Deepak Soni Working Capital Idea_Final

8/12/2019 Deepak Soni Working Capital Idea_Final

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DEC#ARATI$N

I, the undersigned, a student of Final year MBA at Apex Institute of Management &

Science, Jaipur that the project wor presented in this report is my own wor!

"his wor has not #een su#mitted to any other uni$ersity for any other examination!

( Deepa% oni "


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'REACE

India%s wireless maret is undergoing a #oom and recent political e$ent are not liely to

slow it down either! ith current wireless su#scri#ers totaling more than '() million the

country is expected to see that num#er swell to more than *)+ million o$er the next few

years

"here is a concern that A$erage re$enue per ser -A./0 is relati$ely low, and that

India is a risy maret #ecause of potential low profita#ility! 1onetheless, sa$$y players

will figure out how to mae money in this en$ironment and this clearly is the time for

interested companies to tae ad$antage of India%s thri$ing wireless maret!

"he summer training of a management student plays an important role to de$elop himinto a well 2 groomed professional! It gi$es theoretical concepts a practical shape in a

field of applications!

It gi$es an idea of dynamic & $ersatile professional world as well as an exposure to the

intricacies & complexities of corporate world!


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AC)N$*#ED+EENT

I express my sincere thans to my project guide Mrs 134A S4A.MA for guiding meright form the inception till the successful completion of the project! I sincerely

acnowledge her for extending their $alua#le guidance, support for literature, critical

re$iews of project and the report and a#o$e all the moral support she had pro$ided to

me with all stages of this project!

I would also lie to than the supporting staff of Idea 5ellular 6td! for their help and

cooperation throughout our project!

t!dent

-A .rde/0


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Contents

7! 8$er$iew of "elecom Industry

'! Introduction of Idea 5ellular 6td!

9! .esearch Methodology

:! 8#jecti$e of the Study

)! oring 5apital 5ycle

*! ;ata Analysis and Interpretation

(! 5onclusion


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+,er,ie! of Tele(om Indu"try

Tele1o/ Ind!stry in India

"he telecom industry is one of the fastest growing industries in India! India has nearly

'++ million telephone lines maing it the third largest networ in the world after 5hina

and SA! ith a growth rate of :)=, Indian telecom industry has the highest growth

rate in the world!

> Much of the growth in Asia /acific ireless "elecommunication Maret is spurred #y

the growth in demand in countries lie India and 5hina!

> India?s mo#ile phone su#scri#er #ase is growing at a rate of 5hina is the #iggest maret in Asia /acific with a su#scri#er #ase of :


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In 7@@+s, telecommunications sector #enefited from the general opening up of the

economy! Also, examples of telecom re$olution in many other countries, which resulted

in #etter Cuality of ser$ice and lower tariffs, led Indian policy maers to initiate a change

process finally resulting in opening up of telecom ser$ices sector for the pri$ate sector!

1ational "elecom /olicy -1"/0 7@@: was the first attempt to gi$e a comprehensi$e

roadmap for the Indian telecommunications sector! In 7@@(, "elecom .egulatory

Authority of India -".AI0 was created! ".AI was formed to act as a regulator to facilitate

the growth of the telecom sector!

"elecommunication sector in India can #e di$ided into two segmentsD Fixed Ser$ice

/ro$ider -FS/s0, and 5ellular Ser$ices! Fixed line ser$ices consist of #asic ser$ices,

national or domestic long distance and international long distance ser$ices! "he state

operators -BS16 and M"160, account for almost @+ per cent of re$enues from #asic

ser$ices! /ri$ate sector ser$ices are presently a$aila#le in selecti$e ur#an areas, and

collecti$ely account for less than ) per cent of su#scriptions! 4owe$er, pri$ate ser$ices

focus on the #usinessEcorporate sector, and offer relia#le, high> end ser$ices, such as

leased lines, IS;1, closed user group and $ideoconferencing!

5ellular ser$ices can #e further di$ided into two categoriesD lo#al System for Mo#ile

5ommunications -SM0 and 5ode ;i$ision Multiple Access -5;MA0! "he SM sector is

dominated #y Airtel, Godafone>4utch, and Idea 5ellular, while the 5;MA sector is

dominated #y .eliance and "ata Indicom! 8pening up of international and domestic

long distance telephony ser$ices are the major growth dri$ers for cellular industry!

5ellular operators get su#stantial re$enue from these ser$ices, and compensate them

for reduction in tariffs on airtime, which along with rental was the main source of

re$enue! "he reduction in tariffs for airtime, national long distance, international long

distance, and handset prices has dri$en demand!

India added 79!


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of mo#ile su#scri#ers rose to 9(*!7' million at end>Fe#ruary from 9*'!9+ million at the

end of January!

hile 5hina added 7

of '++@ and total wireless su#scri#er #ase stood at *)@!(< million as of end>Fe#ruary

'++@! 5hina Mo#ile su#scri#ers sent *+(!7 #illion SMSs last year, up #y o$er 7++ #illion

from the last year, and downloaded more than (* million full music tracs!

India%s SM su#scri#ers totaled '((!) million #y end>Fe#ruary, accounting for nearly

()= of total wireless maret share! According to figures released #y the 5ellular

8perators Association of India -58AI0, SM players added 7+!7+! 8ur estimate is that mo#ile penetration will go up from 9)= currently to )+=

#y the end of this financial year, said "G .amachandran, 58AI secretary> general!

58AI has predicted that India will ha$e around )++ million SM su#scri#ers #y the end

of '++@>7+ and o$er


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C+M-A& USERS AT MARC/ 0121

AI."36 @9@'9': I;3A is seen as an inno$ati$e,customerfocused#rand!

I;3A omens 5ard caters to the special needs of women on the mo$e, and Nouth

5ard co$ers the emerging youth segment! I;3A My ang > the widely popular

community user group product recently #agged the prestigious olden /eacoc Award

'++


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I;3A offers seamless co$erage to roaming customers tra$eling to any part of the

country, as well as to international tra$eling customers across o$er '++ countries!

I;3A 5ellular has partnership with o$er :++ operators worldwide to ensure that

customers are always connected while on the mo$e, across the glo#e!

I;3A has recei$ed se$eral national and international recognitions for its path>

#reaing inno$ations in mo#ile telephony products & ser$ices! It won the SM

Association Award for LBest Billing and 5ustomer 5are SolutionL for ' consecuti$e

years! It was awarded LMo#ile 8perator of the Near Award > IndiaL for '++( and '++< at

the Annual Asian Mo#ile 1ews Awards!

$!r ervi1e Areas

"he Indian telecommunications maret for mo#ile ser$ices is di$ided into '' LSer$ice

AreasL classified into LMetroL, 5ategory LAL, 5ategory LBL and 5ategory L5L ser$ice

areas #y the o$ernment of India! "hese classifications are #ased principally on a

Ser$ice Areas re$enue generating potential! 8ur 7( operational Ser$ice Areas are

#roen up into 3sta#lished and 1ew Ser$ice Areas

Established ervi1e Areas

"he esta#lished ser$ice areas are ;elhi, Andhra /radesh, ujarat, Maharashtra,

4aryana, Kerala, Madhya /radesh and ttar /radesh -est0!

6icenses for the Maharashtra and ujarat Ser$ice Areas were awarded in ;ecem#er

7@@), with networ rollout and commercial launch achie$ed in 7@@(! In January '++7

the mo#ile operations in Andhra /radesh Ser$ice Area were integrated with I;3A

through a merger with "ata 5ellular 6imited!


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In June '++7, the mo#ile operations in Madhya /radesh Ser$ice Area were fully

integrated with I;3A through an acCuisition of ./ 5ellcom 6imited! In 8cto#er '++7,

the license for ;elhi Ser$ice Area was acCuired during the fourth mo#ile license auction,

with networ rollout and commercial launch in 1o$em#er '++'!

In January '++:, 3scotel Mo#ile 5ommunications /ri$ate 6imited

-L3scotelL0, was acCuired with its original licenses in the Ser$ice Areas of 4aryana, ttar

/radesh -est0 and Kerala! All these Ser$ice Areas were re>#randed and integrated

with I;3A in June '++:

New ervi1e Areas

"he 1ew Ser$ice Areas are ttar /radesh -3ast0, .ajasthan, 4imachal /radesh, Bihar,

Mum#ai, Karnataa, /unja#, 8rissa and "amil 1adu ,6icenses for ttar /radesh -3ast0,

.ajasthan and 4imachal /radesh were acCuired through the acCuisition of 3scotel

-3scorts "elecommunications 6imited0!

Brand Idea was launched in Karnataa and /unja#,

through the acCuisition of Spice 5ommunications! Idea launched its ser$ices in Mum#ai

and Bihar in '++third eCuity in the

company! But following A"&" ireless merger with 5ingular ireless in '++:, 5ingular

decided to sell its 9'!@= stae in Idea! "his stae was #ought #y #oth the "atas and

Birlas at 7*!:)= each!

"atas foray into the cellular maret with its own su#sidiary,

"ata Indicom, a 5;MA>#ased mo#ile pro$ider, cropped differences #etween the "atas

and the Birlas! "his dual holding #y the "atas also #ecame a major reason for the delay

in Idea #eing granted a license to operate in Mum#ai! "his was #ecause as per


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;epartment of "elecom -;8"0 license norms, one promoter could not ha$e more than

7+= stae in two companies operating in the same circle and "ata Indicom was already

operating in Mum#ai when Idea filed for its license!

"he Birla thus approached the ;8" and sought itsinter$ention, and the "atas replied #y saying that they would exit Idea #ut only for a

good price! 8n April 7+, '++*, the Aditya Birla roup announced its acCuisition of the

:

ission


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)ey 'eople

-oard of Dire1tors

Mr! Kumar Mangalam Birla -5hairman0Smt! .ajashree Birla

Mr! Saura#h Mishra

Mr! Sanjee$ Aga -Managing ;irector0

Mr! Arun "hiagarajan

Ms! "arjani Gail

Mr! Mohan yani

Mr! ian /raash upta

Mr! .!5! Bharga$a

Mr! /! Murari

Mr! Biswajit A! Su#ramanian

;r! 4ansa ijayasuriya

ana3e/ent Tea/

Corporate #eadership Tea/

Mr! Sanjee$ Aga, Managing ;irector

Mr! Ashaya Moondra, 5hief Financial 8fficer

Mr! Anil K! "andan, 5hief "echnology 8fficer

Mr! /raash K! /aranjape, 5hief Information 8fficer

Mr! /radeep Shri$asta$a, 5hief Mareting 8fficer


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Mr! 1a$anit 1arayan, 5hief Ser$ice ;eli$ery 8fficer

Mr! Ginay K! .adan, 5hief 4uman .esource 8fficer

Mr! .amjet K! Muarji, 5hief 5orporate Affairs 8fficer

Mr! .ajesh K! Sri$asta$a, 5hief Materials & /rocurement 8fficer

Mr! Am#rish Jain, ;irector > 8perations

Mr! 4imanshu Kapania, ;irector 2 8perations


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-rand Infor/ation0

The brand Idea

It is almost impossi#le to disintegrate #rand Idea from the corporate Idea! Brand $aluesare the company $alues and $ise $ersa!

Brand GisionD It goes without saying that the #rand $ision of idea mirrors the company%s

$ision! "he #rand mission statement is!!!!!! "o #e the most customer>focused mo#ile

ser$ice #rand, continuously inno$ating to help li#erate our customers from the shacles

of time & space!

IDEA 8 -rand


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The C!sto/er o1!s Idea

Mae a single interaction a lasting relationship!

The E/ployee o1!s Idea

1urture the roots that nurture our ideas!

-rand Initiatives

8ur aim, through media #uying and planning, is to create year round impact! ith the

o#jecti$e of strengthening our #rand, we wor with strategic communication partners on

campaigns lie sponsorship of the Idea International Indian Film Academy awards and

the tele$ision programs HIdea .ocs India, HIdea Star Singer and HIdea Andhra Idol!

e see engagement with su#scri#ers on a $ariety of le$els, from major cele#rity

fashion shows to small local e$ents timed to coincide with new product offerings!

Since August '++9, we ha$e commissioned a Brand "rac Index

Study to e$aluate the health of our #rand! "he Brand "rac Index Study is a monthly

study conducted #y "1S, a mareting consultant engaged #y us to e$aluate our #randusing face>to>face inter$iews on a random sample of mo#ile users a well as those

intending to purchase mo#iles within the next three months! According to the study our

#rand is percei$ed as Hrelia#leEtrustworthy and one that Hoffers cheaper and good

promotional offers! e ha$e impro$ed our rating in the Brand "rac Index calculated #y

the study in the past year reflecting, we #elie$e, the growing strength of our #rand!

"he main communication medium for the Idea #rand is tele$ision,

where we see strategic Idea #rand co$erage in $arious formats! Bill#oards andhoardings are used as a secondary medium, customied for specific regional

preferences to communicate effecti$ely at the local le$el! e also use other mass

communication media such as the press and radio to communicate price plans and

other tactical and customer information!


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All our ey initiati$es are su#jected to a rigorous testing and launch

process to ensure accounta#ility for all ad$ertising spend and impro$e the chances of

success of a new product! "his process is followed up with extensi$e #riefing of call

center agents and sales personnel and real>time tracing of the impact of the

communication and feed#ac from su#scri#ers!

REEARC2 ET2$D$#$+

"itle of the .esearch

Horing 5apital Management of Idea 5ellular 6td!

;uration of the .esearch

:) days

The Research Methodology here includes.

1. Meaning of Research.

2. Research Problem.

3. Research Design.

4. Sampling Design.

. Data !ollection method.

". #nalysis and interpretation of Data.

Meaning Research$

Research is defined as a scientific and systematic search for pertinent information on a

specific topic%. Research is an art of scientific investigation. Research is a systematized effort to

gain now knowledge. It is a careful investigation or inquiry especially through search for new

facts in any branch of knowledge. Research is an academic activity and this term should be used

in a technical sense. Research comprises defining and redefining problems, formulating


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hypothesis or suggested solutions. Making deductions and reaching conclusions to determine

whether they if the formulating hypothesis. Research is thus, an original contribution to the

eisting stock of knowledge making for its advancement. !he search for knowledge through

ob"ective and systematic method of finding solutions to a problem is research.

Research Problem

!he first step while conducting research is careful definition of Research #roblem. !o $RR I%

!&$ &'M()* is a proverb which indicates that no one is perfect in this world. $very

researcher has to face many problems which conducting any research that+s why problem

statement is defined to know which type of problems a researcher has to face while conductingany study. It is said that,

&Problem 'ell defined is problem half sol(ed.%

asically, a problem statement refers to some difficulty, which researcher eperiences in the

contet of either a theoretical or practical situation and wants to obtain the solution for the same.

!he problem statement here is-

Research Design

( research designs is the arrangement of conditions for collection and analysis data in a manner

that aims to combine relevance to the research purpose with economy in procedure. Research

esign is the conceptual structure with in which research in conducted. It constitutes the

blueprint for the collection measurement and analysis of data. Research esign includes and

outline of what the researcher will do form writing the hypothesis and it operational implication

to the final analysis of data. ( research design is a framework for the study and is used as guide

in collection and analyzing the data. It is a strategy specifying which approach will be used for

gathering and analyzing the data. It also include the time and cost budget since most studies are

done under these two cost budget since most studies are done under theses tow constraints.

!he design is such studies must be rigid and not fleible and most focus attention on the

following.


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Research Design >sed in this Pro?ect

Research esign chosen for this study is escriptive Research esign. escriptive study is

based on some previous understanding of the topic. Research has got a very specific ob"ective

and clear cut data requirements.

Sampling Design

%ampling is necessary because it is almost impossible to eamine the entire parent population

/i.e. the entire universe0 various factors such as time available cost, purpose of study etc. make it

necessary for the researchers to choose a sample. It should neither be too small nor too big. It

should be manageable. !&$ sample size of past 1 years is taken for present study due to time

limitation.


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D#T# !99!T7S

!he process of data collection begins after a research problem has been defined and research

design ahs been chalked out. !here are two types of data 2

MTDS 5 PRM#R D#T#

@SR:#T7 MTD

7TR:) MTDS

A>ST7#R MTD

#$%&D'& &*%+D

PR,R D* -

It is rst hand data, which is collected by researcher itself. Primary data is collected

by various approaches so as to get a precise, accurate, realistic and relevant data.

The main tool in gathering primary data was investigation and observation. It was

achieved by a direct approach and observation from the ocials of the company.

S!7D#R D#T# B it is the data which is already collected by someone else. Researcher

has to analyze the data and interprets the results. It has always been important for the completion

of any report. It provides reliable, suitable, adequate and specific knowledge.

I took data comprise annual reports and post records. ank has provided me annual reports from

3445647 to 3484688 by help of which, I prepared my report.

!he valuable cooperation etended by staff members contributed a lot to fulfill the requirements

in the collection of data in order to complete the pro"ect. 9arious statistical tools are applied

depending on the research problem. In this study ratio analysis, comparative financial statements

analysis, common size statements and !rend (nalysis has been used for analyzing and

interpreting the result.


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$-ECTI


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"he woring capital has the following components, which are in se$eral forms of current

assetsD

o Stoc of 5ash

o PStoc of .aw Material

o PStoc of Finished oods

o PGalue of ;e#tors

o Miscellaneous current assets lie short term in$estment loans & Ad$ances

A n!/ber of definitions have been for/!lated7 perhaps the /ost widely

a11eptable wo!ld beB

H8.KI1 5A/I"A6 represents the excess of5..31" ASS3"S o$er 5..31"

6IABI6I"I3S H

"he same may #e designated in the following eCuationD

*$R)IN+ CA'ITA# CURRENT AET CURRENT #IA-I#ITIED

Funds thus in$ested in current assets eep re$ol$ing fast and are #eing constantly

con$erted in to cash and this cash flows out again in exchange for other current assets!

"hus it is nown as re$ol$ing or circulating capital or short term capital!


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These are two 1on1epts of wor%in3 1apitalD>

a!

ross oring 5apital!

#! 1et oring 5apital!

ross woring capital is the total of all current assets! 1et woring capital is the

difference #etween current assets and current lia#ilities! "hough the later concept of

woring capital is commonly used it is an accounting concept with little sense to say that

a firm manages its net woring capital! hat a firm really does is to tae decisions with

respect to $arious current assets and current lia#ilities! "he constituents of current

assets and current lia#ilities are shown in ta#le A!


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Constit!ents of C!rrent Assets and C!rrent #iabilities

C!rrent Assets

In$entories 2 .aw materials and components, or in progress, Finished goods,

other!

"rade ;e#tors!

6oans and Ad$ances!

In$estments!

5ash and Ban #alance!

C!rrent #iabilities

Sundry 5reditors!

"rade Ad$ances!

Borrowings!

/ro$isions!

The wor%in3 1apital needs of a b!siness are infl!en1ed by n!/ero!s

fa1tors0 The i/portant ones are dis1!ssed in brief as 3iven below D


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Nat!re of Enterprise

"he nature and the woring capital reCuirements of an enterprise are interlined! hile

a manufacturing industry has a long cycle of operation of the woring capital, the same

would #e short in an enterprise in$ol$ed in pro$iding ser$ices! "he amount reCuired also

$aries as per the nature an enterprise in$ol$ed in production would reCuire more

woring capital than a ser$ice sector enterprise!

an!fa1t!rin3'rod!1tion 'oli1y

3ach enterprise in the manufacturing sector has its own production policy, some follow

the policy of uniform production e$en if the demand $aries from time to time, and others

may follow the principle of demand>#ased production in which production is #ased on

the demand during that particular phase of time! Accordingly, the woring capital

reCuirements $ary for #oth of them!

*or%in3 Capital Cy1le

In manufacturing concern, woring capital cycle starts with the purchase of raw

materials and ends with realiation of cash from the sale of finished goods! "he cycle

in$ol$es the purchase of raw materials and ends with the realiation of cash from the

sale of finished products! "he cycle in$ol$es purchase of raw materials and stores, its

con$ersion in to stoc of finished goods through wor in progress with progressi$e

increment of la#or and ser$ice cost, con$ersion of finished stic in to sales and


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recei$a#les and ultimately realiation of cash and this cycle continuous again from cash

to purchase of raw materials and so on!

$perations

"he reCuirement of woring capital fluctuates for seasonal #usiness! "he woring

capital needs of such #usinesses may increase considera#ly during the #usy season

and decrease during the slac season! Ice creams and cold drins ha$e a great

demand during summers, while in winters the sales are negligi#le!

ar%et Condition

If there is high competition in the chosen product category, then one shall need to offer

sops lie credit, immediate deli$ery of goods etc! for which the woring capital

reCuirement will #e high! 8therwise, if there is no competition or less competition in the

maret then the woring capital reCuirements will #e low!

Credit 'oli1y

"he credit policy is concerned in its dealings with de#tors and creditors influence

considera#ly the reCuirements of the woring capital! A concern that purchases itsreCuirements on credit and sells its productsEser$ices on cash reCuires lesser amount of

woring capital! 8n the other hand a concern #uying its reCuirements for cash and

allowing credit to its customers, shall need larger amount of funds are #ound to #e tied

up in de#tors or #ills recei$a#les!


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-!siness Cy1le

Business 5ycle refers to alternate expansion and contraction in general #usiness

acti$ities! In a period of #orn i!e! when the #usiness is prosperous there is a need for

larger amount of woring capital due to increase in sales, rise in prices, optimistic

expansion of #usiness etc! 8n the country at he time of depression i!e! when there is a

down swing of the cycle, #usiness contracts, sales decline, difficulties are faced in

collections from de#tors and firms may ha$e a large amount of woring capital lying

ideal

Availability of Raw aterial

If raw material is readily a$aila#le then one need not maintain a large stoc of the same,

there#y reducing the woring capital in$estment in raw material stoc! 8n the other

hand, if raw material is not readily a$aila#le then a large in$entoryEstoc needs to #e

maintained, there#y calling for su#stantial in$estment in the same!

+rowth and EFpansion

rowth and expansion in the $olume of #usiness results in enhancement of the woringcapital reCuirement! As #usiness grows and expands, it needs a larger amount of

woring capital! 1ormally, the need for increased woring capital funds precedes growth

in #usiness acti$ities!


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estimated! "hereafter, proper $alue is assigned to the respecti$e current assets,

depending on its le$el of completion!

$ther a1tors

5ertain other factors such as operating efficiency, management a#ility, irregularities a

supply, import policy, asset structure, importance of la#or, #aning facilities etc! also

influences the reCuirement of woring capital!

Co/ponent of *or%in3 Capital -asis of to>day operations of a #usiness!

1egligence in proper assessment of the woring capital, therefore, can affect the day>


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to>day operations se$erely! It may lead to cash crisis and ultimately to liCuidation! An

inaccurate assessment of the woring capital may cause either under>assessment or

o$er>assessment of the woring capital and #oth of them are dangerous!

*$R)IN+ CA'ITA# ANA+EENT

oring 5apital Management refers to management of current assets and current

lia#ilities! "he major thrust of course is on the management of current assets !"his is

understanda#le #ecause current lia#ilities arise in the context of current assets! oring

5apital Management is a significant fact of financial management! Its importance stems

from two reasonsD>

In$estment in current assets represents a su#stantial portion of total in$estment!

In$estment in current assets and the le$el of current lia#ilities ha$e to #e geared

Cuicly to change in sales! "o #e sure, fixed asset in$estment and long term

financing are responsi$e to $ariation in sales! 4owe$er, this relationship is not as

close and direct as it is in the case of woring capital components!

"he importance of woring capital management is effected in the fact that financial

manages spend a great deal of time in managing current assets and current lia#ilities!

Arranging short term financing, negotiating fa$ora#le credit terms, controlling the

mo$ement of cash, administering the accounts recei$a#le, and monitoring the

in$entories consume a great deal of time of financial managers!

"he pro#lem of woring capital management is one of the H#est utiliation of a scarce

resource!

"hus the jo# of efficient woring capital management is a formida#le one, since it

depends upon se$eral $aria#les such as character of the #usiness, the lengths of the

merchandising cycle, rapidity of turno$er, scale of operations, $olume and terms of

purchase & sales and seasonal and other $ariations!


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C$NEGUENCE $ UNDER AEENT $ *$R)IN+ CA'ITA#

o rowth may #e stunted! It may #ecome difficult for the enterprise to undertae

profita#le projects due to non>a$aila#ility of woring capital!

o PImplementation of operating plans may #ecome difficult and conseCuently the

profit goals may not #e achie$ed!

o P5ash crisis may emerge due to paucity of woring funds!

o 8ptimum capacity utiliation of fixed assets may not #e achie$ed due to non

a$aila#ility of the woring capital!

o P"he #usiness may fail to honour its commitment in time, there#y ad$ersely

affecting its credi#ility! "his situation may lead to #usiness closure!

o "he #usiness may #e compelled to #uy raw materials on credit and sell finished

goods on cash! In the process it may end up with increasing cost of purchasesand reducing selling prices #y offering discounts! Both these situations would

affect profita#ility ad$ersely!

o 1on>a$aila#ility of stocs due to non>a$aila#ility of funds may result in production

stoppage!

o hile underassessment of woring capital has disastrous implications on

#usiness, o$er assessment of woring capital also has its own dangers!


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C$NEGUENCE $ $


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.0 l!1t!atin3 wor%in3 1apital! "his capital is needed to meet the seasonal

reCuirements of the #usiness! It is used to raise the $olume of production #y

impro$ement or extension of machinery! It may #e secured from any financial institutionwhich can, of course, #e met with short term capital! It is also called $aria#le woring

capital!

=0 Reserve /ar3in wor%in3 1apital0It represents the amount utilied at the time of

contingencies! "hese unpleasant e$ents may occur at any time in the running life of the

#usiness such as inflation, depression, slump, flood, fire, earthCuaes, strie, lay off and

una$oida#le competition etc! In this case greater amount of capital is reCuired formaintenance of the #usiness!


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inan1in3 *or%in3 Capital

1ow let us understand the means to finance the woring capital! oring capital or

current assets are those assets, which unlie fixed assets change their forms rapidly!

;ue to this nature, they need to #e financed through short>term funds! Short>term funds

are also called current lia#ilities! "he following are the major sources of raising short>

term fundsD

I0 !pplierHs Credit

At times, #usiness gets raw material on credit from the suppliers! "he cost of raw

material is paid after some time, i!e! upon completion of the credit period! "hus, without

ha$ing an outflow of cash the #usiness is in a position to use raw material and continue

the acti$ities! "he credit gi$en #y the suppliers of raw materials is for a short period and

is considered current lia#ilities! "hese funds should #e used for creating current assets

lie stoc of raw material, wor in process, finished goods, etc!

ii0 -an% #oan for *or%in3 Capital

"his is a major source for raising short>term funds! Bans extend loans to #usinesses to

help them create necessary current assets so as to achie$e the

.eCuired #usiness le$el! "he loans are a$aila#le for creating the following current

AssetsD

PStoc of .aw Materials

Stoc of or in /rocess

Stoc of Finished oods

;e#tors

Bans gi$e short>term loans against these assets, eeping some security margin!


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"he ad$ances gi$en #y #ans against current assets are short>term in nature and #ans

ha$e the right to as for immediate repayment if they consider doing so! "hus #an

loans for creation of current assets are also current lia#ilities!

iii0 'ro/oterHs !nd

It is ad$isa#le to finance a portion of current assets from the promoter%s funds! "hey are

long>term funds and, therefore do not reCuire immediate repayment!

"hese funds increase the liCuidity of the #usiness!


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ana3e/ent of Inventory

In$entories constitute the most significant part of current assets of a large majority of

companies in India! 8n an a$erage, in$entories are approximately *+ = of current

assets in pu#lic limited companies in India!

Because of the large sie of in$entories maintained #y firms maintained #y firms, a

considera#le amount of funds is reCuired to #e committed to them! It is, therefore $ery

necessary to manage in$entories efficiently and effecti$ely in order to a$oid

unnecessary in$estments! A firm neglecting a firm the management of in$entories will

#e jeopardiing its long run profita#ility and may fail ultimately!

"he purpose of in$entory management is to ensure a$aila#ility of materials in sufficient

Cuantity as and when reCuired and also to minimie in$estment in in$entories at

considera#le degrees, without any ad$erse effect on production and sales, #y using

simple in$entory planning and control techniCues!

Needs to hold inventories78

"here are three general moti$es for holding in$entoriesD>

Transa1tion /otiveemphasies the need to maintain in$entories to facilitate

smooth production and sales operation!

're1a!tionary /otivenecessities holding of in$entories to guard against the

ris of unpredicta#le changes in demand and supply forces and other factors!


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pe1!lative /otive influences the decision to increases or reduce in$entory

le$els to tae ad$antage of price fluctuations and also for sa$ing in re>ordering

costs and Cuantity discounts etc!

$bje1tive of Inventory ana3e/ent78

"he main o#jecti$es of in$entory management are operational and financial! "he

operational mean that means that the materials and spares should #e a$aila#le in

sufficient Cuantity so that wor is not disrupted for want of in$entory! "he financial

o#jecti$e means that in$estments in in$entories should not remain ideal and minimum

woring capital should #e loced in it!

"he following are the o#jecti$es of in$entory managementD>

o "o ensure continuous supply of materials, spares and finished goods!

o "o a$oid #oth o$er>stocing of in$entory!

o "o maintain in$estments in in$entories at the optimum le$el as reCuired #y the

operational and sale acti$ities!

o "o eep material cost under control so that they contri#ute in reducing cost of

production and o$erall purchases!

o "o eliminate duplication in ordering or replenishing stocs! "his is possi#le with

the help of centraliing purchases!

o "o minimie losses through deterioration, pilferage, wastages and damages!


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o "o design proper organiation for in$entory control so that management! 5lear

cut account a#ility should #e fixed at $arious le$els of the organiation!

o "o ensure perpetual in$entory control so that materials shown in stoc ledgers

should #e actually lying in the stores!

o "o ensure right Cuality of goods at reasona#le prices!

o "o facilitate furnishing of data for short>term and long term planning and control

of in$entory


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ana3e/ent of 1ash

5ash is the important current asset for the operation of the #usiness! 5ash is the #asic

input needed to eep the #usiness running in the continuous #asis, it is also the ultimate

output expected to #e realied #y selling or product manufactured #y the firm!

"he firm should eep sufficient cash neither more nor less! 5ash shortage will disrupt

the firm%s manufacturing operations while excessi$e cash will simply remain ideal

without contri#uting anything towards the firm%s profita#ility! "hus a major function of the

financial manager is to maintain a sound cash position!

5ash is the money, which a firm can dis#urse immediately without any restriction! "he

term cash includes coins, currency and cheCues held #y the firm and #alances in its

#an account! Sometimes near cash items such as mareting securities or #an term

deposits are also included in cash! enerally when a firm has excess cash, it in$ests it

is mareta#le securities! "his ind of in$estment contri#utes some profit to the firm!


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Need to hold 1ash

"he firm%s need to hold cash may #e attri#uted to the following three moti$esD>

The Transa1tion otive7 "he transaction moti$e reCuires a firm to hold cash to

conduct its #usiness in the ordinary course! "he firm needs cash primarily to mae

payments for purchases, wages and salaries, other operating expenses, taxes,

di$idends, etc!

The 're1a!tionary otive7 A firm is reCuired to eep cash for meeting $arious

contingencies! "hough cash inflows and outflows are anticipated #ut there may #e

$ariations in these estimates! For example a de#tor who pays after ( days may inform

of his ina#ility to pay, on the other hand a supplier who used to gi$e credit for 7) days

may not ha$e the stoc to supply or he may not #e in opposition to gi$e credit at

present!

pe1!lative otive7 5 "he speculati$e moti$e relates to the holding of cash for

in$esting in profit maing opportunities as and when they arise!

"he opportunities to mae profit changes! "he firm will hold cash, when it is expected

that interest rates will rise and security price will fall!


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Co/ponents of wor%in3 1apital are 1al1!lated as followsD

6" Raw aterials tora3e 'eriodQA$erage stoc of raw materialsEA$erage cost of raw

material consumption per day!

40" *8I8' 2oldin3 periodA$erage w>i>p in in$entoryEA$erage cost of production per

day!

.0" tores and spares 1onversion periodA$erage stoc of Stores and sparesEA$erage consumption per day!

=0" inished 3oods 1onversion periodA$erage stoc of finished goodsEA$erage cost

of goods sold per day!

>0" Debtors 1olle1tion periodA$erage #oo de#tsEA$erage credit sales per day!

?0" Credit period availedA$erage trade creditorsEA$erage credit purchase per

day!


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ana3e/ent of Re1eivables

A sound managerial control reCuires proper management of liCuid assets and in$entory!

"hese assets are a part of woring capital of the #usiness! An efficient use of financial

resources is necessary to a$oid financial distress! .ecei$a#les result from credit sales!

A concern is reCuired to allow credit sales in order to expand its sales $olume! It is not

always possi#le to sell goods on cash #asis only! Sometimes other concern in that line

might ha$e esta#lished a practice of selling goods on credit #asis! nder these

circumstances, it is not possi#le to a$oid credit sales without ad$ersely affecting sales!

"he increase in sales is also essential to increases profita#ility! After a certain le$el of

sales the increase in sales will not proportionately increase production costs! "he

increase in sales will #ring in more profits! "hus, recei$a#les constitute a significant

portion of current assets of a firm! But for in$estment in recei$a#les, a firm has to insure

certain costs! Further, there is a ris of #ad de#ts also! It is therefore, $ery necessary to

ha$e a proper control and management of recei$a#les!

Needs to hold 1ash7

.ecei$a#les management is the process of maing decisions relating to in$estment in

trade de#tors! 5ertain in$estments in recei$a#les are necessary to increase the sales

and the profits of a firm! But at the same time in$estment in this asset in$ol$es cost

consideration also! Further, there is always a ris of #ad de#ts too!

"hus, the o#jecti$e of recei$a#le management is to tae a sound decision as regards

in$estments in de#tors! In the words of Bolton, S!3!, the need of recei$a#les

management is Hto promote sales and profits until that point is reached where the return

of in$estment in further funding of recei$a#les is less than the cost of funds raised to

finance that additional credit!


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I/portant Ter/s

*or%in3 Capital Cy1le

5ash flows in a cycle into, around and out of a #usiness! It is the #usinesss life #lood

and e$ery managers primary tas is to help eep it flowing and to use the cash flow to

generate profits! If a #usiness is operating profita#ly, then it should, in theory, generate

cash surpluses! If it doesnt generate surpluses, the #usiness will e$entually run out ofcash and expire!

"he faster a #usiness expands , the more cash it will need for woring capital and

in$estment! "he cheapest and #est sources of cash exist as woring capital right within

#usiness! ood management of woring capital will generate cash will help impro$e

profits and reduce riss! Bear in mind that the cost of pro$iding credit to customers and

holding stocs can represent a su#stantial proportion of a firms total profits!

"here are two elements in the #usiness cycle that a#sor# cash > Inventory-stocs and

wor>in>progress0 and Re1eivables-de#tors owing you money0! "he main sources of

cash are 'ayables-your creditors0 and E!ity and #oans!


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Mo$e in$entory -stocs0 slower Nou consume more

cash

It can #e tempting to pay cash, if a$aila#le, for fixed assets e!g! computers, plant,

$ehicles etc! If you do pay cash, remem#er that this is now longer a$aila#le for woring

capital! "herefore, if cash is tight, consider other ways of financing capital in$estment >

loans, eCuity, leasing etc! Similarly, if you pay di$idends or increase drawings, these are

cash outflows and, lie water flowing downs a plug hole, they remo$e liCuidity from the

#usiness!

ore b!sinesses fail for la1% of 1ash than for want of

profit0


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o!r1es of Additional *or%in3 Capital

Sources of additional woring capital include the followingD

3xisting cash reser$es

/rofits -when you secure it as cashR0

/aya#les -credit from suppliers0

1ew eCuity or loans from shareholders

Ban o$erdrafts or lines of credit

6ong>term loans

If you ha$e insufficient woring capital and try to increase sales, you can easily o$er>

stretch the financial resources of the #usiness!

"his is called o,ertrading! 3arly warning signs includeD

o /ressure on existing cash

o 3xceptional cash generating acti$ities e!g! offering high discounts for early cash

payment

o Ban o$erdraft exceeds authoried limit

o Seeing greater o$erdrafts or lines of credit

o /art>paying suppliers or other creditors


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o /aying #ills in cash to secure additional supplies

o Management pre>occupation with survivingrather than managing

FreCuent short>term emergency reCuests to the #an -to help pay wages, pending

receipt of a cheCue0!

2andlin3 Re1eivables (Debtors"

5ash flow can #e significantly enhanced if the amounts owing to a #usiness are

collected faster! 3$ery #usiness needs to now!!!! who owes them money!!!! how much

is owed!!!! how long it is owing!!!! for what it is owed!

#ate pay/ents erode profits and 1an lead to bad debts0

Slow payment has a crippling effect on #usiness in particular on small #usinesses who

can least afford it! If yo! donJt /ana3e debtors, they will be3in to /ana3e yo!r

b!sinessas you will gradually lose control due to reduced cash flow and, of course,

you could experience an increased incidence of #ad de#t!

The followin3 /eas!res will help /ana3e yo!r debtorsD

7! 4a$e the right mental attitude to the control of credit and mae sure that it gets

the priority it deser$es!


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errors in in$oices or statements

5ustomer dissatisfaction!

;e#tors due o$er @+ days -unless within agreed credit terms0 should generally demand

immediate attention! 6oo for the warning signs of a future #ad de#t! For example!!!!!!!!!

o longer credit terms taen with appro$al, particularly for smaller orders

o use of post>dated checs #y de#tors who normally settle within agreed terms

o e$idence of customers switching to additional suppliers for the same goods

o new customers who are reluctant to gi$e credit references

o .ecei$ing part payments from de#tors!

'rofits only 1o/e fro/ paid sales0

"he act of collecting money is one which most people dislie for many reasons and

therefore put on the long finger #ecause they con$ince themsel$es there is something

more urgent or important that demand their attention now! There is nothin3 /orei/portant than 3ettin3 paid for yo!r prod!1t or servi1e0 A 1!sto/er who does not

pay is not a 1!sto/er0


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ana3in3 'ayables (Creditors"

5reditors are a $ital part of effecti$e cash management and should #e managed

carefully to enhance the cash position! /urchasing initiates cash outflows and an o$er>

ealous purchasing function can create liCuidity pro#lems! 5onsider the followingD

o ho authories purchasing in your company > is it tightly managed or spread

among a num#er of -junior0 people

o Are purchase Cuantities geared to demand forecasts

o ;o you use order Cuantities which tae account of stoc>holding and purchasing

costs

o ;o you now the cost to the company of carrying stoc

o ;o you ha$e alternati$e sources of supply If not, get Cuotes from major

suppliers and shop around for the #est discounts, credit terms, and reduce

dependence on a single supplier!

o 4ow many of your suppliers ha$e a returns policy

o Are you in a position to pass on cost increases Cuicly through price increases to

your customers

o If a supplier of goods or ser$ices lets you down can you charge #ac the cost of

the delay

o 5an you arrange -with confidenceR0 to ha$e deli$ery of supplies staggered or on

a just>in>time #asis

"here is an old adage in #usiness that if you (an buy !ell ten you (an "ell !ell!Management of your creditors and suppliers is just as important as the management of

your de#tors! It is important to loo after your creditors > slow payment #y you may

create ill>feeling and can signal that your company is inefficient -or in trou#leR0!


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this will also increase > #ut your reputation,

the Cuality of ser$ice and any flexi#ility

pro$ided #y your suppliers may suffer!

5urrent

.atio

"otal 5urrent

AssetsE

"otal 5urrent

6ia#ilities

Q x

times

5urrent Assets are assets that you can

readily turn in to cash or will do so within 7'

months in the course of #usiness! 5urrent

6ia#ilities are amount you are due to pay

within the coming 7' months! For example,

7!) times means that you should #e a#le to

lay your hands on 7!)+ for e$ery 7!++ you

owe! 6ess than 7 times e!g! +!() means that

you could ha$e liCuidity pro#lems and #eunder pressure to generate sufficient cash to

meet oncoming demands!

Ouic .atio

-"otal 5urrent

Assets >

In$entory0E

"otal 5urrent

6ia#ilities

Q x

times

Similar to the 5urrent .atio #ut taes account

of the fact that it may tae time to con$ert

in$entory into cash!

oring

5apital

.atio

-In$entory U.ecei$a#les >

/aya#les0E

Sales

As =

Sales

A high percentage means that woring capital

needs are high relati$e to your sales!

8ther woring capital measures include the followingD

Bad de#ts expressed as a percentage of sales!

5ost of #an loans, lines of credit, in$oice discounting etc!

;e#tor concentration > degree of dependency on a limited num#er of

customers!


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8nce ratios ha$e #een esta#lished for your #usiness, it is important to trac them o$er

time and to compare them with ratios for other compara#le #usinesses or industry

sectors!

hen planning the de$elopment of a #usiness, it is critical that the impact of woring

capital #e fully assessed when maing cash flow forecasts!
http://www.planware.org/cashflowforecast.htmhttp://www.planware.org/cashflowforecast.htm


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DATA ANA#I AND INTER'RETATI$N

$R" in (ore"%

'++:E+) '++)E* '++*E( '++(E4;05? >;60>: ?.=0;? ?:?0?>

!ndry debtors7 ;40:6 4;0=4 .=06. ?50?>

Cash and ban% balan1e7 9>>046 46;.096 .?:?0>. .>6?0=?

$ther 1!rrent assets7 :4056 66:0?4 4640= 4.?0=?

#oans and advan1es7 .>60;> .?=0;> =5?0=4 >=6065

KKKKKKKKKKKKKKKKKKKKKKKKKKKKK00

T$TA#7 6:6605= .4>90:: >5=60.. =;9=05:

-7 CURRENT #IA-E#ITIE7

!ndry 1reditors7

a" $n 1apital a17 ?=094 ==0.; 65405; 49409:

b" on others7 6?;0.: 4440;> 4?509= .4=0;=

$ther liabilities7 .4?0;4 4:=0;? =4=0?= >>90;=

e1!rity deposit7 >>0;4 >>065 9=0?? 6?40?;

-oo% over draft KK0 KKK ;0;: KK0


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'rovisions7 6;506= ..40:4 .=?0=; 4440>9

K KKKKKKKKKKKKKKKKKKKKKK

T$TA#7 :5?0.; ;=506> 646:0?6 6>=50=5

*$R)IN+ CA'ITA# (A8-"7 655=0?> 4.6909. .:44094 .=..0?:


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I'$RTANT RATI$ $ IDEA

60 $'ERATIN+ 'R$IT AR+IN (@"

40 NET 'R$IT AR+IN (@"


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.0 RETURN $N NET*$RT2 (R$N*" (@"

=0 RETURN $N CA'ITA# E'#$ED (R$CE"


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C$NC#UI$N

After studying the components of woring capital management system of IDEA! It is

found that the company has a sound and effecti$e policy and its performance is $ery

good e$en in this #ad recession situation company has managed to post good profit!

5ompany is competing well at the domestic as well as the international le$el and it is

among the low cost producers of aluminium in the world only #ecause of its proper

management of finance, specially the short term finance nown as the woring capital!

"he company is a matured one and it has contri#uted well in the countries growth and

de$elopment and will also continue to perform and contri#ute to the whole nation!

In conclusion ,we can say that the companies management is an effecti$e one and

nows well the management of finance, its woring capital management system is $ery

good #ecause of which only the company has got the status of NA


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@@96R#P

@ooCs

oel !.". #$anagement %ccounting and &inancial $anagement'(,Pg

)* #In this I found the di+erent types of ratios and there formulas and

about thumb rule and all basic concept(.

Pandey , I.$ #&inancial $anagement( Pg-/0-/' #1ow to prepare

comparative balance sheet and how can we evaluate(.

$aheshwari ,2.3 , 4%dvanced %ccounting)( pg b/5-b/*, #It e6plains

ratio analysis as a tool to analy7e the nancial statements of

organi7ation. !i+erent ratios depict the position of rm in market(.

$ittal 8." , #$anagement %ccounting9 &inancial $anagement

*

( pg :*-05 #from this I have how to prepare comparative balance sheet and

how to interpret it(

;ain T.8. , #2tatistics for $ 0'-0*, #Information about

the calculation of chi square test(.

., #$arketing 8esearch5( pg' #2ome theoretical

knowledge about the type of data(.

2.> upta, #&undamentals of 2tatistics( pg:, #&rom here I found

the denitions that are the base for the statistical tools(.

1ooda 8.P. #2tatistics for alculation of trend analysis and its interpretation(.

Deepak Soni Working Capital Idea_Final

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