Index1. Introduction 2. Industry/ Sector Profile . 3. Company and Product Profile 4. Literature Survey.5. Objectives and Scope of the project 6. Research Methodology 7. Data Analysis and Interpretation 8. Observations and findings Chapter 89. Conclusions Chapter 910. Suggestions/ Recommendations Chapter 10References Annexure Questionnaire

INTRODUCTIONWORKING CAPITAL MANAGEMENTMore businesses fail for lack of cash than for want of profitCash is the lifeline of a company, no matter how large or small the organization is. If this lifeline deteriorates so does the company's ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company's cash flow health is essential to making investment decisions. A good way to judge a company's cash flow prospects is to look at its working capital Management. Working capital management involves the relationship between a firm's current assets and its current liabilities. Current Assets are resources, which are in cash or will soon be converted into cash in "the ordinary course of business". Current Liabilities are commitments which will soon require cash settlement in "the ordinary course of business". The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash to pay current liabilities as they fall due. This implies a clearly designed risk policy to determine the required liquidity level.

Why Firms Hold Cash

The finance profession recognises the three primary reasons offered by economist John Maynard Keynes to explain why firms hold cash. The three reasons are for the purpose of speculation, for the purpose of precaution, and for the purpose of making transactions. All three of these reasons stem from the need for companies to possess liquidity

Rationale of the studyIn these days working capital is most important in every company. This study helps the management of the organization in taking decision regarding working capital and financial decisions. This study is useful to the Net Guru Solutions, Towards their working capital management. A study of working capital management is a major importance to internal & external analysis.The study is mainly conducted to know the working capital management of the firm. The working capital management is concerned with the firm current assets and liabilities. It is important and integral part of financial management as short term survival to long term success.

To analyze the ratio analysis of Net Guru Solutions. To compare the balance sheet of Net Guru Solutions. To compare the statement of changes in working capital of Net Guru Solutions.

Sector profile in brief

INDUSTRY/ SECTOR PROFILE

COMPANY AND PRODUCT PROFILEORGANIZATION PROFILE

NET GURU SOLUTIONSNet Guru Solutions has a strong and experienced Management Team supported by an experienced dynamic Middle Management Team and we currently have staff strength of more than 5 Executives.NET GURU SOLUTIONS pioneered BHOPALs first HI Tech COMPUTERISE and our mantra is to use the synergy of People, Process and Technology to deliver exceptional value to our clients.Netgurusolution.com, is an online service provider to individual, group and organizations. With our unique designing capability, we deliver successful solutions for Web Design and Development in Content Management System (CMS), Online Research, IT Training, Search Engine Optimization (SEO), Site Marketing, Brand Promotion. Link Building, Directory Submission and HR Solutions in bhopal pune indore nagpur.We cluster sensory, conceptual, and reactive prospects for most effective and productive output. Netgurusolution have a simplified cyclic approach to implementing various process involved in complete management of web development. From product planning, strategy formulation and implementing processes in a step by step manner to achieve the final goal. Netgurusolution has its base in Bhopal, Pune, Indore, Nagpur- India. Netgurusolution has spread its wings in Indore, Nagpur, Raipur and Pune having a strong support base. PHILOSOPHYNetgurusolution was established with an aim to provide services that not only meet the expectations, but also to reflect our philosophy of creating real values for our clients. We have a holistic approach that goes beyond mere cost savings for our clientNetgurusolution provides search engine optimization plan that offers the best online branding and comprehensive search engine positioning strategies which obtain high rankings and turn your portal into a powerful business tool on Net. For indexing and listings both on page and off page optimization service is offered to clients using our expertise and long experience. We have a vast database of important resources needed for this purpose.For successful SEO service, we emphasis more on-1. Link and Directory Building2. Selection of the right keywordsWe have an excellent record in search engine optimization with a large number of clients in Educational Sector, Hospitality Industry and other related services ranking top place in Google and Yahoo. We have top team of experienced SEO Sr's that devise and implement strategy for highly successful campaigns.Our main objective of site Marketing is to divert the right visitor traffic to your web site. Search Engine marketing is resource intensive by its nature. Methodologies employed are highly effective and search engine friendly. We offer a comprehensive site marketing plan to our clients with close focusing on the objectives and aims of the clients need and the characteristics of the portal. In order to generate the right kind of traffic for greater productivity, we have a highly research oriented approach and consultation and guidance to clients, is part of the package. The right type of site marketing campaign is the key to success in online marketing warfare. Utilizing all market channels, proper branding exercise, implementing market research with correct methodology, aggressive site promotion techniques, and content creation along with keyword analysis.Netgurusolution is a web development company in India our head office is situated in Bhopal and the other web development and marketing branches are in pune, indore,nagpur,malaysia,dehli and raipur.Our Web hosting in Bhopal Pune Indore Nagpur is also a cheapest and low price web hosting in india.our SEO service stand us on full fragment of public web trafficking on first position then other seo companies in india.We are working as freelance web development company also with big brand names our partners are our certificate to our success in our field of web development and designing. Our web training and IT training divisions are the world's top most divisions for producing skilled manpower for upcoming word's need.Netguru job in India is the HR section of our company which filter us from other HR service or Job Providers because we are providing free HR service to our customers i.e. we can't charge money to employers for HR service in INDIA.EDUCATIONAL CONSULTANT NET GURU SOLUTIONS, a leading educational consultant, provides you with the right choices to set you on a rewarding future by obtaining world-class qualifications. Net Guru Solutions is an Indian based educational consultant, which provides professional consulting services to students in India who like to pursue further education abroad. Choose from exciting Diploma, Bachelor Degree & Master Degree courses in Information Technology, Business Administration, Hotel Management, International Trade, Computer Science, Engineering, Biosciences, Clinical, Non Clinical, Textile Technology, Fashion Design, Art & Design and many more.

Net Guru Solutions is an Indian based educational consultant which provides professional consulting services to students in India who like to pursue further education in other countries. Having the best consulting team with their prior knowledge in working with foreign universities and also the requirements of Indian students, can correlate and give proper advice on the exact location and course to be taken up. Being a total solution based and a flawless educational consultant, Net Guru Solutions can surely show a right way to a bright future. We have a reputation of being the best educational consultant in India. This is so amongst students, parents and indeed, the Universities. We are reputed to if one wants to climb up corporate ladder. The most attractive features of securing a degree from one of the most technologically advanced nations such as UK, Canada or Australia is quality of program. Most Universities are required to meet certain minimum standards of educational quality. In UK e.g. universities that are accredited are regularly monitored by accrediting agencies. Interactions with students from diverse backgrounds will prepare you for career in organization that has international links. Almost as important as the academic advantages are chances it offers to experience life abroad. On an academic platform you will be drawn to participate in discussions on the political happenings in Europe or share insights on the new technological revolution. The student will develop the spirit of comradeship. International education will not only help you to have thorough understanding of subject but also develop analytical abilities and problem-solving skills. Finally an experience abroad entails an amount of independence, as one must now rely on oneself. JOB CONSULTANTNothing can be more constant than change; hence we do our bit to instigate it. In an ever-changing global market, it is vital to evolve, move ahead and move on. Accordingly as a career and professional networking portal that strategically brings together professionals and inter-dependent professional communities, it is essential that our strategies are not based on assumptions but involves a lot of intuitiveness, comprehension and insight. Especially since we are dealing with people and their aspirations for a better life and a better future, be it as an individual jobseeker or a large conglomerate that envisions exponential expansions. And as a faction of NET GURU SOLUTIONS. that is fundamentally Also focused on connecting people and opportunities in the best possible way in the best possible way; we don't just care about your pursuit but ensure that we do something to bring it to fruition. WHY CHOOSE US We offer Quality Advice on Quality Higher Education. We are the Official representatives. Hundreds of students helped each year to gain entry to programmes in UK. advice on wide range of topics from Undergraduate & postgraduate programmes application procedures, visas, scholarships and many other topics. On the spot admissions by University staff members from the UK visiting our offices Interviews and On spot admissions by University delegates.

STUDENT EDUCATION COUNSELINGSERVICES OFFERED- Admission Career Counseling Bank Loan Assistance Choosing the right course in right university Information on courses, colleges, universities. Application Processing, References & SOP Pre Visa Counseling & Documentation Pre departure orientation / briefing Airport pickup and hostel accommodation Lodging Visa Application & Follow up statusr />FREE STUDENT CAREER COUNSELING

Which Career? The Team guides you through the maze of questions to find solutions best suited to your profile and / or constraints ensuring you choose the best career Pathway.

COURSE SELECTION

Personal guidance to help choose courses that perfectly fit your career or Personal Goals.UNIVERSITY SELECTION

Assistance is given to those, that would best suit your Personal, Academic and Financial Profile/Constraints, non-Commercially and not limited to the Universities they represent.

ADMISSION FORMALITIESSpecial attention to your application and highlighting the areas essential for a well-presented, error free application. The Team assists with References and the 'all-important' Statement of Purpose. They assess your English and where appropriate, recommend waiver of IELTS / TOFEL. The Universities admission tutors consider these recommendations. They follow up with the chosen Universities and ensure Positive and Quick Response.

VISA FORMALITIESThis includes applications, financial statements, interviews & everything else! Foreign exchange formalities, pre-departure briefing and training for settling into your new host country. Accommodation and travel arrangements, post arrival problem solving and assisting your parents to ensure that you are well settled at university. PLACEMENT SERVICESWe are developing a world-class, networked placement service for our students. For those looking for hassle free process of taking admission to universities in U.K., We could be the guiding force in providing complete information to the best of your satisfaction to help you reach for the top in your career through excellence in educationOur experience of over 2 decades in the Travel Business , has enabled us to develop a strong internal processes and tools like CRM, Knowledge Management, Corporate Intranet etc to effectively service the increasing demands of our clients.

LITERATURE SURVEYCONCEPTS OF WORKING CAPITAL: There are two concepts of working capital: (I) Gross Working Capital. (ii) Net Working Capital.

In the broad sense, the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. Current assets are those assets, which in the ordinary course of business can be converted into cash within a short period of normally one accounting year. In a narrow sense, the term working capital refers to the net working capital. Net working capital is the excess of current assets over current liabilities.

Working Capital = Current Assets - Current Liabilities Net working capital may be positive or negative. When the current assets exceed the current liabilities the working capital is positive and the negative working capital results when the current liabilities are more than the current assets. Current liabilities are those liabilities which are intend to be paid in the ordinary course of business within a short period or normally one accounting year out of the current assets or the income of the business. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. These two concepts of working capital are not exclusive, rather both have their own merits.

Gross concept is very suitable to the company form of organization where there is divorce between ownership, management and control. The net concept of working capital may be suitable only for proprietary form of organizations such as sole-trader or partnership firms. However, it may be made clear that as per the general practice net working capital is referred to simply as working capital. TYPES OF WORKING CAPITAL:

Working Capital may be classified in two ways:

(a) On the basis of concept.(b) On the basis of time.

(a) On the basis of concept, working capital 1. Gross working capital.2. Net working capital.(b) On the basis of time, working capital can be further classified into 1. Permanent or fixed working capital. 2. Temporary or variable working capital.Permanent working capital: Permanent or fixed working capital is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always a minimum

Level of current assets, which is continuously required by the enterprise to carry out its normal business operations. For example, every firm has to maintain a minimum level of raw materials, work-in-process, finished goods and cash balance. This minimum level of current assets is called fixed working capital.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 fluctuations in demand consequent upon changes in production and sales as a result of seasonal changes. Working Capital Cycle: Cash flows in a cycle into, around and out of a business. It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands, the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits. There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-progress) and Receivables arising from credit terms extended to customers and as reflected in day sales outstanding (DSO - DSO provides a rough guide to the number of days that a company takes to collect payment after making a sale). The main sources of cash are Payables arising from trade terms adopted in supply chain management (your creditors) and Equity and Loans.

Each component of working capital (namely inventory, receivables and payables) has two dimensions. TIME ......... and MONEY. When it comes to managing working capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels 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'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit, you effectively create free finance to help fund future sales.

If you ...Then ...Collect receivables (debtors) faster You release cash from the cycleCollect receivables (debtors) slower Your receivables soak up cashGet better credit (in terms of duration or amount) from suppliers You increase your cash resourcesShift inventory (stocks) faster You free up cashMove inventory (stocks) slower You consume more cash

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water flowing down a plug hole, they remove liquidity from the business.

IMPORTANCE OF WORKING CAPITAL:

Working capital is the lifeblood and nerve centre of business. Just as circulation of blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. No business can run successfully without an adequate amount of working capital. The main advantages of maintaining adequate amount of working capital are as follows:1. Solvency of the business: Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production. 2. Goodwill: sufficient working capital enables a business concern to make prompt payments and hence helps in creating and maintaining goodwill. 3. Easy loans: A concern hacking adequate working capital, high solvency and good credit standing can arrange loans from banks and others on easy and favorable terms.4. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces costs. 5. Regular payment of salaries: wages and other day-to-day commitments 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.6. Regular supply of raw materials: Sufficient working capital ensures regular supply of raw materials and continuous production.7. Ability to face Crisis: Adequate working capital enables a concern to face business crisis in emergencies such as depression because during such periods, generally, there is much pressure on working capital.8. Quick and Regular return on Investments: Every Investor wants a quick and regular return on investments. Sufficient of working capital enables a concern to pay quick and regular dividends to its investors, as there may not be much pressure to plough back profits. This gains the confidence of its investors and creates a favourable market to raise additional funds in the future.

DISADVANTAGES OF EXCESSIVE WORKING CAPITAL

Every business concern should have adequate working capital to run its business operations. It should have neither redundant or excessive working capital nor inadequate nor shortage of working capital. Both excessive as well as short working capital positions are bad for any business.

1. 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.2. When there is redundant working capital, it may lead to unnecessary purchasing and accumulation of inventories causing more chances of theft, waste and losses.3. Excessive working capital implies excessive debtors and defective credit Policy which may cause higher incidence of bad debts. 4. It may result into overall inefficiency in the organisation.5. When there is an excessive working capital relation with the banks and other financial institutions may not be maintained. 6. Due to low rate of return on investments the value of shares may also fall.

DISADVANTAGES OF INADEQUATE WORKING CAPITAL1) A concern, which has inadequate working capital, cannot pay its short-term liabilities in time. Thus it will loose its reputation and shall not be able to get good credit facilities.2) The firm cannot pay day-to-day expenses of its operations and it creates inefficiencies, increases costs and reduces the profits of the business.3) It becomes impossible to utilise efficiently the fixed assets due to non-availability of liquid funds.4) The rate of return on investments also fall with the shortage of working capital.

CAPITAL MANAGEMENT APPROACHES TO WORKING

The objective of working capital management is to maintain the optimum balance of each of the working capital components. This includes making sure that funds are held as cash in bank deposits for as long as and in the largest amounts possible, thereby maximizing the interest earned. However, such cash may more appropriately be "invested" in other assets or in reducing other liabilities. Though Working capital management takes place on two levels, component level and analysis level, the approach to WCM depends upon

1. Natures or Character of Business 2. Size of Business/Scale of Operations 3. Production Policy 4. Manufacturing Process 5. Working Capital Cycle 6. Rate of Stock turnover 7. Credit Policy 8. Rate of Growth of Business 9. Earning Capacity and Dividend Policy10. Price Level ChangesMANAGEMENT OF CASH

Cash Management is one of the key areas of working capital management. Cash, the most liquid asset is of vital importance to the daily operation of business firms. Crucial for the solvency of the business it is referred to as the life blood of business. Firm needs cash to meet the needs of daily transactions, to take advantage of unexpected investment opportunities. While cash serves these functions, it is an idle resource with an opportunity cost. The liquidity provided by the holding cash is at the expense of profits that could accrue from alternative investment opportunities. Hence, the firm should plan and control cash carefully.

OBJECTIVES: *0 Bringing the companys cash resources within control as quickly and efficiently as possible.*1 Achieving the optimum conservation and utilization of the funds. Accomplishing the first goal requires, establishing accurate, timely forecasting and reporting system, improving cash collections and disbursements and decreasing the cost of moving funds among affiliates. The second objective is achieved by minimizing the required level of cash balances, making money available when and where it is needed and increasing the risk-adjusted return on those funds that can be invested.

Cash management deals with the following:1. Cash inflows and outflows2. Cash flows within the firm3. Cash balances held by the firm at a point of time

Cash Management needs strategies to deal with following various facets of cash:

CASH PLANNING It is a technique to plan and control the use of cash. A projected cash flow statement may be prepared, based on the present business operations and anticipated future activities. The cash inflows from various sources may be anticipated and cash outflows will determine the possible uses of cash.CASH FORECASTS & BUDGETINGA cash budget is the most important device for the control of receipts and payment of cash. A cash budget is an estimate of cash receipts and disbursements during a future period of time. It is a forecast of expected cash intake and outlay.

Normally a cash budget consists of1. Cash collections2. Cash payments3. Cash balances

OPTIMUM CASH BALANCE A firm has to maintain a minimum amount of cash for settling the dues in time. By preparing Cash Budget we determine the optimum cash balance. If a firm maintains less cash balance then its liquidity position will be weak. If a higher cash balance is maintained then an opportunity to earn is lost.

INVESTMENT OF SURPLUS FUNDS There are, sometimes, surplus funds with the companies, which are required after sometime. These funds can be employed in liquid and risk free securities to earn some income. There are number of avenues where these funds can be invested.

*2 Unit 1964 Scheme*3 Ready forwards*4 Investment in Marketable Securities*5 Bald Financing*6 Negotiable Certificate of Deposit

WORKING CAPITAL MANAGEMENT

Working capital may be regarded as the most important factor of a business, its effective provision and utilization can do much to ensure the success of a business.

While the efficient management may not only lead to loss of projects but also to the ultimate shown fall of what other wise would be considered as promising concern. A study on working capital is of major importance, because of its close relationship with current day-today operations of a business.

The term working capital stands for that form of capital which is required for the financially of working or current need of the company it is usually invested in raw material work in progress, finished goods, accounts receivable and salable securities.

Management of working capital usually involves planning and controlling current assets, namely cash and marketable securities, assets receivable and inventories and also administration of current liabilities. Working capital or current assets management its one of the most important aspect of the over all financial management. Its is concerned with the problem that arises in attempting to mange the current assets. The current liabilities and the inter relationships that exist between them. Current assets are the assets which can be converted into cash with in an Accounting year and includes cash short term securities, debtors, bill receivable and inventories current liabilities are those claims of out side which are expected to mature for payment with in an Accounting year and includes creditors bill payable and outstanding expenses.

The goal of working capital management is to mange the firms current assets and current liabilities in such a way enough to cover its current liabilities in order to ensure that they are obtained and used in the best possible way.

Meaning of Working Capital

Capital required for a Business can classified under two main categories.1. Fixed Capital2. Working CapitalWorking capital is the amount of funds necessary to cover the cost of operating of enterprises.

Every business needs funds for two purpose for its establishment and to carry out its day-to-day operations. Long-term funds are required to create production facilities through purchases of fixed assets such as plant, machinery, land building, furniture etc. Investment in these assets represented that part of firms capital, which is blocked on a permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purpose for the purchase of raw material, payment of wages and other day-to-day expenses. These funds are known as working capital funds thus, invested current assets keep revolving fast and are being constantly converted into cash and this cash flows out again in exchange for other current assets. Hence it is also known as revolving or circulating capital as short-term capital. Circulating capital means current assets of a company that are changed in the ordinary course of business from to another for example:From cash to inventories to receivables, and receivables to cash.

CONSTITUTENTS OF CURRENT ASSETS

1. Cash in hand and bank balance2. Bills Receivable3. Sundry debtors( less provision for doubtful debts)4. Short term loans and advances5. Inventories of stock as:a. Raw Materialb. Work in Progressc. Stores and spacesd. Finished goods.6. Temporary investments of surplus funds7. Prepaid expenses8. Accrued incomes

Net Working Capital is the excess of Current assets over current liabilities. Net Working Capital = Current assets-Current Liabilities, Net Working capital may be +ve or ve. When the Current assets exceed the Current liabilities the Working capital is +ve and the ve Working capital results when the Current Liabilities are more than the Current Assets , Current Liabilities are those liabilities which are intended to the paid in the ordinary course of business with in a short period of normally one accounting year out of the Current Assets or the income of the business.

CONSTITUTENTS OF CURRENT LIABILITIES

1. Bills Payable2. Sundry creditors or Accounts/payable3. Accrued or O/S Expenses4. Short terms loans, Advances and deposits5. BOD6. Dividend payable7. Provision for taxation, if it does not amount to appropriation of profits.

CLASSIFICATION OF WORKING CAPITAL:

Working capital may be classified into two ways:i. On the basis of concepts.ii. On the basis of time.

The basis of concepts, Working Capital is classified as gross Working Capital and net Working Capital.On the basis of time:1. Permanent or fixed Working Capital2. Temporary or variable Working Capital

Permanent or fixed Working Capital: It is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of Current Assets there is always a minimum level of Current Assets, which continuously required by the enterprise to carry out its normal business operation.

As the business grants the requirement of permanent we also increases due to increase in Current Assets from cash to inventories from inventories to receivables and from receivables to cash and so on.

Temporary or Variable Working Capital: It is the amount of Working Capital, which is required to meet the seasonal demands, and some special emergencies, variable Working capital can further be classified seasonal Working Capital and special Working Capital. The capital required to meet the seasonal needs of the enterprise is called seasonal Working Capital special Working Capital is that part of Working Capital which is required to meet the special exigencies such as launching of extensive marketing campaigns for conduction research etc.,

IMPORTANCE OF ADEQUATE WORKING CAPITAL:

WC is the life blood, just as circulation of blood is essential in the human for maintaining life, WC is very essential to maintain to smooth running of a business no business can run successfully wit out an adequate of WC . The main advantages of maintaining adequate amount of WC are as follows:

1. Solving of the business: Adequate WC helps in maintaining solvency of the business by providing uninterrupted flow of production.2. Goodwill: Sufficient WC enables a business concern to make prompt payment and hence in creating and maintaining goodwill.3. Easy loans: A concern having a WC, high solvency and good credit standing can arrange the loans from banks and other on easy and favorable term.4. Cash discount: Adequate WC also enables a concern to avail cash discounts on the purchase and hence it reduced cost.5. Regular supply of raw material: Sufficient WC ensures regular supply of raw material and continuous production.6. Regular payments of salaries, wages and other day-to-day commitments: Company which has ample WC can make regular payments of salaries, wages and after day-to-day commitments which raises the morale of its employees, increases their efficiency, reduces wastage and cost and enhances production and profit.7. Exploitation of favorable market condition: Only concern with adequate WC an exploit favorable market conditions such as purchasing its requirements in bulk when the prices are lower and by holding it inventories for higher prices.8. Ability to face crisis: A WC enables a concern to face business crisis in emergencies such as depression because during such periods, generally, there is much prices use on WC.9. Quick and regular return on investment: Every investor wants a quick and regular return on his investments sufficiency of WC enables a concern to pay quick and regular dividends to its investors as then may no be much pressure to plough back projects. This gains the confidence of its investors and creates a favorable market to raise additional funds in the future.10. High morale: Adequacy pf WC creates an environment of society confidence, and high morale and creates efficiency in a business.

EXCESS OR INADEQUATE WORKING CAPITAL:

Every business concern should have adequate working capital to run its business operations. It should have neither redundant or excess working capital nor inadequate or shortage of working capital. Both excess as well as short working capital position a bad for any business. However, out of the two, it is the inadequate of working capital, which is more dangerous from the point of view of the firm.

DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL:

1. Excess working capital means ideal funds which earn no profits for the business and hence the business cannot earn a proper rate of return on its investments.2. When there is a redundant working capital it may lead to unnecessary purchasing and accumulation of inventories causing more change of theft, waste and losses.3. Excessive working capital impulse excessive debtors and defectives credit policy, which causes high incidence of bad debts.4. It may result into overall inefficiency in the organization.5. Due to low of return on investment, the values of shares may fall.6. The redundant working capital gives raise to speculative transaction.

DISADVANTAGES OR DANGEROUS OF INADEQUATE WORKING CAPITAL:

1. A concern which has inadequate working capital cannot pay it short-term liabilities in time. Thus, it will lose its reputation and shall not be able to get good credit facilities.2. It cannot buy its requirements in bulk and cannot avail of discounts etc.,3. It becomes difficult for the firms to exploit due to lack of working capital.4. The firm cannot pay day-to-day expenses of its operations and it creates inefficiencies, increased cost and reduces the profit of business.5. It becomes impossible to utilize efficiently the fixed assets due to non availability of liquid funds.6. The rate of return of investments also falls with the short of working capital.

Factors Determining Working Capital Requirements

1.Nature or character of Business

2.Size of Business/ sale of Operations

3.Production policy

4.Manufacturing process/Length of the Production cycle

5.Seasonal Variations

6.Working Capital Cycle

7.Stock Turnover ratio

8.Credit policy

9.Business Cycle

10.Rate of Growth of Business

11.Earning Capacity and Dividend Policy

12.Price Level Changes

13.Other Factors

OPERATING CYCLE

The profit earned by the firm depends upon magnitude if the scales among things successful scales program is in other words necessary for earning profits by one business enterprises. However sales do not convert into cash instantly there is invariably time lag between sale of goods and receipt of cash. There is, therefore a working capital in the form of current assets to deal with the problem arising out of the lack of immediate realization of cash against goods sold. Therefore sufficient capital is necessary to sustain sales activity. Technically there is referred to as the operating cycle and cash cycle. It is defined as a continuing flow from cash suppliers, to Inventory, to accounts receivables and back into cash. It consists of 3 phases:

1. Conversion of cash into Inventory.2. Conversion of Inventory into Receivables3. Conversion of Receivables into cash.

PERMANENET AND VARIABLE WORKING CAPITAL:

The magnitude of working capital required is not always the same and increases and decreases over time. However there is always a minimum level of current assets, which is continuously required by the firm to carry on this business operation this minimum level of current is referred to as permanent for fixed working capital. It is permanent in the same way as the firm fixed assets are.Depending up on the changes in production and sales the need for working capital, over and above permanent working capital will fluctuate . For example extra inventory of finished goods will have to be maintained to support peak period of sale and investment.

In receivables any also increase during such periods. The extra working capital needed to support the changing production and sales activity is called fluctuation or variable or temporary working capital.

Both kind of working capital-permanent ad temporary are necessary to facilitate production and sales through operating cycle, but temporary working capital is created by the firm to meet liquidity requirements that will last only temporarily.

Permanent working capital is stable over time while temporary working capital is fluctuating. However a permanent working capital the time need not be horizontal of the firm.

Requirements for permanent capital are increasing over period for a growing firm, the difference between permanent and temporary working capital depicted below.

DRAW BACK OF EXCESSIVE WORKING CAPITAL:

1. It result in unnecessary accumulation of inventories thus Echinacea of inventory mishandling, waste, theft and losses increases2. It is indication of defective credit policy and slack collection period consequently higher incidence of bad debts results, which adversely effects profits.3. Excessive working capital makes management complacent which degenerates in, to managerial inefficiency.

INADEQUATE WORKING CAPITAL:

1. Stagnates growth. It becomes difficult for the firm to undertake profitable projects for non-availability of working capital funds.2. It become difficult to implement operating plans achieve the firm profit target. 3. Operating inefficiency creep in which it becomes difficult even to meet day-to-day commitments.4. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus firms profitability would Detroit.5. Paucity of working capital funds renders the firm unable to avail attractive credit opportunities.