firms must have
adequate inventory to guard against the possibility of not being able to meet the demand
for their products. Adequate inventory, therefore, provides a cushion against being out of
stock. If firms have to be competitive, they must sell goods to their customers on credit,
which necessitates the holding of account receivables.
DEBTORS (RECEIVABLES)
CASH FINISHED GOODS
RAW MATERIALS WORK-IN-PROCESS
The firm begins with the purchase of Raw materials, which are paid for after a delay,
which represents the account payable period.
The firm converts the raw materials into finished goods and then sells the same. The time
lag between the purchase of raw materials and the sale of finished goods is the inventory
period. Customers pay their bills sometime after the sales. The period that elapses
between the date of sales and the date collection of receivables is the accounts payable
period (debt period).
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TYPES 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.
1) 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.
2) 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.
3) Balance sheet working capital
The balance sheet working capital is one which is calculated from the items appearing in
the balance sheet.
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Gross working capital, which is represented by the excess of current
Assets, and net working capital, which is represented by the excess of current assets over
Current liabilities, are examples of the Balance sheet working capital.
4) Cash working capital
Cash working capital is one which is calculated from the items appearing in the profit and
loss account. It shows the real flow of money or value at a particular time and is
considered to be the most realistic approach in working capital management. It is the
basis of the operating cycle concept which has assumed a great important in financial
management in recent years. The reason is that the cash working capital indicates the
adequacy of the cash flow, which is an essential prerequisite of a business.
5) Negative working capital
Negative working capital emerges when current liabilities exceed current assets. Such a
situation is not absolutely theoretical, and occurs when a firm is nearing a crisis of some
magnitude.
SOURCES OF WORKING CAPITAL
Sources of financing of working capital differ as per the classification of working capital
into long-term financing, short-term financing and spontaneous financing.
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LONG-TERM FINANCING:
Loans from financial institutions.
Floating of debentures.
Accepting public deposits.
Issue of shares.
Raising funds by internal financing.
SHORT-TERM FINANCING:
Short-term financing refers to those sources of short-term credit that the firm must
arrange in advance. A few are as follows-
Short-term loans.
Commercial papers.
WORKING CAPITAL INVESTMENT POLICIES
Matching Approach:
When the firm follows the matching approach, the firm’s fixed assets or
permanent assets are financed with long-term funds and as the level of these assets
increases.
The temporary or variable current assets are financed with short-term funds and
as their level increases. Under, matching plan no short-term financing will be used
if the firm needs only current assets.
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Conservative Approach:
A firm in practice may adopt a conservative approach in financing its current and
fixed assets. The financing policy of the firm is said to be conservative when it
depends more on the long-term funds for financing needs. Under the conservation
plan, the firm finances its permanent assets and also a part of temporary current
assets, the idle long-term funds can be invested in the tradable securities to
conserve liquidity.
Aggressive Approach:
An aggressive policy is said to be followed by the firm when it uses mere short-
term financing than warranted by the matching plan. In aggressive policies, the
firm finances a part for its permanent current assets with short-term financing.
Some extremely aggressive firms may even finance a part of their fixed assets
with short-term financing. The relatively more use of short-term financing making
the firm more risky.
Short-term v/s Long-term financing; a risk return trade-off
A firm should decide whether or not it should use short-term financing. If short-term
financing has to be used, the firm must determine its position in total financing. This
decision will be guided by the risk-return trade-off.
Short-term financing may be preferred over long-term financing for two reasons; cost
advantage and flexibility. Short-term financing is more risky than long-term financing.
Thus, there is a conflict between long-term and short-term financing.
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Short-term financing is less expensive than long-term financing, but at the same time
short-term financing involves greater risks than long-term financing. The choice between
long-term and short-term financing involves trade-off between risk and return.
IMPORTANCE OF WORKING CAPITAL MANAGEMENT:
Adequate working capital helps in maintaining solvency of the business by
providing uninterrupted flow of production.
Sufficient working capital enables a business concern to make prompt payments
and hence helps in creating and maintaining goodwill.
Sufficient working capital ensures regular supply of raw materials and continuous
production.
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.
Only concerns with adequate working capital can exploit favorable market
conditions such as purchasing its requirements in bulk when the prices are lower
and by holding its inventories for higher prices.
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.
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ADEQUACY OF WORKING CAPITAL
The firm should maintain a sound working capital position. It should have adequate
working capital to run its business operations. Both excessive as well as inadequate
working capital positions are dangerous from the firm’s point of view.
DANGERS OF EXCESSIVE WORKING CAPITAL
It results in unnecessary accumulation of inventories. Thus, the chances of
inventory mishandling, waste, theft and losses increase.
It is an indication of defective credit policy and slack collection period.
Consequently, higher incidence of bad debts adversely affects profits.
Excessive working capital makes management complacent, which degenerates
into managerial efficiency.
Tendencies of accumulating inventories to make speculative profits grow. This
way tends to make the dividend policy liberal and difficult to cope in future when
the firm is unable to make speculative profits.
Excessive working capital means idle funds which earn no profits for the business
and hence the business cannot earn a proper rate of return on its investments.
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DANGERS OF INADEQUATE WORKING CAPITAL
A concern which has inadequate working capital cannot pay its short-term
liabilities in time. Thus, it will lose its reputation and shall not be able to get good
credit facilities.
It becomes difficult for the firm to exploit favorable market conditions and
undertake profitable projects due to lack of working capital.
The firm cannot pay day-to-day expenses of its operations and it creates
inefficiencies, increases costs and reduces the profits of the business.
It becomes impossible to utilize efficiently the fixed assets due to non-availability
of liquid funds.
The rate of return on investments also falls with the shortage of working capital.
DETERMINANTS OF THE LEVEL OF WORKING CAPITAL
1. Nature of business:
The working capital requirement of the firm is closely related to the nature of its
business. The composition of current assets is a function of the size of the
business and the industry to which it belongs. Small companies have small
proportion of cash, receivables and inventory than large corporations.
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For example: a service firm like an electricity undertaking or a transport corporations,
which has a short operating cycle which sells predominantly on cash basis, has a modest
working capital requirement on the other hand a manufacturing concern like a machine
tools unit, which has a long operating cycle and which fills largely on credit, has a very
subsequent working capital requirement.
2. Seasonality of the operations:
Firms, which have marked seasonality in their operations usually, have high
working capital requirements. During the periods of peak demand, increasing
production may be expensive for the firm.
Similarly, it will be more expensive during slack periods when the firm has to
sustain its working force and physical facilities without adequate production and
sales. A firm may, thus, follow a policy of steady production, irrespective of
seasonal changes, in order to utilize its resources to the fullest extent.
3. Production policy:
A firm marked by seasonal fluctuations in its sales may pursue a production
policy, which may reduce the sharp variations in working capital requirements.
For example: A manufacturer of fans may maintain a steady production
throughout the year rather than intensify the production activity in the peak
business season. Such a production policy may dampen the fluctuations in the
working capital requirements.
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4. Price-level changes:
The increasing shifts in the price level make the functions of financial manager
difficult. They should anticipate the effect of price level changes on working
capital requirements of the firm. Generally, rising price levels will require a firm
to maintain a higher amount of working capital. The firms will feel the effect of
increasing the general price level differently.
5. Profit-margin:
Firms differ in their capacity to generate profit from business operations. Some
firms enjoy a dominant position due to quality product or good marketing
management or monopoly power in the market and earn a high profit margin.
Some other firms may have to operate in an environment of intense competition
and may earn low margin of profits of the high net profit margin contributes
towards the working capital pool. In fact, the net profit is a source of working
capital to the extent it has been earned in cash.
6. Credit policy:
The credit policy of the firm affects the working capital by influencing the levels
of book debts. The credit terms granted to the customers may depend upon the
norms of the industry the firm may belong. But the firm has the flexibility of
shaping its credit policy within the constraint of industry norms and practices. The
credit policy influences the requirement of the working capital in two ways.
Firstly, credit terms granted to the customers by the firm. And, secondly, credit
term available to the firm from its customers.
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The firm should be discretionary in granting credit terms to its customers.
Depending upon the individual case, different terms may be given to different
customers. A liberal policy without rating the credit worthiness of customers will
be detrimental to the firm and will create problems to the firm later on. The firm
should be prompt in making collections. A high collection period will mean tie-up
of funds in the book debts.
7. Availability of credit:
The working capital requirements of the firm are also affected by credit terms
granted by its creditors. For a firm with less working capital, liberal credit terms
are available to it. Similar availability of credit from banks also influences the
working capital needs of a firm. A firm, which can get bank credit easily on
favorable conditions, will operate with less working capital than a firm without
such a facility.
CURRENT ASSETS:
1. Cash and bank balances.
2. Investment (marketable) securities, government and other trust securities (other
than long-term purpose, eg: fund, gratuity fund, etc.)
3. Fixed deposits with banks (maturing within one year).
4. Receivables arising out of sales other than deferred receivables (including bills
purchased and discounted by bankers).
5. Installments of deferred receivables due within one year.
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6. Raw material and components used in the process of manufacturing including
those in transit.
7. Stock-in-progress including semi-finished goods.
8. Finished goods including those in transit.
9. Other consumable stores.
10. Advance payment for tax.
11. Prepaid expenses.
12. Advance for purchase of raw materials, components and consumable stores.
13. Deposit kept with public bodies, etc. for normal business operation.
14. Money receivable from contracted sale of fixed assets during the next twelve
months.
CURRENT LIABILITIES:
1. Short-term borrowings (including bills purchased and discounted) from banks and
others.
2. Unsecured loans maturing within one year.
3. Public deposits maturing during one year.
4. Sundry creditors (trade) for raw materials and consumable stores and spares.
5. Interest and other charges due for payment.
6. Advance payments from customers.
7. Deposits from dealers, selling agents, etc.
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8. Installments on term loans, deferred payment credits, debentures, and long-term
deposits payable within a year.
9. Statutory liabilities:
Provident fund dues.
Provision for taxation.
Sales tax, excise duty, etc.
Statutory obligations towards workers.
Miscellaneous Current Liabilities:
1. Dividends.
2. Liabilities for expenses.
3. Gratuity payable within one year.
4. Any other payment due within twelve months.
WORKING CAPITAL STRATERGY
The quantum of working capital requirement is directly dependent on the policy of
the company regarding the level of current assets, as to how much stock of
inventories of raw materials and finished goods may be considered to be
sufficiently and reasonably safe, so as to fairly avoid the possible risk of stock
outs (in the case of raw materials) and losses of business (in the case of finished
goods) and the resultant losses. Based upon these criteria, the working capital
policy may broadly be divided into three categories which is,
1. Conservative or liberal or flexible policy
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The company may prefer to have somewhat heavy cash balance and bank balance
in current account and investments in readily marketable securities, as also higher
stocks of raw materials and finished goods with a view to almost eliminating the
risk of stock outs and losers of sales. Such companies may also prefer to have a
rather liberal credit policy resulting in a substantial amount of funds locked up in
sundry debtors. All this investments in the various components of current assets
will naturally require correspondingly higher levels of current liabilities and the
working capital requirements.
2. Aggressive or strict or restrictive policy
The level of current asset and accordingly the working capital requirement, will,
of course, be of a much lower order in case of company adopts an aggressive or
restrictive working capital policy. But again, too much of restrictive working
capital policy may as well result in a disproportionately heavier loss by way of
stock – out risk and the consequential losses of production and lowering of the
profitability of the company.
3. Moderate or middle-of-the road policy
In the case of adoption of a moderate policy, the requirement of working capital
will be moderate, too, that is, neither too high nor too low but just right.
BANK FINANCE FOR WORKING CAPITAL
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Banks are main institutional source of working capital finance in India. After trade credit,
bank credit is the most important source of financing working capital in India. A bank
considers a firm’s sales and production plane and desirable levels of current assets in
determining its working capital requirements. The amount approved by bank for the
firm’s working capital is called credit limit. Credit limit is the maximum funds which a
firm can obtain from the banking system. In practice banks do not lend 100% credit limit;
they deduct margin money.
Forms of bank finance:
1. Term Loan
2. Overdraft
3. Cash credit
4. Purchase or discounting of bills
1) Term Loan
In this case, the entire amount of assistance is disbursed at one time only, either in cash or
to the company’s account. The loan may be repaid in installments along with interest
charged on outstanding balance.
2) Overdraft
In this case, the company is allowed to withdraw in excess of the balance standing in its
Bank account. However, a fixed limit is stipulated by the Bank beyond which the
company will not able to overdraw the account. Legally, overdraft is a demand assistance
given by the bank i.e. bank can ask repayment at any point of time.
3) Cash credit
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In practice, the operations in cash credit facility are similar to those of overdraft facility
except the fact that the company need not have a formal current account. Here also a fixed
limit is stipulated beyond which the company is not able to withdraw the amount.
4) Bills purchased / discounted
This form of assistance is comparatively of recent origin. This facility enables the
company to get the immediate payment against the credit bills / invoice raised by the
company. The banks hold the bills as a security till the payment is made by the customer.
The entire amount of bill is not paid to the company. The company gets only the present
worth of amount of bill form of discount charges. On maturity, bank collects the full
amount of bill from the customer.
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RESEARCH DESIGN
INTRODUCTION
Research methodology is a way to systematically solve the research problem. It may be
understood as a science of studying how 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 researcher to know not only the research method but
also know methodology. ”The procedures by which researcher do about their work of
describing, explaining and predicting phenomenon are called methodology.” 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 step in any
project and success of any project will be largely depend upon how 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.
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TITLE OF THE STUDY:
“Working Capital Management at PROSEAL CLOSURES LIMITED”.
STATEMENT OF THE PROBLEM:
Working Capital Management being an integral part of the overall corporate management
throws open challenges and an opportunity to study the Working Capital Management as
an individual unit. This study is an attempt in this direction.
The company is facing the following problems related to the Working Capital
Management:
The investment in Current Assets is increasing.
The receivables are not under manageable limits.
The need for external borrowings to support working capital.
This study was conducted at PROSEAL CLOSURES PVT. LTD., Bangalore. This study
will cover the financial analysis of debtors and inventories’ behavior. Other Current
Assets and Current Liabilities are also analyzed. An attempt has been made to interpret,
understand, analyze, and evaluate the requirements of working capital of PROSEAL
CLOSURES PVT LTD.
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
OBJECTIVES OF THE STUDY:
Study of the working capital management is important because unless the working
capital is managed effectively, monitored efficiently, planned 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 depth analysis.
To have a brief account of operations of Proseal Closures Pvt. Ltd.
To calculate the profitability of the organization.
To interpret financial statements.
To calculate the liquidity position of the organization.
To study different components of current assets, the extents of the funds tied up
in each, the reason for high volume of debtors, inventories, etc. and suggest
possible solutions.
SCOPE OF THE STUDY
A study of Working Capital is of major importance to the internal and external analysis
because of its close relationship with the day-to-day operations of a business. The
business firms aim at maximizing the wealth of the shareholders, for this the firm should
earn sufficient returns from its operations.
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
Earning a steady amount of profit requires a successful sales activity. Current assets are
needed for the functioning of business operations.
COLLECTION OF DATA:
PRIMARY DATA:
The data was collected from discussions with the executives and the finance
manager. Primary data are that, which are collected freshly and for first and thus happens
to be original in character.
The methods of primary data collection are:
Observation method.
Personal interview.
SECONDARY DATA:
The data which have been collected from some one else and which have already
been passed through statistical process.
The secondary data sources are:
Record of the company.
Annual reports.
News papers and text books.
Internet.
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
ANALYSIS OF DATA:
The data was analyzed using the following tools and techniques of financial analysis:
Common size statement.
Trend analysis
Ratio analysis.
RESEARCH METHODOLOGY:
This being an analytical study, data for the study was collected by the concerned official
of the company books, annual reports and journal etc.
LIMITATION OF THE STUDY:
Time restriction.
The information, which was needed could not be made public by the organization.
The findings were substantially based on information given by the annual reports
of the company.
Only those concepts that have a direct bearing on working capital management of
company’s financial position were studied and covered. Those concepts that have
an indirect bearing on the company’s financial plan are not covered in the study.
Due to strict policies and guidelines of the company on certain matters like
optimum inventory, optimum investment in current assets etc cannot be disclosed
in this report.
COMPANY PROFILE:
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
PROSEAL CLOSURES PRIVATE LIMITED was founded by
Mr.K.Prabodhchandra Bhat in the year 1989 with a mission to provide a Quality
Closures System for the Steel Drum Industry. From a humble beginning, the Company
made a global presence by establishing customer base in U.S.A, Middle East, Far East
and African countries.
In the year 2001 the Company became a subsidiary of M/s. Greif U.S.A, which acquired
a majority stake through its joint venture M/s. Balmer Lawrie- Van Leer Ltd., India.
Located in the garden city of India, Bangalore, also recognized globally as one of the
highly industrialized cities, PROSEAL provides a conducive environment for turning out
excellence in the form of drum closures. Founded on sound objectives of customer
satisfaction, through providing quality products, at competitive prices, prompt delivery
and efficient after sales service, PROSEAL has now won the hearts of many a barrel
manufacturer.
Global acceptance of barrel closures and accessories has led to regular exports to USA,
UK, Canada, and Australia, Far-East, Middle East and a host of other countries. Growth
of PROSEAL is attributed to its ability to meet the changing and challenging needs of
barrel industry and the ever growing list of patrons.
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
BOARD OF DIRECTORS:
D.S.van Griethuysen (chairman)
P.C.Bhat (Managing Director)
S.K.Mukherjee
P.B.Anandrao
Suchitra Bhat
Prakash Prabhu
CUSTOMER BASE:
The Company has a substantial market share in India for its products - Drum Closures,
Flanges, Plugs and Cap seals. The Customers include Steel Drum Manufacturers, Oil
Companies and Chemical Companies. The Company also services the requirements of
Steel Drum manufacturers in U.S.A, Canada, Middle East, Africa, Australia and Far
Eastern Countries. It has a Warehousing facility in the U.S to ensure delivery at the right
time.
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Board of directors
Managing director
Head of marketing
Head of planning, purchase
Head of accounts
General Manager (works)
General Manager
(operations
Assistant marketing
Officer purchaser
Assistant manager dispatch
Assistant technicians
Office assistant
Accounts manager
System analyst
Accounts assistant
WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
ORGANISATIONAL CHART
GOAL, MISSION, VISION AND VALUES:
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
GOAL:
To enter new millennium and scale new heights. To get recognized as one of the best and
leading closures manufacturing company worldwide by providing high quality closures to
its customers.
MISSION:
To provide products and services of exceptional values.
To assume leadership in business through proactive customer services.
To perform behind customer exception.
To create long-term relationship.
To achieve excellence in business through continual improvement.
VISION:
We shall endeavor to understand our Customers fully to provide total customer
satisfaction.
We shall continuously add value to our customer relationship by providing
competitive products innovative solutions in closure systems.
All our commitments, actions and products must be recognized as the expression
of quality.
Creating atmosphere for employees to excel.
Superior return on assets.
Values:
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
Conduct business activities honestly and ethically.
Provides safe and clean environment.
Develop dedicated individuals by supporting and encouraging personal and
professional growth.
Accomplish targets through team work, training and dedication.
Recognize talents in people and utilize their idea to create solutions.
POLICIES USED:
Quality policy:
“To be a premier organization in the manufacture of drum closures, levers and
latches by incorporating contemporary technologies and is committed to meet quality
deliveries at competitive prices.”
Environmental policy:
Optimizing resource consumption.
Reducing waste generation.
Comply with environmental statutory and regulatory requirements.
Material policy:
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
Adhering to the quality products delivery schedules in right quantities at right
time.
Maintaining optimum inventories.
Working continually for development of new materials to add value to customer.
CERTIFICATION AND MERITS:
ISO 9002 accreditation by TUV Rhineland, Germany.
License of Bureau of Indian Standards.
Certified by various International certifying agencies.
Acclaimed as the quality products supplier among leading drum/barrel
manufacturers & oil refineries.
Export Excellency award from:
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
Engineering Export Promotion Council (EEPC):- Southern Region.
Federation of Karnataka Chambers Commerce – Industries (FKCCI).
Visvesvaraya Industrial Trade Center (VITC)
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
PRODUCT FOCUSED:
2" Zinc Plated Flange
Plating - Zinc Plated, White, Yellow & Tin coated.
Washers - Black Nitrile(Buna), EPDM, Polyethylene, Polyirridiated & Viton
2" Zinc Plated Plug
Plating - Zinc Plated, White, Yellow & Tin coated.
Washers - Black Nitrile(Buna), EPDM, Polyethylene, Polyirridiated & Viton
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
3/4” Zinc Plated Flange
Plating - Zinc Plated, White, Yellow & Tin coated.
Washers - Black Nitrile(Buna), EPDM, Polyethylene, Polyirridiated & Viton
3/4” Zinc Plated Plug
Plating - Zinc Plated, White, Yellow & Tin coated.
Washers - Black Nitrile(Buna), EPDM, Polyethylene, Polyirridiated & Viton
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
2” & 3/4 Metal Capseal Neutral
Plain White or Red
CLIENTS:
DOMESTIC:
1. Asian barrels P Ltd, Hyderabad
2. Baba containers Mfrs, Hyderabad
3. Balmer lawrie & co. Ltd, Mumbai
4. Beta industries Ltd, Chennai
5. Bijaya drums P Ltd, Kolkata
6. Bostik India P Ltd, Bangalore
7. Chandra containers Mfrs, Hyderabad
8. Chennai drums, Chennai
9. Dharamshi metals P Ltd, Bangalore
10. Gopal metal containers P Ltd, Chennai
11. IOC Ltd, Chennai
12. Industrial engg corp, Cochin
13. KB engg co, Hyderabad
14. Lintas packaging P Ltd. Kolkata
15. Metal Pdts & engg co, Howrah
16. Nataraj drums industries P Ltd, Rajasthan
17. Neha drums and barrels P Ltd, Bangalore
18. Pearson drums & barrels P Ltd, Kolkata
19. Radhey shyam vaish, kannauj
20. Royal Industries, Chennai
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
21. Santhi industries, Chennai
22. Sera containers P Ltd, Kolkata
23. Shri metal containers, New Delhi
24. Sivasakthi engg co, Bangalore
25. Standard drum & bucket factory, Mumbai
26. Tech steel Pdts Ltd, Bangalore
27. Time Mauser industries P Ltd, Raigad
28. Yashraj containers Ltd, Daman
INTERNATIONAL:
1. American flange & Mfg Co Inc, USA
2. Cosmetic pack LLC, Malaysia
3. D.C.closures Pty Ltd, Australia
4. Dur chyi industries co Ltd, Taiwan
5. Fujairah steel barrels & drums, UAE
6. SPA grief algerie, Algeria
7. Grief Saudi Arabia co Ltd, S.arabia
8. Grief south Africa Pty Ltd, S.Africa
9. Homs refinery company, Syria
10. Izvar ambalaj sanvayi ve ticaret A S, turkey
11. Metro Intl LLC, UAE
12. Rubel steel mills Ltd, Bangladesh
13. Salem Faraj S Bin Mahfooz EST, SA
14. Shekat boshke sazi foolad sakafcgegan, Iran
15. Tema lube oil co Ltd, Ghana
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
16. Tri sure closures Australia Pty Ltd, Australia
17. Grief Nederland B.V, Nederland
WORKING CAPITAL LEVEL:
The consideration of the level of investment in current assets should avoid two danger
points excessive and inadequate investment in current assets. Investment in current assets
should be just adequate, not more or less, to the need of the business firms. Excessive
investment in current assets should be avoided because it impairs the firm’s profitability,
as idle investment earns nothing. On the other hand inadequate amount of working capital
can be threatened solvency of the firms because of its inability to meet its current
obligation. It should be realized that the working capital need of the firms may be
fluctuating with changing business activity. This may cause excess or shortage of
working capital frequently.
WORKING CAPITAL TREND ANALYSIS:
In the words of S.P. Gupta “The term trend is very commonly used in day-today
conversion trend, also called secular or long term need is the basic tendency of
population, sales, income, current assets, and current liabilities to grow or decline over a
period of time”
According to R.C.galeziem “The trend is defined as smooth irreversible movement in
the series. It can be increasing or decreasing.”
The financial statements may be analyzed by computing trends of series of information.
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WORKING CAPITAL MANAGEMENT Proseal Closures Pvt. Ltd
This method determines the direction upwards or downwards and involves the
computation of the percentage relationship that each statement item bears to the same
item on the base year.
The information for a number of years is taken up and one year, generally the first year, is
taken as a base year. The figures of the base year are taken as 100 and trend ratios for
other years are calculated on the basis of base year. The analyst is able to see the trend of
figures, whether upward or downward.
Table 1: Table showing the trend analysis of the Working Capital of PROSEAL Ltd., for
the four years.
Trend Analysis of the Working Capital of PROSEAL ltd.