An Introduction to Working Capital Management

RESEARCH PAPER ON

“WORKING CAPITAL

AT

EXCEL GRAPHICS PVT LTD”

PREPARED BY:

CHIRAG PATEL

ROLL NO (06)

PGDM (2ND SEM), 2009-11

UNDER THE GUIDANCE OF:

MISS. SUSHEELA.C.CHAURASIA

G.I.D.C ROFEL BUSINESS SCHOOL

VAPI

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DECLARATION

I, Mr. Chirag Patel, hereby declare that the research paper entitled “WORKING CAPITAL AT EXCEL GRAPHICS PVT LTD.” submitted to G.I.D.C ROFEL BUSINESS SCHOOL, VAPI Approved by All India Council For Technical Education, is a record of an original work done under the guidance of Mr. P. J. PANDYA (GM) and is not submitted to any other university or institution

for any other purpose.

Mr. Chirag Patel (06) GRBS, Vapi.

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ACKNOWLEDGEMENT

Words are indeed inadequate to convey my deep sense of gratitude to all those who have helped me in completing this summer project to the best of my ability. Being a part of this project has certainly been a unique and a very productive experience on my part.

I am really thankful to Mr. P. J. PANDYA(General Manager) for making all kinds of arrangements to carry the project successfully and for guiding and helping me to solve all kinds of quarries regarding the project work. His systematic way of working and incomparable guidance has inspired the pace of the project to a great extent.

I would also like to thank my mentor and project – coordinator, Miss. Susheela C Chaurasia (Adm. Officer) for assigning me a project of such a great learning experience and acquainting me with real life project in finance.

I am very grateful to Mr. Devang Desai for their useful guidance and advise.

Last but not least I would like to thank all the employees of Excel Graphics Pvt Ltd. Who have directly or indirectly helped me with their moral support for the completion of my project.

(Chirag Patel)

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TABLE OF CONTENT

SR. NO PARTICULARS PAGE NO1 INTRODUCTION TO WORKING CAPITAL 4

2 DETERMINANTS OF WORKING CAPITAL 6

3 WORKING CAPITAL IN TERMS OF FIVE COMPONENTS

7

4 DIFFERENT CONCEPT OF WORKING CAPITAL

8

5 KINDS OF WORKING CAPITAL 9

6 SOURCES OF WORKING CAPITAL 10

7 LITERATURE REVIEW 11

8 ESTIMATION OF WORKING CAPITAL 13

9 COMPANY PROFILE 15

10 RESEARCH METHODOLOGY(a) OBJECTIVES(b) DATA COLLECTION(c) LIMITATION OF THE STUDY

18

11 SUGGETSTIONS 26

12 CONCLUSTION 26

13 BIBILOGRAPHY AND ANNEXTURE 27

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An Introduction to Working Capital Management

“Working capital means the part of the total assets of the business that change from one form to another form in the ordinary course of business operations.”In a perfect world, there would be no necessity for current assets and liabilities because there would be no uncertainty, no transaction costs, information search costs, scheduling costs, or production and technology constraints. The unit cost of production would not vary with the quantity produced. Borrowing and lending rates shall be same. Capital, labour, and product market shall be perfectly competitive and would reflect all available information, thus in such an environment, there would be no advantage for investing in short term assets. However the world we live is not perfect. It is characterized by considerable amount of uncertainty regarding the demand, market price, quality and availability of own products and those of suppliers. There are transaction costs for purchasing or selling goods or securities.

Information is costly to obtain and is not equally distributed. There are spreads between the borrowings and lending rates for investments and financing of equal risks. Similarly each organization is faced with its own limits on the production capacity and technologies it can employ there are fixed as well as variable costs associated with production goods. In other words, the markets in which real firm operated are not perfectly competitive. These real world circumstances introduce problem’s which require the necessity of maintaining working capital. For example, an organization may be faced with an uncertainty regarding availability of sufficient quantity of crucial imputes in future at reasonable price. This may necessitate the holding of inventory, current assets. Similarly an organization may be faced with an uncertainty regarding the level of its future cash flows and insufficient amount of cash may incur substantial costs. This may necessitate the holding of reserve of short term marketable securities, again a short term capital asset. In corporate financial management, the term Working capital management” (net) represents the excess of current assets over current liabilities.

Concept of working capital

The word working capital is made of two words 1.Working and 2. CapitalThe word working means day to day operation of the business, whereas the word capital means monetary value of all assets of the business.

Working capital

Working capital may be regarded as the life blood of business. Working capital is of major importance to internal and external analysis because of its close relationship with the current day-to-day operations of a business. Every business needs funds for two purposes. Long term funds are required to create production facilities through purchase of fixed assets such as plants, machineries, lands, buildings & etc Short term funds are required for the purchase of

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raw materials, payment of wages, and other day-to-day expenses. It is otherwise known as revolving or circulating capital. It is nothing but the difference between current assets and current liabilities. i.e. Working Capital = Current Asset – Current Liability.

Businesses use capital for construction, renovation, furniture, software, equipment, or machinery. It is also commonly used to purchase inventory, or to make payroll. Capital is also used often by businesses to put a down payment down on a piece of commercial real estate. Working capital is essential for any business to succeed. It is becoming increasingly important to have access to more working capital when we need it. In simple words working capital is the excess of current Assets over current liabilities. Working capital has ordinarily been defined as the excess of current assets over current liabilities. Working capital is the heart of the business. If it is weak business cannot proper and survives. Sit is therefore said the fate of large scale investment in fixed assets is often determined by a relatively small amount of current assets. As the working capital is important to the company is important to keep adequate working capital with the company. Cash is the lifeline of company. If this lifeline deteriorates so does the company’s ability to fund operation, reinvest do meet capital requirements and payment. Understanding Company’s cash flow health is essential to making investment decision. A good way to judge a company’s cash flow prospects is to look at its working capital management. The company must have adequate working capital as much as needed by the company. It should neither be excessive or nor inadequate. Excessive working capital cuisses for idle funds laying with the firm without earning any profit, where as inadequate working capital shows the company doesn’t have sufficient funds for financing its daily needs working capital management involves study of the relationship between firm’s current assets and current liabilities. The goal of working capital management is to ensure that a firm is able to continue its operation. And that is has sufficient ability to satisfy both maturing short term debt and upcoming operational expenses. The better a company managers its working capital, the less the company needs to borrow. Even companies with cash surpluses need to manage working capital to ensure those surpluses are invested in ways that will generate suitable returns for investors.“The primary objective of working capital management is to ensure that sufficient cash is available to” Meet day to day cash flow needs. Pay wages and salaries when they fall due Pay creditors to ensure continued supplies of goods and services. Pay government taxation and provider of capital – dividends and ensure the long term survival of the business entity.

Concept of working capital Gross Working Capital = Total of Current Asset Net Working Capital = Excess of Current Asset over Current Liability

Current Assets Current Liabilities Cash in hand / at bank Bills Receivable

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Sundry Debtors Short term loans Investors/ stock Temporary investment Prepaid expenses Accrued incomes Bills Payable Sundry Creditors Outstanding expenses Accrued expenses Bank Over draft

Determinants of working capitalWorking capital requirements of a concern depends on a number of factors, each of which should be considered carefully for determining the proper amount of working capital. It may be however be added that these factors affect differently to the different units and these keeps varying from time to time. In general, the determinants of working capital which re common to all organization’s can be summarized as under

Nature of businessNeed for working capital is highly depends on what type of business, the firm in. there are trading firms, which needs to invest a lot in stocks, ills receivables, liquid cash etc. public utilities like railways, electricity, etc., need much less inventories and cash. Manufacturing concerns stands in between these two extends. Working capital requirement for manufacturing concerns depends on various factors like the products, technologies, marketing policies.

Production policiesProduction policies of the organization effects working capital requirements very highly. Seasonal industries, which produces only in specific season requires more working capital some industries which produces round the year but sale mainly done in some special seasons are also need to keep more working capital.

Size of businessSize of business is another factor to determines the need for working capital

Length of operating cycleOperating cycle of the firm also influence the working capital. Longer the orating cycle, the higher will be the working capital requirement of the organization.

Credit policyCompanies; follows liberal credit policy needs to keep more working capital with them. Efficiency of debt collecting machinery is also relevant in this matter. Credit availability form

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suppliers also effects the company’s working capital requirements. A company doesn’t enjoy a liberal credit from its suppliers will have to keep more working capital

Business fluctuationCyclical changes in the economy also influence the level of working capital. During boom period, the tendency of management is to pile up inventories of raw materials and finished goods to avail the advantage of rising prove. This creates demand for more capital. Similarly, during depression when the prices and demand for manufactured goods. Constantly reduce the industrial and trading activities show a downward termed. Hence the demand for working capital is low.

Current asset policiesThe quantum of working capital of a company is significantly determined by its current assets. Policies. A company with conservative assets policy may operate with relatively high level of working capital than its sales volume. A company pursuing an aggressive amount assets policy operates with a relatively lower level of working capital.

Fluctuations of supply and seasonal variationsSome companies need to keep large amount of working capital due to their irregular sales and intermittent supply. Similarly companies using bulky materials also maintain large reserves’ of raw material inventories. This increase the need of working capital. Some companies manufacture and sell goods only during certain seasons. Working capital requirements of such industries will be higher during certain season of such industries period.

Other factorsEffective co ordination between production and distribution can reduce the need for working capital. Transportation and communication means. If developed helps to reduce the working capital requirement.

Working capital in terms of five components1. Cash and equivalents: - This most liquid form of working capital requires constant supervision. A good cash budgeting and forecasting system provides answers to key questions such as: Is the cash level adequate to meet current expenses as they come due? What is the timing relationship between cash inflow and outflow? When will peak cash needs occur? When and how much bank borrowing will be needed to meet any cash shortfalls? When will repayment be expected and will the cash flow cover it?

2. Accounts receivable: - Many businesses extend credit to their customers. If you do, is the amount of accounts receivable reasonable relative to sales? How rapidly are receivables being collected? Which customers are slow to pay and what should be done about them?

3. Inventory: - Inventory is often as much as 50 percent of a firm's current assets, so naturally it requires continual scrutiny. Is the inventory level reasonable compared with sales

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and the nature of your business? What's the rate of inventory turnover compared with other companies in your type of business?

4. Accounts payable:- Financing by suppliers is common in small business; it is one of the major sources of funds for entrepreneurs. Is the amount of money owed suppliers reasonable relative to what you purchase? What is your firm's payment policy doing to enhance or detract from your credit rating?

5. Accrued expenses and taxes payable: - These are obligations of your company at any given time and represent a future outflow of cash.

Two different concepts of working capital are:-1) Balance sheet or Traditional concept2) Operating cycle concept.

Balance sheet or Traditional concept:-It shows the position of the firm at certain point of time. It is calculated in the basis of balance sheet prepared at a specific date. In this method there are two type of working capital:-

1) Gross working capital2) Net working capital

Gross working capital:- It refers to the firm’s investment in current assets. The sum of the current assets is the working capital of the business. The sum of the current assets is a quantitative aspect of working capital. Which emphasizes more on quantity than its quality, but it fails to reveal the true financial position of the firm because every increase in current liabilities will decrease the gross working capital.Net working capital:- It is the difference between current assets and current liabilities or the excess of total current assets over total current liabilities.

Working capital= current assets - current liabilities.

Net working capital: - It is also can defined as that part of a firm’s current assets which is financed with long term funds. It may be either positive or negative. When the current assets exceed the current liability, the working capital is positive and vice versa.

Operating cycle concept:- The duration or time required completing the sequence of events right from purchase of raw material for cash to the realization of sales in cash is called the operating cycle or working capital cycle.

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Each component of working capital (namely inventory, receivables and payables) has two dimensions TIME and MONEY. When the comes to managing working capital TIME IS MONEY. If you can get money to move fester around the cycle (collect monies due from debtors more quickly) or reduce the amount of money tied up (i.e.., reduce inventory level relative to sales). The business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you will have additional freee4 money available to support addition sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit, you festively create freed finance to help fund future sales a perusal of operational cycle reveals that the cash invested in operations are recycled back in to cash. However it takes time to reconvert the cash. Cash flows in cycle into around and out of a business it the business’s lifeblood and every manager’s primary task to help keep it flowing and to use the cash flow to generate profits. The shorter the period of operating cycle the larger will be the turnover of the funds invested in various purposes.

Kinds of working capitalWorking capital can be put in two categories:1) Fixed or permanent working capital and2) Fluctuating or temporary working capital

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Fixed or permanent working capitalThe volume of investment in current assets an change over a period of time. But always there is minimum level of current assets that must be kept in order to carry on the business. This is the irreducible minimum amount needed for maintaining the operating cycle. It is the investment in current assets. This is permanently locked up in the business and therefore known as permanent working capital.

Variable/temporary working capitalIt is the volume of working capital. This is needed over and above the fixed working capital in order to meet the unforced market changes and contingencies. In other words any amount over and about the permanent level of working capital is variable or fluctuating working capital. This type of working capital is generally financed from short ter souse of finance such as bank credit because this amount is not permanently required and is usually paid back during off season or after the contingency.

Sources of working capitalThe company can choose to finance its current assets by (a) Long term sources (b) Short term sources.

Issue of sharesIt is the primary and most important sources of regular or permanent working capital. Issuing equity shares as it does not create and burden on the income of the concern.

Retained earningsRetained earnings accumulated profits are a permanent sources of regular working capital. It creates not charge on future profits of the enterprises.

Issue of debenturesIt creates a fixed charge on future earnings of the company. Company is obliged to pay interest.

Long term debtCompany can raise fund from accepting public deposits, debts from financial institutions like banks, corporations etc. the cost is higher than the other financial tools. Other sources sale of idle fixed assets, securities received from employees and customers are examples of other sources of finance.

Short term sources of temporary working capitalTemporary working capital is required to meet the day to day business expenditures. The variable working capital would finance from short term sources of funds. And only the period needed.

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Some sources of temporary working capital are given below;

Commercial bankA commercial bank constitutes significant sources for short term or temporary working capital this will be in the form of short term loans, cash credit, and overdraft and though discounting the bills of exchanges.

Public depositsMost of the companies in recent years depend on these sources to meet their short term working capital requirements ranging fro six month to three years.

Various creditsTrade credit, business credit papers and customer credit are other sources of short term working capital. Credit from suppliers, advances from customers, bills of exchanges, promissnotes, etc helps to raise temporary working capital

Reserves and other fundsVarious funds of the company like depreciation fund. Provision for tax and other provisions kept with the company can be used as temporary working capital. The company should meet its working capital needs through both long term and short term funds. It will be appropriate to meet at least 2/3 of the permanent working capital equipments form long term sources, whereas the variables working capital should be financed from short term sources.

Importance of Working Capital RatiosRatio analysis can be used by financial executives to check upon the efficiency with which working capital is being used in the enterprise. The following are the important ratios to measure the efficiency of working capital. The following, easily calculated, ratios are important measures of working capital utilization.

Literature ReviewMany researchers have studied working capital from different views and in different environments. The following ones were very interesting and useful for our research (Eljelly, 2004) elucidated that efficient liquidity management involves planning and controlling current assets and current liabilities in such a manner that eliminates the risk of inability to meet due short-term obligations and avoids excessive investment in these assets. The relation between profitability and liquidity was examined, as measured by current ratio and cash gap (cash conversion cycle) on a sample of joint stock companies in Saudi Arabia using correlation and regression analysis. The study found that the cash conversion cycle was of more importance as a measure of liquidity than the current ratio that affects profitability. The size variable was found to have significant effect on profitability at the industry level. The results were stable and had important implications for liquidity management in various Saudi companies. First, it was clear that there was a negative relationship between profitability and liquidity indicators such as current ratio and cash gap in the Saudi sample examined. Second,

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the study also revealed that there was great variation among industries with respect to the significant measure of liquidity. (Deloof, 2003) discussed that most firms had a large amount of cash invested in working capital. It can therefore be expected that the way in which working capital is managed will have a significant impact on profitability of those firms.

Using correlation and regression tests he found a significant negative relationship between gross operating income and the number of days accounts receivable, inventories and accounts payable of Belgian firms. On basis of these results he suggested that managers could create value for their shareholders by reducing the number of days’ accounts receivable and inventories to a reasonable minimum. The negative relationship between accounts payable and profitability is consistent with the view that less profitable firms wait longer to pay their bills. (Ghosh and Maji, 2003) in this paper made an attempt to examine the efficiency of working capital management of the Indian cement companies during 1992 – 1993 to 2001 – 2002. For measuring the efficiency of working capital management, performance, utilization, and overall efficiency indices were calculated instead of using some common working capital management ratios. Setting industry norms as target-efficiency levels of the individual firms, this paper also tested the speed of achieving that target level of efficiency by an individual firm during the period of study. Findings of the study indicated that the Indian Cement Industry as a whole did not perform remarkably well during this period.

(Shin and Soenen, 1998) highlighted that efficient Working Capital Management (WCM)was very important for creating value for the shareholders. The way working capital was managed had a significant impact on both profitability and liquidity. The relationship between the length of Net Trading Cycle, corporate profitability and risk adjusted stock return was examined using correlation and regression analysis, by industry and capital intensity. They found a strong negative relationship between lengths of the firm’s net trading.

Cycle and its profitability. In addition, shorter net trade cycles were associated with higher risk adjusted stock returns. (Smith and Begemann 1997) emphasized that those who promoted working capital theory shared that profitability and liquidity comprised the salient goals of working capital management. The problem arose because the maximization of the firm's returns could seriously threaten its liquidity, and the pursuit of liquidity had a tendency to dilute returns. This article evaluated the association between traditional and alternative working capital measures and return on investment (ROI), specifically in industrial firms listed on the Johannesburg Stock Exchange (JSE). The problem under investigation was to establish whether the more recently developed alternative working capital concepts showed improved association with return on investment to that of traditional working capital ratios or not. Results indicated that there were no significant differences amongst the years with respect to the independent variables. The results of their\ stepwise regression corroborated that total current liabilities divided by funds flow accounted for most of the variability in Return on Investment (ROI). The statistical test results showed that a traditional working capital leverage ratio, current liabilities divided by funds flow, displayed the greatest associations with return on investment. Well known liquidity concepts such as the current and quick ratios registered insignificant associations whilst only one of the newer working capital

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concepts, the comprehensive liquidity index, indicated significant associations with return on investment. All the above studies provide us a solid base and give us idea regarding working capital management and its components. They also give us the results and conclusions of those researches already conducted on the same area for different countries and environment from different aspects. On basis of these researches done in different countries, we have developed our own methodology for research.

ESTIMATION OF WORKING CAPITAL MANGEMENT

Operating cycle approach

The need of working capital arises mainly because of them gap between the production of goods and their actual realization after sales. This gap is technically referred as the “operating cycle” or the “cash cycle” of the business. If it were possible to complete the entire job instantaneously, there would be no need for current asset (working capital) but since it is not possible, every business organization is forced to have current asset and hence operating cycle. It may be divided into four stages.1. Raw materials and stores storage space.2. Work in process stage.3. Finished goods inventory stage.4. Debtor’s collection stage,

Duration of operating cycleThe duration of the operating cycle is equal to sum of the duration of these stages less the credit period allowed by the suppliers of the firm. In symbol

OC= R+W+F+D-CWHEREOC= Duration of the Operating CycleR= Raw materials and storage space periodsW= work in process periods.F= finished goods storage periodsD= debtor collection periodC= Creditors collection period.

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The component of the operating cycles has already been calculated in “ratioAnalysis” which are as follow.

Average stock of raw materialR = -------------------------------------------------------- Average raw material consumption per day

Average stock of storesF = -------------------------------------------------------- Average stores consumption per day

Average work in process inventory

W = -------------------------------------------------------- Average cost of production per day

Average book debtsD = --------------------------------------------------- Average credit sales per day

` Average trade creditC = ---------------------------------------------------- Average trade credit purchase per day

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INTRODUCTION OF THE COMPANY

LocationExcel Graphics Pvt. Ltd. Factory Address: Excel Estate, P.B.No. 18, Vashier, Valsad-396001.Gujarat, India.

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Excel graphics is set up by late Shree Prabhabhai.N.Desai in 1996. Excel comes under small scale industries and located at Excel Estate in Valsad. It is also include following companies:

1. Excel Process Pvt. Ltd.

2. Excel Shine Pvt. Ltd.

3. Vashudhara Canning Pvt. Ltd.

4. Lunar Motor Pvt. Ltd.

The company aspiring with the mission state

"QUALITY IS EVERY BODY'S RESPONSIBILITY"

1947 the year to be cherished in the company in the memory of all Indians when our country is become independent. About 51 years ago the company is jointly started Excel and saw the birth of EXCEL PROCESS work at mumbai. Thank to pioneering effort of late Shree P.N.Desai and late V.G.Jhaveri.

Excel specially at that time was producing high quality brass name plate. Brass was stylish and decorative but it was expensive as well. so their had to be suitable alternative. So in 1953 excel pioneered the process of aluminium anodizing. It was not easy. The name plate are expensive due to high cost of brass. The ever changing needs of industry expert developed the tools and machine by their constant R&D effort.

Due to continues quality consciousness and developing techniques excel graphics got the industry award since than the company fulfil the requirement of different industry

EXCEL CONCERNS COMPANY

Excel Graphics Pvt.Ltd

Excel Process Pvt.Ltd

Excel Alugraphics Pvt.Ltd

COMPETITORS

New Krishna metal art, Valsad

Shaino Graph Gndlav, Valsad

Mehta Graphs, Pune

National Process, Gujarat

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ABOUT THE COMPANY

Name of the company: Excel Graphics Pvt. Ltd

Corporate office : B-5 Mahal Industries Estate

Mahakali Caves Road,

Andheri(E)

Mumbai-93

India

Unit Located : Excel Estate

P. O. Box no. 18

Vashier

Valsad

Type : Private Limited Company

Banker : ICIC bank, Valsad

UCO bank, Juan Thana

M.G Road Valsad

Phone No : (02632) 227277, 227096

Web Site : www.xlgraphic.com

PRODUCT PROFILE

DIFFERENT TYPES OF PRODUCT

1. Aluminium anodized nameplate2. Identification plates3. Industrial electronics fascia panels4. Forged logo in diamond cut and other finishes5. Crystal dome stickers6. Aluminium components7. Aluminium exuded heat sinks8. Decals and vine/ stickers9. Stickers and labels of various engineering plastics10. Signboards and Heroics11. Speaker mess brills in CRCS

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RESEARCH METHODOLOGY

OBJECTIVES:-

1. To study day to day working capital of the company2. To study the financial position of the company3. To apply theoretical knowledge into practical field4. To check the profitability of the company

DATA COLLECTION:-

Primary source of data

Primary data are those data collected at the first hand and not been collected earlier.

Data was collected by discussion with the company manager and staff of excel graphics Pvt. Ltd.

Secondary source of data

Sources of secondary data are as follows

Annual report of the company

Books

Company website

LIMITATION OF THE STUDY:-

1. The company executives were able to give valuable time only for a few days a week, hence the required information could not be obtained.

2. Some secret, which company can not share with us, is not covered in study.

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RAW MATERIAL STORAGE PERIOD:-

RMSP=RMI/RMC×360

PARTICULAR 2007 2008 2009

PURCHASE 26823734 32358972 38973781

OPENING STOCK 4821386 4648306 4829198

CLOSING STOCK 4648306 4829198 4425796RAW MATERIAL CONSUMED

26998614 34079880 39142374

RAW MATERIAL STORAGE PERIOD

63.12 53.01 42.31

2007 2008 20090

10

20

30

40

50

60

70

RAW MATERIAL STORAGE PERIOD

YEAR

DAYS

Raw material storage period shows the period for which the raw material is stored before it releases to the operational department. This period is decrease every year which reduces the blocking of money.

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WORK IN PROCESS:-

PARTICULAR 2007 2008 2009

OPENING STOCK 2831176 2712043 1978860

CLOSING STOCK 2712043 1978860 2080063

RAW MATERIAL CONSUMED

26998614 34079880 39142374

DEPRICIATION 2227871 2296312 1715375MANUFACTURING EXPENSE

5673776 6164395 7203778

AVERAGE CONSUMPTION PERIOD

28.49 19.51 15.24

2007 2008 20090

5

10

15

20

25

30

WORK IN PROCESS

YEAR

DAYS

Work in process period is the period between the raw material enters into production to convert into finish goods.

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FINISHED GOOD STORAGE PERIOD:-

FGSP=FGI/COGS×360

PERTICULAR 2007 2008 2009

OPENING STOCK 1719507 3142112 4411743CLOSING STOCK 3142112 4411743 2716063

COST OF PRODUCTION

26156532 44817809 42703246

SELLING EXPENSE 2784770 4459936 3075552

ADMINISTRATIVE EXPENSE

3219389 4402815 5875165

FINISH GOOD STORAGE PERIOD

28.47 25.94 24.04

2007 2008 200921

22

23

24

25

26

27

28

29

FINISHED GOOD STORAGE PERIOD

YEAR

DAYS

Every year finished good storage period is reducing which is good for a company. A higher turnover of the finish goods shows lesser amount of working capital blocked in the finished goods.

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AVERAGE COLLECTION PERIOD:-

DCS=D /CS×360

PERTICULAR 2007 2008 2009DEBTORS(RS) 9371549 12996249 13237565

CREDIT SALES(RS) 36374490 45140239 58060018

AVG.COLLECTION PERIOD(DAYS)

92.75 103.64 82.07

2007 2008 20090

20

40

60

80

100

120

AVERAGE COLLECTION PERIOD

YEAR

DAYS

The debtor turn over rate measure the liquidity of the debtor of firm. Increasing the volume of debtors without corresponding increase in total current asset may decrease in the volume of investment in other current asset.

2009 collection period is decrease compare to 2008 which lead to high level of profitability.

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AVERAGE PAYMENT PERIOD:-

APP=C/CP×360

PERTICULAR 2007 2008 2009

CREDIT(RS) 5829370 5997450 7532118

CREDIT PURCHASE(RS)

16823734 23258972 28937872

AVG. PAYMENT PERIOD(DAYS)

124.73 92.82 93.7

2007 2008 20090

20

40

60

80

100

120

140

AVERAGE PAYMENT PERIOD

YEAR

DAYS

Trade credit is one of the major sources of fund. The credit period is long it means that credit in the market is good. If payment period is more then that money can be invested at another place. Here credit period is reduced in 2008 compare to 2007 shows that company’s image in market is not up to that level as it was in 2007 but increase in 2009 shows that image of the company is improving.

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NET OPERATING CYCLE:-

Raw material storage period+ Average consumption period+ finished goods storage period + Average collection period – Average payment period

OPERATING CYCLE PERIOD:-

PERTICULAR 2007 2008 2009RAW MATERIAL STORAGE PERIOD

63.12 53.01 42.31

WORK IN PROGRESS 28.49 19.51 15.24FINISH GOODS CONVERSION PERIOD

28.47 25.94 24.04

AVERAGE COLLECTION PERIOD

92.75 103.64 82.07

AVERAGE PAYMENT PERIOD

124.73 92.82 93.7

Net operating cycle 88.1 109.3 69.96

CURRENT RATIO:-

The most widely used ratio shows the proportion of current asset to current liability. The ratio is obtained by dividing current asset by current liability. That liquidity will measure within a period of 12 month is current liability they include creditor, bills payable, bank overdraft, outstanding expense and provision for taxation etc. They include the cash, bank balance stock, debtors, bill receivable, etc.

Current Ratio = current assets/ current liability

YEAR CURRENT ASSETS CURRENT LIABILITY2006-2007 21823326 82557572007-2008 27216508 80923222008-2009 28153614 10237089

YEARS CURRENT RATIO2006-2007 2.64:12007-2008 3.36:12008-2009 2.75:1

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Current ratio shows the working capital position. Current ratio should be 2:1 the company ratio in the last three year are 2.64:1, 3.36:1, and 2.75:1, the company current ratio is higher than idle ratio. This ratio for the company is satisfactory shown the increasing tend.

OBSERVATION AND FINDINGS

Particulars 2007-2008 2008-2009 Increase/DecreaseInventories 11124921 9387305 (1837616)

Sundry Debtors 12996249 13237565 241316

Cash at Bank179393 334310 154917

Current Liabilities8092322 10237089 2144767

Reserve & Surplus

3456878 3700132 243254

The company has successful uses of working capital due to planned inventory,receivables, cash, finance and good cash inflow.

The company has bright prospects due to efficient management of mace, machinematerials & technology.

Cash management of the company is done through cash budget, cash flow statement and other steps.

The major elements of working capital are inventory, debtors, cash balances and short term investments.

Working capital management of the Excel Graphics Is satisfactory due to efficient management of inventory, debtors, cash balances and working funds.

Lack of advertisement can be said as weak point of the Excel Graphics.

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SUGGESTION

Lack of advertisement can be said as weak point of the Excel Graphics. So they need to work on it.

At present firm is borrowing from bank. They should go for other sources like equity, preference share etc.

Company should try to maintain adequate working capital, which is required to run business smoothly.

CONCLUSIONS

After completing my research on working capital management in Excel Graphics, I can say that now I understand working capital much better and in a practical way. This project helps me in understanding the daily requirement in a manufacturing firm.During my training period in Excel Graphics. I am able to know the importance of working capital in any company especially if the concern is a big one. It enable the company to have regular supply of raw material, regular payment of salary and wages, exploit the favourable market conditions, have ability to face crisis and also make the good image of the company. In Excel Graphics the working capital requirements are very high as production is continuous in the concern.

Working capital is also a major external source of capital for especially small and medium sized firms. These firms have relatively limited access to capital markets and tend to overcome this complication by short-term borrowing. Working capital position of such firms is not only an internal firm-specific matter, but also an important indicator of risk for creditors. Higher amount of working capital enables a firm to meet its short-term obligations easier. This results increase in borrowing capability and decrease in default risk (and consequential decrease in cost of capital and increase in firm value). So, it is possible to state that efficiency in working capital management affects not only short-term financial performance (profitability), but also long-term financial performance (firm value maximization).

From the discussion in this research we can say that Excel Graphics manage its working capital requirement in an effective and efficient manner. Its current assets are approx. twice of its current liabilities which is the standard for any company and it means that the company always have the sufficient amount of cash to meet any type of liability at any time.

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BIBILOGRAPHY

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An Introduction to Working Capital Management

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Transcript of An Introduction to Working Capital Management