Summer Internship Training Project Report

On
Forex and Working Capital Management in LG Electronics Ltd.

Submitted in Partial Fulfillment for the requirement of the Award of PostGraduate Degree of
Master of Business Administration
(Batch- 2014-2016)

Submitted by:

Vinish Kumari
MBA (General) IIIrd Semester
Roll no.:- 140702530300063

Submitted to:
Acharya Vishnu Gupt Subharti Institution of Management and Commerce
SWAMI VIVEKANAND SUBHARTI UNIVERSITY
MEERUT
1

DECLARATION

Date 7th
September 2015
I hereby declare that the Summer Internship Project Work entitled Forex and Working
Capital management in LG electronics Pvt. Ltd submitted by me, Vinish Kumari,
Enrolment No. 140702530300063 for the partial fulfillment of the Master of Business
Administration to Subharti Institute of Management and commerce (SIMC), Meerut is
my own original work and has not been submitted earlier either to SIMC or to any other
Institution for the fulfillment of the requirement for any course of study. I also declare that no
chapter of this manuscript in whole or in part is lifted and incorporated in this report from any
earlier / other work done by me or others.
Date

7th September 2015

Signature of Student:
Name of Student: Vinish Kumari

ACKNOWLEDGEMENT

I derive immense pleasure in having an opportunity here to acknowledge and to express my

humble gratitude to the management team here at LG Electronics Pvt. Ltd. who was kind
enough to grant me this opportunity to conduct and to learn from this summer internship at
their prestigious organization. Although it is impossible to individually thank each and every
person who helped me during the course of this internship, yet I remember all those who
helped me at work and in the successful completion of this internship report.
First of all, I would like to express my profound indebtedness and deep sense of gratitude to
RISHABH MISHRA SIR (HR), who provided me with this opportunity to undergo this
internship at LG electronics pvt, ltd. Further I am thankful to Mr. Alok Kumar (Finance
Dept.), who is the project in-charge and the company guide and provided his precious time
inspite of his busy schedule.

I would also like to thank my institute and especially Assistant Prof. Shweta Somal who
continuously supported me throughout the tenure of this project.

Last but not the least; I would like to thank my parents who stood by me during the whole
period.

Vinish Kumari

Certificate of the company

Certificate from the head of department
Declaration
Acknowledgement

CONTENT
CHAPTE
R
1

TITLE
Background and introduction
1.1

PAGE
NO.

Introduction

LG Electronics India ltd.

2.1

LG and Introduction

2.2

The background and present status

2.3

Company Profile

2.4

Facts and Figures

Foreign Exchange
3.1

Theory and Practice of Forex and management

3.2

FEMA

3.3

Methods and means of payments

3.8

Hedging

3.12

Cash management

Receivables Management
4.1

Introduction

4.3

Inventory management

4.6

Working capital management theory

Research methodology
5.1

Research approach

5.2

Sample and sampling methods

5.3

Details, types and collection method

5.4

Statistical tools

Data analysis and interpretation

6.1

Data analysis and discussion

Conclusion and suggestion

7.1

Conclusions

7.2

Findings and Recommendations

Questionnaire
Bibliography

CHAPTER 1
BACKGROUND AND INTRODUCTION

INTRODUCTION
This project is about significance of foreign exchange & working capital of a company
.thus analysis is mental process of understanding the items of such statement and forming
option about the financial health, profitability, efficiency and various other aspect of the
company.
Working capital Working capital (abbreviated WC) is a financial metric which
represents operating liquidity available to a business, organization, or other entity,
including governmental entity. Along with fixed assets such as plant and equipment,
working capital is considered a part of operating capital. Net working capital is calculated
as current assets minus current liabilities. It is a derivation of working capital, that is
commonly used in valuation techniques such as DCFs (Discounted cash flows). If current
assets are less than current liabilities, an entity has a working capital deficiency, also
called a working capital deficit.
Working Capital = Current Assets
Net Working Capital = Current Assets Current Liabilities
Forex management: manufacturing, import and export companies handles forex rates
through banks for paying money to his foreign suppliers , and which procedures they
follow, how they handle Therefore forex management and working capital altogether
form a indispensable part of organization .i have further put my efforts elucidated both the
aspect in detail through medium of my project.

CHAPTER- 2
LG Electronics India Ltd

2.1 L.G. AN INTRODUCTION

LG Electronics India Pvt. Ltd., a wholly owned subsidiary of LG Electronics, South Korea
was established in January, 1997 after clearance from the Foreign Investment Promotion
Board (FIPB). The trend of beating industry norms started with the fastest ever-nationwide
launch by LG in a period of 4 and 1/2 months with the commencement of operations in May
1997. LG set up a state-of-the art manufacturing facility at Greater Noida, near Delhi, in
1998, with an investment of Rs 500 Crores. This facility manufactured Colour Televisions,
Washing Machines, Air-Conditioners and Microwave Ovens. During the year 2010, LG also
commenced the home production for its eco-friendly Refrigerators and established its
assembly line for its PC Monitors at its Greater Noida manufacturing unit.The beginning of
2003 saw the roll out of the first locally manufactured Direct Cool Refrigerator from the plant
at Greater Noida. In 2004, LGEIL also up its second Greenfield manufacturing unit in Pune,
Maharashtra that commences operations in October this year. Covering over 50 acres, the
facility manufactures Color Televisions, Air Conditioners, Refrigerators, Washing Machines
Microwave Ovens Color Monitors and GSM phones.

2.2.1 THE BACKGROUND AND PRESENT STATUS

The Greater Noida manufacturing unit line has been designed with the latest technologies at
par with international standards at Korea and is one of the most Eco-friendly units amongst
all LG manufacturing plants in the world.
LG has been able to craft out in eight years, a premium brand positioning in the Indian
market and is today the most preferred brand in the segment. Various studies have shown that
the consumer is well informed on the health awareness front. LG was one of the first
companies who recognized the emerging change in consumer needs and decided to
differentiate their products on the basis of technology which appealed to the consumer on the
basis of health benefits. Its vision was to become a 'Health Partner' for its consumers
worldwide and therefore formulated its corporate philosophy to make peoples' lives better,
convenient and healthier. The CTV range offered by LG has 'Golden Eye' technology, which
senses the light levels in the room and adjusts the picture to make it more comfortable for the
eyes. The entire range of LG air-conditioners have 'Health Air System', which not just cools,
but keeps pollution out. Similarly, microwave ovens have the 'Health Wave System',
refrigerators have the 'PN System', which preserve the nutrition in food and washing
machines have 'Fabricare System', which takes the health factor down to ones clothes. All the
products offered by the company have unique technologies, developed by its R&D
departments that give customers a healthier environment to live-in.

2.2 COMPANY PROFILE:

With international standards at Korea and is one of the most Eco-friendly units amongst all
LG manufacturing plants in the world.
LG has been able to craft out in eight years, a premium brand positioning in the Indian
market and is today the most preferred brand in the segment. Various studies have shown that
the consumer is well informed on the health awareness front. LG was one of the first
companies who recognized the emerging change in consumer needs and decided to
differentiate their products on the basis of technology which appealed to the consumer on the
basis of health benefits. Its vision was to become a 'Health Partner' for its consumers
worldwide and therefore formulated its corporate philosophy to make peoples' lives better,
convenient and healthier. The CTV range offered by LG has 'Golden Eye' technology, which
senses the light levels in the room and adjusts the picture to make it more comfortable for the
eyes. The entire range of LG air-conditioners have 'Health Air System', which not just cools,
but keeps pollution out. Similarly, microwave ovens have the 'Health Wave System',
refrigerators have the 'PN System', which preserve the nutrition in food and washing
machines have 'Fabricare System', which takes the health factor down to ones clothes. All the
products offered by the company have unique technologies, developed by its R&D
departments that give customers a healthier environment to live-in.
LG India has also been taking on a slew of initiatives as a part of Corporate Social
Responsibility. LGEIL is proud to have adopted about 24 villages around our Greater Noida
facility. LG extends Free Medical Care, which comprises of free checkups and a free
distribution of medicines on a daily basis. LGEIL is also generating self-employment
opportunities for the people in the form of tailoring, knitting etc. in addition to all this, LG
also sends veterinary doctors regularly to these villages. Besides all this, LG India is one of
the very few companies in the country that has an internal Energy, Environment, Safety and
Health Department. This function caters to activities like Energy Conservation,
Environmental Issues, Work Place Fire and Safety as well as Occupational Health for the
benefit of the employees

10

2.3 Mission and Vision and SWOT analysis:

LG electronics is pursuing the vision of becoming a true global digital leader, attracting
customers worldwide through its innovative products and design. The companys goal is to
rank among the top 3 consumer electronics and telecommunications companies in the world

11

by 2017. To achieve this, we have embraced the idea of Great Company, Great People,
recognizing that only great people can create a great company.
Mission:
The mission of LG is:
To create the value for customers
To respect human dignity
To become the best in its class by winning customers acclaim as a true leader in the
global market.
Vision:
The quest to make LG the most exciting and successful enterprise- will be won on the factory
floor, in the offices, on the field, face to face with the customers, with everyone understanding
and focused on the essentioal mission of a corporation- Serving customers. Winning depends
not on the big deals, aquisititions etc. but on a thousand smaller victoeis doing things and in
doing so, making lives better and our organization THE BEST creating A Pleasant Work
Environment through:

Trust, Rrespect and coorpoaration

Employees fulfilling their dreams
Ideal place to work

LG Electronics SWOT Analysis, USP & Competitors:

SWOT Analysis of LG Electronics with USP, Competition, STP (Segmentation, Targeting,
Positioning) - Marketing Analysis

LG Electronics
Parent Company

LG Group

Category

Consumer Electronics

Sector

IT and Technology

Tagline/ Slogan

Lifes Good

USP

Innovative Technologies and Cutting edge Designs; Health (in Indian

Consumer Durables Market)

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STP

Segment

Mobile Communications, Home Entertainment, Home

Appliances, Air Conditioning, and Energy Solutions
Consumer Durables: Currently mass market, efforts are on to
shift to a more premium segment

Target Group

Mobile Phones: Youth/Generation

Positioning

Technology that offers you more and sets you free

SWOT Analysis
1. Wide range of products to serve all categories and a strong
focus on technology and quality
2. Effective localization of product offerings for growth
markets like India, Brazil, China
3. Brand offers sound rational appeal good product features
and good value for money
4. Good after sales service and wide distribution network
5. Subsidiaries enjoy independence in decision making and
hence have flexibility in adapting to the local market
6. Sponsorship of sports and entertainment events enhances
visibility

Strengths

7. It has nearly 100,000 employees and is one of the top mobile

manufacturers
1. Brand lacks influence in the opinionated segment of early
adopters especially in the social media environment

Weaknesses

2. Brand has limited market share compared to market leaders

1. Fast growth of home appliances, electronics goods market in
emerging economies
2. Convert improved brand image and awareness in to market
share

Opportunities

3. Increase the already Wide product portfolio

13

1. Price war with close Korean competitors like Samsung can

disrupt growth in price sensitive markets
2. Highly competitive industry dynamics
3. Stagnant urban demand
Threats

4. Instances of false green claims can erode brand value and

consumer trust
Competition
1. Samsung
2. Sony
3. Panasonic
4. Toshiba

Competitors

5. Whirlpool

14

2.4 COMPANY PRODUCTS

15

16

2.5 FACTS AND FIGURES

LG Electronics, Inc. (KSE: 06657.KS) is a global leader and technology innovator in
consumer electronics, home appliances and mobile communications, employing more than
72,000 people working in over 120 operations including 80 subsidiaries around the world.
Comprising four business units -- Mobile Communications, Digital Appliance, Digital
Display and Digital Media with 2012 global consolidated sales of US $48.5 billion -- LG
Electronics is the world's largest producer of CDMA handsets, residential air conditioners,
plasma panels, optical storage products, DVD players and home theater systems.

2.5.1 BANKS

State bank of India

Deutshe
Standard chartered
ICICI
Shinhan
Citi
HSBC
PNB
Bank of America.

2.5.2 Popular currencies with symbols:Table 2.1 Popular currencies with symbols
SYMBOL

COUNTRY

CURRENCY

USD
EUR
JPY
GBP
CHF
AUD

United states
Euro members
Japan
Great britain
Switzerland
Australia

Dollar
Euro
Yen
Pound
Franc
Dollar

17

CHEPTER-3
FOREX MANAGEMENT

18

3.1 THE THEORY AND PRACTICE OF FOREX MANAGEMENT:Foreign exchange exists, and you have an inkling of what the newspapers are talking about
when they mention it, but you really dont understand the basics of what foreign exchange is
and how it works. Here, therefore, is a short primer on the basics of foreign exchange.
The term foreign exchange basically refers to buying the currency of one country while
selling the currency of another country. All nations have their own, different kinds of money
(currency). This has existed throughout the ages, probably since the time of the Babylonians.
As trading developed between nations, the need to convert one kind of money to another also
developed. This is how a formal system of foreign exchange arose. As trade between nations
developed, Britain, as the nation with the largest and strongest navy, could spread its
commercial interests far and wide. It therefore became the most active trading nation, with a
vast empire of colonies. As a result, Britains currency, the pound sterling, became a
benchmark to which other currencies were compared (and exchanged) for most of the
seventeenth, eighteenth and nineteenth centuries. Today, most currencies are compared to the
U.S. Dollar, currently the most active and commercially strong trading nation; many
currencies are still pegged to the U.S. Dollar for their exchange rate.

3.1.1 How exactly are currencies traded?

A company that wants to import goods into the United States has to buy the foreign currency
of the country the goods are coming from, in order to pay for them. The following is an
example: an American shoe store may sell a lot of Brazilian shoes, since Brazil is a large
exporter of leather goods (about $1.9 Billion per year). The owner of this store would have to
buy Brazilian Reals (the currency of Brazil) to pay for a shipment of shoes. He has a number
of choices. First, he could buy the Reals through his bank or a foreign exchange broker at
fixed rate of exchange, and then order the shoes. Since he knows the exchange rate, he knows
how much the shoes are worth in dollars, and how much his bill (in dollars) will be when he
has to pay for the shipment of shoes. When he takes delivery of the Reals (that is, he tells
his bank to pay the Brazilian exporter), his bank will debit him the U.S. Dollar equivalent at
the rate agreed upon when he purchased the Reals.
This importer has the second option of waiting until the shoes arrive in the United States, and
then buy the Reals to pay for them. He will not know how much he has to pay for this
shipment of shoes until he pays for the Reals, rather when he entered into the contract to
purchase the shoes. If the Real got stronger, in other words, became more expensive
compared to the dollar, he would pay more for them in dollars than on the day of his contract.
He could also pay less if the Real became weaker. But most businessmen want to protect

19

themselves and the price of their products against higher costs and be able to manage their
budgets.
Knowing the exchange rate of the real when he processed his order with the Brazilian
exporter would allow him include that rate into his selling costs. If he risks that the rate will
come down (by not buying Reals ahead of time), and it goes up instead, he may end up with a
loss in the price of his shoes. Most businessmen would rather leave this kind of speculating
to foreign exchange traders!
Foreign Exchange Products and Services
Spot Contracts
Forward Contracts
Window Forward Contracts
International Check Clearing
Foreign Draft Issuance
International Wire Transfers
Currency Notes

3.1.2 Foreign Exchange Benefits

Buy and sell goods in terms familiar to your customers and suppliers.
Manage your company's financial statements.
Protect profit margins from currency fluctuations.
Increase sales.
Maintain your global competitive position.

3.2 FEMA - FOREIGN EXCHANGE MANAGEMENT ACT

This Act was introduced in 1999
To facilitate external trade & payments, for promoting the orderly development and
maintenance of foreign exchange market in India, this Act was introduced. It was put
forth, to enact a law to consolidate and amend the existing law relating to the foreign
exchange. This Act is also meant for managing the foreign exchange as against
restricting the dealings in foreign exchange and for the smooth flow of foreign trade.
The management of foreign trade and investment will be done by the RBI and the
Government

TO WHOM IS THE ACT APPLICABLE

The FEMA, is applicablea) To the whole of India.
20

b) Any Branch, office and agency, which is situated outside India, but is owned or
controlled by a person resident in India.
c) Any contravention of provisions of FEMA, by all those, who are covered under above
two aspects committed outside India.
MAIN FEATURES OF THE ACT
1) The most important feature of the Act is that the definition of a resident and nonresident are almost in line with income tax Law. Therefore there is uniformity in
defining the residential status of persons who are liable for income tax and who are
entitled for foreign exchange related exemptions, relaxations and amenities.
2) The next feature that a Person" defined includes even artificial persons like Firm,
Company, and HUF etc., which are again coherent with income tax laws. Previously the
RBI had powers to determine the residential status of artificial Persons and now the Act
has been amended
3) The Applicability of FEMA is more or less same as FERA.
4) The Act empowers RBI to authorize any person to deal in Foreign exchange or in
foreign securities. The RBI may specify the conditions in the authorization and may
also revoke the same in public interest in the cases of:
1
Contravention of provisions of the Act
Failure to comply with the conditions in the authorization.
Except the "Current Account" transactions, other foreign exchange dealings and
payments are still to some extent controlled. All "Capital Account" related transactions
are not freely permitted unless specifically allowed under the Law. The restrictions as
applicable for "Capital Account" transactions under FERA continue in FEMA also
5) FEMA has brought in export of services also under regulation along the line of goods.
6) FEMA has permitted all current Account transactions unless otherwise specifically
prohibited by the RBI. The following are some of the Current Account transactions.
1
Any payment in connection with foreign trade, other current business,
services and short term Banking and credit facilities in the ordinary course
of business.
Any payment due as interest on loans and as net income from investments.
Any remittances for living expenses of parents, spouse and children
residing abroad.

21

Any expenditure incurred in connection with foreign travel, education and

medical care of parents, spouse and children.

FEMA has not permitted Capital Account transactions unless otherwise provided by Law or
unless specific permission is obtained from the RBI. Capital Account transactions are those
which have the effect of altering the assets and liabilities. This includes contingent liabilities
of a person resident in India, or the assets and liabilities of a person resident outside India.
The RBI has prohibited, restricted and regulated the following Capital Account
transactions:
1
Transfer or Issue of any foreign Security by a person resident in India.
Transfer or Issue of any security by a person resident outside India.
Transfer or Issue of any security or foreign security by any branch office or
agency in India, of a person resident outside India.
Any borrowing or lending in Foreign Exchange in whatever form or by whatever
name.
Any Borrowing or Lending in rupees, in whatever form or by whatever name
between a person resident in India and a person resident outside India.
Deposits between person resident in India and persons resident outside India.
Export, Import or holding of currency notes.
Transfer of immovable property outside India, other than a lease not exceeding
five years, by a person resident in India.
Acquisition or transfer of immovable property in India, other than a lease not
exceeding five years, by a person resident outside India.
Giving of a guarantee or security in respect of any debt, obligation or other
liability incurred:
By a person resident in India and is owned by a person resident outside India
or
By a person resident outside India. \

3.3 EXPORT-IMPORT PROCEDURE

1) Seller and Buyer conclude a sales contract, with method of payment usually by
letter of credit (documentary credit).
2) Buyer applies to his issuing bank, usually in Buyer's country, for letter of credit in
favor of Seller (beneficiary).
3) Issuing bank requests another bank, usually a correspondent bank in Seller's
country, to advice, and usually to confirm, the credit.
4) Advising bank, usually in Seller's country, forwards letter of credit to Seller
informing about the terms and conditions of credit.
22

5) If credit terms and conditions conform to sales contract, Seller prepares goods
and documentation, and arranges delivery of goods to carrier.
6) Seller presents documents evidencing the shipment and draft (bill of exchange) to
paying, accepting or negotiating bank named in the credit (the advising bank
usually), or any bank willing to negotiate under the terms of credit.
7) Bank examines the documents and draft for compliance with credit terms. If
complied with, bank will pay, accept or negotiate.
8) Bank, if other than the issuing bank, sends the documents and draft to the issuing
bank.
9) Bank examines the documents and draft for compliance with credit terms. If
complied with, Seller's draft is honored.
10) Documents release to Buyer after payment, or on other terms agreed between the
bank and Buyer.
11) Buyer surrenders bill of lading to carrier (in case of ocean freight) in exchange for
the goods or the delivery order.

3.3.1 MEANS OF PAYMENT

The chief means of payment in foreign trade are:
Cheques
Bills of exchange
a) Cheques: A cheque is a written order given by the customer to his bank to pay a
certain sum of money of his current account to the payee named in the cheque.
The parties to a cheque are:
1
1) the drawer who draws the cheque, who orders his bank to be paid
2) the payee to whom the cheque is to be paid
3) the drawee it is the bank which pays it
There are two kinds of cheques:
1
a) a cheque to bearer which may be paid by a bank to anyone who presents it
b) a cheque to order must be endorsed by the payee, it means that the payee must
write his name on the back of the cheque before it is paid to him

b) Bills of exchange
A bill of exchange is a written order requiring the person to whom it is addressed to pay on
demand or at a fixed future time a certain sum of money.
The parties of bill of exchange are:
1
23

1) the drawer
2) the drawee to whom it is addressed
3) The payee to whom it is to be paid. The payee may be identical with drawer.

3.3.2 METHODS OF PAYMENT:

When deciding which method of payment to use, or combination of methods, the seller must
weigh the risks and costs involved. The buyer doesn't want to tie up capital on product that it
doesn't yet possess, which means that the seller can lose the sale if its competitors are willing
to offer more attractive terms. On the other hand, the seller needs assurances that the buyer
won't default on payment once it has received the goods. Companies need to develop an
international credit policy that does not impede sales, but protects against loss.
Once the seller has determined the risks its company can afford to take, it's time to evaluate
the risks associated with the more common methods of payment. Consulting with a qualified
international banker at this time can help the seller make an informed selection. Ranked in
order of risk from the seller's perspective, from the most secure to the least secure, the more
common methods of payment are:
a)
b)
c)
d)
e)

Cash in advance
Documentary collection
Open account
Letter of credit
Buyers line of credit

a) Cash in Advance
Cash in advance is typically considered the safest method of collecting payment for the seller.
Cash in advance can take the form of a wire transfer or payment by check. An international
wire transfer is the preferred method, because it allows for quick receipt of good funds.
Sellers should provide clear routing instructions to the buyer when using an international wire
transfer including the name and address of the receiving bank and branch, the bank's SWIFT,
Telex, and ABA numbers, and the seller's name and address, bank account title, and account
number.
Collecting payment using an international check is a less attractive option than wire transfer
because it can result in lengthy delays of final receipt of good funds. If the foreign buyer pays
by check, made payable in U.S. dollars and drawn on a U.S. bank, the collection process is
the same as any U.S. check. If, however, the check is in a foreign currency or drawn on a
foreign bank, the collection process becomes more complicated and can delay the availability
of funds. There is also a risk that any check may be returned due to insufficient funds in the
buyer's account. This can result in a charge-back and possible overdraft charges in the buyer's
account.
24

3.3.3 STEP BY STEP PROCESS:

a.
b.
c.
d.
e.

Deal is finalized between exporter and importer.

Purchase order is raised by material department.
Payment is made through wire transfer to exporter.
Then exporter ships the goods.
And finally, importer receives the goods.

Fig: 3.1

b) OPEN ACCOUNT
25

An open account transaction means that the goods are shipped and delivered before payment
is due, usually in 30 to 90 days. Obviously, this is the most advantageous option to the
importer in cash flow and cost terms, but it is consequently the highest risk option for an
exporter. Because of the intense competition for export markets, foreign buyers often press
exporters foropen account terms. In addition, the extension of credit by the seller to the buyer
is more common abroad. Therefore, exporters who are reluctant to extend credit may face the
possibility of the loss of the sale to their competitors.
Key Points
The goods, along with all the necessary documents, are shipped directly to the
importer who agrees to pay the exporters invoice at a future date, usually in 30 to
90 days.
Exporter should be absolutely confident that the importer will accept shipment and
pay at agreed time and that the importing country is commercially and politically
secure.
Open account terms may help win customers in competitive markets, if used with
one or more of the appropriate trade finance techniques that mitigate the risk of
nonpayment.
How to Offer Open Account Terms in Competitive Markets
Open account terms may be offered in competitive markets with the use of one or more of the
following trade finance techniques:

Export Working Capital Financing,

Government-Guaranteed Export Working Capital Programs,
Export Credit Insurance,
Export Factoring, and
Forfeiting.

STEPS INVOLVED:1) LG AND SUPPLIER FINALISE THE DEAL ABOUT GOODS WHICH ARE TO BE
IMPORTED TO LG.
2) PURCHASE ORDER IS RAISED BY MATERIAL DEPARTMENT.
3) SHIPMENT OF GOODS IS DELIEVERED AT THE PORT.
4) SUPPLIER SENDS THE ORIGINAL DOCUMENT (INVOICE, BILL OF LADING,
AND PACKAGING LIST) TO LG.
5) LG SEND THIS DOCUMENT AT THE PORT FOR CLEARENCE OF GOODS.
6) LG SEND PAYMENT REQUEST LETTER (INCLUDE COMMERCIAL INVOICE,
LETTER, AIR WAY BILL) TO LG BANK BEFORE PAYMENT DATE.
7) LG BANK DEBITS THE ACCOUNT AND PAYS IT TO ADVISORY BANK OF
SUPPLIER.

26

Fig3.2

c) DOCUMENTARY COLLECTIONS:
There are basically two types of method. They are as follows:1) D/A Documents against Acceptance : The buyer receives the documents after his
accepting a Bill of exchange drawn on him for the price, at a given period may be
30, 60, or even 90 days.
27

2) D/P documents against payment means (cash against documents) :The specified
documents with a copy of the invoice are handed over to the buyer on payment of
the full price in cash.
In LG ELECTRONICS, Document against acceptance is used.

DOCUMENT AGAINST ACCEPTANCE:

STEPS INVOLVED:
1) NEGOTIATION TAKES PLACE BETWEEN SUPPLIER AND LG ABOUT PRICE,
PAYMENT AND DEAL IS FINALISED.
2) SUPPLIER SHIPS GOODS AT ITS PORT AND COLLECTS THE DOCUMENT
(INVOICE, PACKAGING LIST, and BILL OF LADING).
3) SUPPLIER SENDS THIS DOCUMENT TO its BANK (ADVISORY BANK).
4) SUPPLIER BANK SENDS THESE DOCUMENTS TO LG BANK.
5) LG BANK SEND BILL PRESENTATION MEMO (FOR ICICI BANK)/
DOCUMENT ARRIVAL NOTICE (D.A.N) (FOR CITY BANK) Document against
acceptance ALONG WITH BILL OF EXCHANGE, INVOICE AND MAKE THE
ENTRY OF RECEIVING DOCUMENT IN CHECK LIST.
6) CHECK THE INVOICE IN SYSTEM THROUGH OPEN AP XL (ACCOUNT
PAYABLE.
7) IF INVOICE ARE IN OPEN AP, THEY ARE PAYABLE.
8) SEND ACCEPTANCE LETTER (INCLUDE BILL PRESENTATION MEMO,
INVOICE) TO LG BANK TO DEBIT ITS ACCOUNT.
9) BANK MAKES THE PAYMENT ON its DUE DATE AND SENDS DEBIT ADVICE
TO LG. (THEN ENTRY OF VOUCHER IS MADE IN ERP.)
10) LG BANK REMITS PAYMENT BY SWIFT(SOCIETY FOR WORLDWIDE
INTERBANK FINANCIAL TELECOMMUNICATIONS) TO SUPPLIER BANK.

28

Fig:3.3

d) LETTER OF CREDIT
SUPPLIER BANK CREDIT SUPPLIERS ACCOUNT. The letter of credit is issued by the
buyers bank to the sellers advising bank. It is an instrument issued by the bank on the behalf
of importer favoring the exporter, which is being routed through an advising bank confirming
that if the exporter/beneficiary fulfills the terms, and conditions mentioned in the instrument
ie. L/C then the issuing bank guarantees the payment. The issuing bank has to be in the
importers country and the advising bank has to be a corresponding bank of the issuing bank.
The safest and the most reliable method of payment used in international trade is
documentary credit or in other words, Letter of Credit. The letter of credit takes into account
the expectations of both the seller and the buyer related to performance and payment. the
letter of credit authorizes the seller to draw a specified sum of money under specified terms,
usually through the receipt by the bank of certain documents within a given time, the foreign

29

buyer applies for issuance of a letter of credit from the buyers bank to the exporters bank
and is therefore called the applicant: the exporter is called the beneficiary.
Payment under a documentary letter of credit is based on documents, not on terms of sale or
the physical condition of the goods. The letter of credit specifies the documents required by
the exporter, such as the ocean bill of lading, invoice, manufacturers statement, beneficiary
statement. Before the payment, the bank responsible for payment verifies that the proper
documents conform to the letter of credit requirements.
LETTER of credit is of following types:

Irrevocable letter of credit

Revocable letter of credit
Confirmed irrevocable letter of credit
Unconfirmed irrevocable letter of credit
Restricted negotiable letter of credit
Revolving letter of credit
Freely negotiable letter of credit
Transferable letter of credit
Non-Transferable letter of credit

Fig:3.4 Letter of credit

30

e) BUYERS LINE OF CREDIT

Buyers credit is an agreement that arises between the importers bank and the importer. It is
a form of loan designed to finance a specific transaction involving import of goods and
services. Under this the lending bank pays the exporter on presentation of the original
documents and shipping details (like bill of lading or airway bill and bill of exchange).
The importer and the lending bank works out the deferred payment agreement, which the
bank treats as a loan. This is treated as any other loan and the bank charges interest from the
importer as per the going rates. A number of formalities have to be completed before the
exporter can draw the funds.
Following are the steps for BLC:
a) The buyer arranges to obtain allocation of funds under the credit line from the
borrower.
b) The delivery period stipulated in the contracts should be such that credit can be
drawn from bank within the terminal disbursement date stipulated under the
respective line of credit agreements. Also all contracts should provide for preshipment inspection by the buyer or agent nominated by the buyer.
c) The buyer arranges to comply with procedural formalities as applicable in his
country and then submits the contract to the borrower for approval. The borrower
in turn forwards copies of the contract to bank for approval.
d) Bank advices of the contract to the borrower, with copy to exporter, indicating
approval number, eligible contract value, last date for disbursement, and other
conditions subject to which approval is granted.
e) After all the procedure the payment is done on due date.

31

Fig: 3.5 Buyers Line of Credit

3.3.4 BILL OF ENTRY

TYPES OF BILL OF ENTRY:
Bill of entry should be of one of three types. Out of these, two types are of clearance from
customs while third is of clearance from warehouse.

a) BILL OF ENTRY FOR CUNSUMPTION:This form, called Bill of Entry for Home Consumption, is used when the imported
goods are to be cleared on payment to full duty. Home consumption means use within
India. It is white coloured and hence often called white bill of entry.
b) BILL OF ENTRY FOR WAREHOUSING:If the imported goods are not required immediately, importer may like to store the
goods in a warehouse without payment of duty under a bond and then clear form
warehouse when required on payment of duty. This will enable him to defer payment
of customs duty till goods are actually required by him. This Bill of Entry is printed
on yellow paper and often called Yellow Bill of Entry. It is also called Into Bond
Bill of Entry as bond is executed for transfer of goods in warehouse without payment
of duty.
32

c) BILL OF ENTRY FOR EX-BOND CLEARANCE

The third type is for Ex-Bond clearance. This is used for clearance from the
warehouse on payment of duty and is printed on green paper. The goods are classified
and value is assessed at the time of clearance from customs port. Thus, value and
classification is not required to be determined in this bill of entry. The columns in this
bill of entry are similar to other bills of entry. However, declaration by importer is not
required as the goods are already assessed.

Fig:3.6 Bill of Entry Process

3.4 HEDGING
Hedging is a strategy designed to minimize exposure to an unwanted business risk, while still
allowing the business to profit from an investment activity. Typically, a hedger might invest
in a security that he believes is under-priced relative to its "fair value" (for example a
mortgage loan that he is then making), and combine this with a short sale of a related security
or securities. Thus the hedger is indifferent to the movements of the market as a whole, and is
interested only in the performance of the 'under-priced' security relative to the hedge.
Holbrook Working, a pioneer in hedging theory, called this strategy "speculation in the
basis,"[1] where the basis is the difference between the hedge's theoretical value and its actual
value (or between spot and futures prices in Working's time).
33

Some form of risk taking is inherent to any business activity. Some risks are considered to be
"natural" to specific businesses, such as the risk of oil prices increasing or decreasing is
natural to oil drilling and refining firms. Other forms of risk are not wanted, but cannot be
avoided without hedging. Someone who has a shop, for example, can take care of natural
risks such as the risk of competition, of poor or unpopular products, and so on. The risk of the
shopkeeper's inventory being destroyed by fire is unwanted, however, and can be hedged via
a fire insurance contract. Not all hedges are financial instruments: a producer that exports to
another country, for example, may hedge its currency risk when selling by linking its
expenses to the desired currency. Banks and other financial institutions use hedging to control
their asset-liability mismatches, such as the maturity matches between long, fixed-rate loans
and short-term (implicitly variable-rate) deposits.

3.4.1 WHAT IS HEDGING? WHY DO COMPANIES HEDGE?

Hedging, in commerce, is a method by which traders use two counterbalancing investment
strategies so as to minimize any losses caused by price fluctuations. It is generally used by
traders on the commodities market. Typically, hedging involves a trader contracting to buy or
sell one particular good at the time of the contract and also to buy or sell the same (or similar)
commodity at a later date. In a simple example, a miller may buy wheat that is to be
converted into flour. At the same time, the miller will contract to sell an equal amount of
wheat, which the miller does not presently own, to another trader. The miller agrees to deliver
the second lot of wheat at the time the flour is ready for market and at the price current at the
time of the agreement. If the price of wheat declines during the period between the miller's
purchases of the grain and the flour's entrance onto the market, there will also be a resulting
drop in the price of flour. The miller must sustain that loss. However, since the miller has a
contract to sell wheat at the older, higher price, the miller makes up for this loss on the flour
sale by the gain on the wheat sale. Stock and bond traders, export-import traders, and some
manufacturers also employ hedging.
Corporations in which individual investors place their money have exposure to fluctuations in
all kinds of financial prices, as a natural by-product of their operations. Financial prices
include foreign exchange rates, interest rates, commodity prices and equity prices. The effect
of changes in these prices on reported earnings can be overwhelming. Often, you will hear
companies say in their financial statements that their income was reduced by falling
commodity prices or that they enjoyed a windfall gain in profit attributable to the decline of
the Canadian dollar.
This will give a brief overview of the different ways in which firms approach this financial
price risk and it will introduce the rationale for using derivative products. While there has
been a great deal of negative attention paid to derivatives in the mainstream press, the
opportunities they provide make derivatives a necessary part of the future of any corporation.
Future articles in this series will identify the benefits and drawbacks of individual derivatives
34

structures and explain some of the breakdowns in the application of derivatives by corporate
end-users.
One reason why companies attempt to hedge these price changes is because they are risks
that are peripheral to the central business in which they operate. For example, an investor
buys the stock of a pulp-and-paper company in order to gain from its management of a pulpand-paper business. She does not buy the stock in order to take advantage of a falling
Canadian dollar, knowing that the company exports over 75% of its product to overseas
markets. This is the insurance argument in favor of hedging. Similarly, companies are
expected to take out insurance against their exposure to the effects of theft or fire.
By hedging, in the general sense, we can imagine the company entering into a transaction
whose sensitivity to movements in financial prices offsets the sensitivity of their core
business to such changes. As we shall see in this article and the ones that follow, hedging is
not a simple exercise nor is it a concept that is easy to pin down. Hedging objectives vary
widely from firm to firm, even though it appears to be a fairly standard problem, on the face
of it. And the spectrum of hedging instruments available to the corporate Treasurer is
becoming more complex every day.
Another reason for hedging the exposure of the firm to its financial price risk is to improve or
maintain the competitiveness of the firm. Companies do not exist in isolation. They compete
with other domestic companies in their sector and with companies located in other countries
that produce similar goods for sale in the global marketplace. Again, a pulp-and-paper
company based in Canada has competitors located across the country and in any other
country with significant pulp-and-paper industries, such as the Scandinavian countries.
Companies that are the most sophisticated in this field recognize that the financial risks that
are produced by their businesses present a powerful opportunity to add to their bottom line
while prudently positioning the firm so that movements in these prices do not pejoratively
affect it. This level of sophistication depends on the firm's experience, personnel and
management approach. Firms that have good risk management programs can use this stability
to reduce their cost of funding or to lower their prices in markets that are deemed to be
strategic and essential to the future progress of their companies.
Most importantly, hedging is contingent on the preferences of the firm's shareholders. There
are companies whose shareholders refuse to take anything that appears to be financial price
risk while there are other companies whose shareholders have a more worldly view of such
things. It is easy to imagine two companies operating in the same sector with the same
exposure to fluctuations in financial prices that conduct completely different policy, purely by
virtue of the differences in their shareholders' attitude towards risk.

3.4.2 HEDGING OBJECTIVES

35

Some of the best-articulated hedging programs in the corporate world will choose the
reduction in the variability of corporate income as an appropriate target. This is consistent
with the notion that an investor purchases the stock of the company in order to take advantage
of their core business expertise.
Other companies just believe that engaging in a forward outright transaction to hedge each of
their cross-border cash flows in foreign exchange is sufficient to deem themselves hedged.
Yet, they are exposing their companies to untold potential opportunity losses. And this could
impact their relative performance pejoratively.
If the Air India Management thinks that the rupee will appreciates against the French franc in
six months, it may not cover its foreign exchange exposure. This is a high-risk approach. It
can benefit Air India significantly, if later on the rupee actually appreciates. But the potential
cost is very high. If subsequently the rupee depreciates, instead of appreciating as predicted
by the Air India Management, the company cost can be very high. Some companies have a
policy of partially covering the exposure. This policy covers from subjectivism as there is no
sound method of deciding how much to cover and how much to keep uncovered. The firms
risk remains unlimited in the partially covered exposure. In fact, keeping the foreign
exchange exposure totally or partially uncovered tantamount to speculation.
There are four alternatives available to the companies to hedge against the foreign exchange
rate exposure:
1
Forward rates

Options

Futures

Money Market

3.4.3 Forward Contracts

Air India may like to eliminate fully its currency risk. Hence it can take a full forward cover
against its foreign exchange exposure and entirely hedge its risk. It can contract with a bank
to buy French franc forward at an exchange rate. Suppose the six month forward rate is INR
6.70/FF 1.00. This means that Air India has a definite cost of INR 6700 million. Irrespective
of the actual exchange rate at the end of the six months, its cost will remain INR 6700
million. The advantage of this approach is that Air India management can concentrate on its
operations rather than worrying about the foreign exchange loss or gain. Most international
companies have the policy of covering 100 % of their foreign exchange risk. Suppose the Air
36

India Management is expecting the French franc to fall. It may therefore its exposure
uncovered since it would benefit the company. But the management is not sure that the
French franc will fall definitely. Hence instead of going for a full forward cover or keeping
the exposure fully uncovered, the Air India management will decide to go for partial forward
cover. Suppose it covers 50 percent of its exposure, keeping 50 percent of the exposure
uncovered. This is a subjective policy as there is no objective way to determine the
appropriate ratio of covered and uncovered exposure. Further, this policy implies that Air
India would buy INR 3300 million with forward contracts of INR 6.70/FF 1.00 and INR 3300
million exposure is uncovered. If the French franc appreciates, Air India would incur a heavy
loss. The partial cover policy is never a win-win situation.
a)

OPTION:

A contract in which the writer of the option grants the buyer of the option the right
purchase from or sell to the writer a designated instrument for a specified price within
a specified period of time.
The writer grants this right to the buyer for a certain sum of money called the option
premium. An option that grants the buyer the right to buy some instrument is called a
call option. An option that grants the buyer the right to sell an instrument is called a
put option .The price at which the buyer an exercise his option is called the exercise
price, strike price or the striking price.

b) FUTURES:
A future contract is an agreement between two parties to buy or sell an asset at a
certain specified time in future for certain specified price. It is similar to forward
contract.
But contrary is in the way the markets are organized, profiles of gains and losses ,
kinds of participants in the markets and the ways in which they use the two
instruments.

3.4.4 MONEY MARKET

Financial market are a funding technique ,which permit a borrower to access one market and
then exchange the liability for another type of liability. The global financial market presents
borrowers and investors with a wide variety of financing and investment vehicles in terms of
currency and type of coupon-fixed or floating. Floating rates are tide to an index which could
be the London interbank borrowing rate (LIBOR) US Treasury bill rate etc. this helps
investors exchange one type of asset for another for a preferred stream of cash flows.

3.5 CASH MANAGEMENT

37

Cash management is one of the key areas of working capital management. Cash is the liquid
current asset. The main duty of the finance manager is to provide adequate cash to all
segments of the organization. The important reason for maintaining cash balances is the
transaction motive. A firm enters into variety of transactions to accomplish its objectives
which have to be paid for in the form of cash meaning of cash.
The term cash with reference t senses. In a narrower sense it includes coins, currency notes,
cheques, bank drafts held by a firm. n a broader sense it also includes near-cash assets such
as marketable securities and time deposits with banks.

3.5.1 Objectives of cash management:

There are two basic objectives of cash management. They are- To meet the cash disbursement
needs as per the payment schedule.
To minimize the amount locked up as cash balances.
Basic problems in Cash Management: Cash management involves the following four basic
problems.
1
Controlling level of cash
Controlling inflows of cash
Controlling outflows of cash and
Optimum investment of surplus cash

3.5.2 Determining safety level for cash:

The finance manager has to take into account the minimum cash balance that the firm must
keep to avoid risk or cost of running out of o cash management used in two funds. Such
minimum level may be termed as safety level of cash. The finance manager determines the
safety level of cash separately both for normal periods and peak periods. Under both cases he
decides about two basic factors. They are:-

a) Desired days of cash:

It means the number of days for which cash balance should be sufficient to cover payments.
Average daily cash flows.This means average amount of disbursements which will have to be
made daily.
b) Criteria for investment of surplus cash:
38

In most of the companies there are usually no formal written instructions for investing the
surplus cash. It is left to the discretion and judgment of the finance manager. While exercising
such judgment, he usually takes into consideration the following factors Security: This can be ensured by investing money in securities whose price
remains more or less stable.
Liquidity: This can be ensured by including sha\ort term fixed deposits with
banks.
Yield: Most corporate managers give less emphasis to yield as compared to
security and liquidity of investment. So they prefer short term government
securities for investing surplus cash.
Maturity: It will be advisable to select securities according to their maturities so
the finance manager can maximize the yield as well as maintain the liquidity of
investments.
Cash Management in SSL: The cash management is carried out in seaways by
CTM (Corporate Treasury Management). CTM is a commonly followed
procedure in most of the companies.
Ratio Analysis is one of the important techniques that can be used to check the
efficiency with which cash management is being managed by a firm.

39

CHAPTER 4
RECEIVABLES MANAGEMENT

40

4.1 Introduction:
Receivables constitute a significant portion of the total assets of the business. When a firm
seller goods or services on credit, the payments are postponed to future dates and receivables
are created. If they sell for cash no receivables created.

Meaning:
Receivable are asset accounts representing amounts owed to the firm as a result of sale of
goods or services in the ordinary course of business.

4.1.1 Purpose of receivables:

Accounts receivables are created because of credit sales. The purpose of receivables is
directly connected with the objectives of making credit sales. The objectives of credit sales
are as follows Achieving growth in sales.
Increasing profits.
Meeting competition
Factors affecting the size of Receivables: The main factors that affect the size of the
receivables are Level of sales.
Credit period.
Cash discount.

4.1.2 Costs of maintaining receivables: The costs with respect to maintenance of

receivables are as follows-

a) Capital costs:
This is because there is a time lag between the sale of goods to customers and the payment by
them. The firm has, therefore to arrange for additional funds to meet its obligations.
b) Administrative costs:
Firm incur this cost for manufacturing accounts receivables in the form of salaries to the staff
kept for maintaining accounting records relating to customers.

c) Collection costs:
The firm has to incur costs for collecting the payments from its credit customers.
41

d) Defaulting costs:
The firm may not able to recover the over dues because of the inability of customers. Such
debts treated as bad debts.

4.1.3 Receivables management:

Receivables are direct result of credit sale. The main objective of receivables management is
to promote sales and profits until that point is reached where the ROI in further funding of
receivables is less than the cost of funds raised to finance that additional credit (i.e.; cost of
capital). Increase in receivables also increases chances of bad debts. Thus, creation of
receivables is beneficial as well as dangerous. Finally management of accounts receivable
means as the process of making decisions relating to investment of funds in this asset which
result in maximizing the over all return on the investment of the firm.

4.1.3.1 Receivables management and Ratio Analysis:

Ratio Analysis is one of the important techniques that can be used to check the efficiency
with which receivables management is being managed by a firm. The most important ratios
for receivables management are as follows4.1.3.2 DEBTORS TURNOVER RATIO: Debtors constitute an important constituent of current assets and therefore the quality of the
debtors to a great extent determines a firms liquidity. It shows how quickly receivables or
debtors are converted into cash. In other words, the DTR is a test of the liquidity of the
debtors of a firm. The liquidity of firms receivables can be examined in two ways they are
DTR and Average Collection Period.

4.2 INVENTORY MANAGEMENT

Inventories are stock of the product a company is manufacturing for sale and components.
That makeup the products. The various forms in which inventories exist in a manufacturing
company are: Raw-materials, work-in-process, finished goods.
Raw-Materials: - Are those basic inputs that are converted into finished products
through the manufacturing process. Raw-materials inventories are those units, which
have been purchased and stored for future production.
Work in progress:- Work-In-Process inventories are semi-manufactured products.
The represent products that need more work before they become finished products for
sale.
42

 Finished goods: Finished Goods inventories are those completely manufactured

products, which are ready for sale. Stocks of raw-materials and work-in-process
facilitate production which stock of finished goods is required for smooth marketing
operations. These inventories serve as a link between production and consumption of
goods.
Stores and spares are also maintained by some firms. This includes office and plant
cleaning materials like soaps, brooms, oil, fuel, light, bulbs etc. These materials do
not directly enter in production. But are necessary for production process.
4.2.1 Need to holding inventory:
The question of managing inventories arises only when the company holds inventories.
Maintaining inventories involves tying up of the company's funds and incurrence of storage
and handling cost. It is expensive to maintain inventories, why does company hold
inventories? There are three general motives for holding inventories.
a. Transaction Motive: - Emphasizes the need to maintain inventories to facilitate
smooth production and sales operations.
b. Precautionary motive: - Necessitates holding of inventories to guard against the
risk of unpredictable changes in demand and supply forces and other factors.
c. Speculative motive: - Influences the decision to increase or reduce inventory levels
to take advantages of price influences.

4.2.3 WORKING CAPITAL MANAGEMENT THEORY

Decisions relating to working capital and short term financing are referred to as working
capital management. Working capital management involves the relationship between a firm's
short-term assets and its short-term liabilities. 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.
Decision criteria
By definition, Working capital management entails short term decisions - generally, relating
to the next one year period - which are "reversible". These decisions are therefore not taken
on the same basis as Capital Investment Decisions (NPV or related, as above) rather they will
be based on cash flows and / or profitability.
One measure of cash flow is provided by the cash conversion cycle - the net number
of days from the outlay of cash for raw material to receiving payment from the
customer. As a management tool, this metric makes explicit the inter-relatedness of
decisions relating to inventories, accounts receivable and payable, and cash. Because
43

this number effectively corresponds to the time that the firm's cash is tied up in
operations and unavailable for other activities, management generally aims at a low
net count.
In this context, the most useful measure of profitability is Return on capital (ROC).
The result is shown as a percentage, determined by dividing relevant income for the
12 months by capital employed; Return on equity (ROE) shows this result for the
firm's shareholders. Firm value is enhanced when, and if, the return on capital, which
results from working capital management, exceeds the cost of capital, which results
from capital investment decisions as above.

4.3 Management of working capital

Guided by the above criteria, management will use a combination of policies and techniques
for the management of working capital. These policies aim at managing the current assets
(generally cash and cash equivalents, inventories and debtors) and the short term financing,
such that cash flows and returns are acceptable.

Cash management. Identify the cash balance which allows for the business to meet
day to day expenses, but reduces cash holding costs.
Inventory management. Identify the level of inventory which allows for uninterrupted
production but reduces the investment in raw materials - and minimizes reordering
costs - and hence increases cash flow; see Supply chain management; Just In Time
(JIT); Economic order quantity (EOQ); Economic production quantity (EPQ).
Debtors management. Identify the appropriate credit policy, i.e. credit terms which
will attract customers, such that any impact on cash flows and the cash conversion
cycle will be offset by increased revenue and hence Return on Capital (or vice versa);
see Discounts and allowances.
Short term financing. Identify the appropriate source of financing, given the cash
conversion cycle: the inventory is ideally financed by credit granted by the supplier;
however, it may be necessary to utilize a bank loan (or overdraft), or to "convert
debtors to cash" through "factoring".

A firm must have adequate working capital, i.e.; as much as needed the firm. It should be
neither excessive nor inadequate. Both situations are dangerous. Excessive working capital
means the firm has idle funds which earn no profits for the firm. Inadequate working capital
means the firm does not have sufficient funds for running its operations. It will be interesting
to understand the relationship between working capital, risk and return. The basic objective of
working capital management is to manage firms current assets and current liabilities in such a
way that the satisfactory level of working capital is maintained, i.e.; neither inadequate nor
excessive. Working capital sometimes is referred to as circulating capital. Operating cycle
can be said to be t the heart of the need for working capital. The flow begins with conversion
of cash into raw materials which are, in turn transformed into work-in-progress and then to

44

finished goods. With the sale finished goods turn into accounts receivable, presuming goods
are sold as credit. Collection of receivables brings back the cycle to cash.
The company has been effective in carrying working capital cycle with low working capital
limits. It may also be observed that the PBT in absolute terms has been increasing as a year to
year basis as could be seen from the above table although profit percentage turnover may be
lower but in absolute terms it is increasing. In order to further increase profit margins, SSL
can increase their margins by extending credit to good customers and also by paying the
creditors in advance to get better rates.
4.3.1 WORKING CAPITAL AND RATIO ANALYSIS
The efficiency with which working capital is being managed by a firm. The most important
ratios for working capital management are as follows
Net Working Capital:
There are two concepts of working capital namely gross working capital and net working
capital. Net working capital is the difference between current assets and current liabilities. An
analysis of the net working capital will be very help full for knowing the operational
efficiency of the company. The following table provides the data relating to the net working
capital of SSL.
NET WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIS
A. Financial analysis
Financial analysis refers to an assessment of the viability, stability and profitability of a
business, sub-business or project.
It is performed by professionals who prepare reports using ratios that make use of
information taken from financial statements and other reports. These reports are usually
presented to top management as one of their bases in making business decisions. Based on
these reports, management may:
1
Continue or discontinue its main operation or part of its business;

Make or purchase certain materials in the manufacture of its product;

Acquire or rent/lease certain machineries and equipment in the production of its

goods;

Issue stocks or negotiate for a bank loan to increase its working capital;

45

Make decisions regarding investing or lending capital;

Other decisions that. Financial ratio analysis is a valuable tool for your small business. First,
you have to learn to calculate the ratios and understand what they mean. They are a
comparative tool of analysis for liquidity, profitability, debt, and asset management. These are
the major categories of financial ratio analysis.
You need to have industry ratios and/or time series data from your own firm for a basis of
comparison. Then, you can compare the ratios for your firm to the ratios of other firms in
your industry and other quarters or years of data for your firm.
If you do an accurate financial ratio analysis using comparative data, you can learn a lot
about the financial position of your firm and make necessary financial adjustments to
enhance your performance.
Goals
Financial analysts often assess the firm's:
1) Profitability - its ability to earn income and sustain growth in both short-term and
long-term. A company's degree of profitability is usually based on the income
statement, which reports on the company's results of operations;
2) Solvency - its ability to pay its obligation to creditors and other third parties in the
long-term;
3) Liquidity - its ability to maintain positive cash flow, while satisfying immediate
obligations; Both 2 and 3 are based on the company's balance sheet, which indicates
the financial condition of a business as of a given point in time.
4) Stability- the firm's ability to remain in business in the long run, without having to
sustain significant losses in the conduct of its business. Assessing a company's
stability requires the use of both the income statement and the balance sheet, as well
as other financial and non-financial indicators.
Methods
Financial analysts often compare financial ratios (of solvency, profitability, growth, etc.):
1
Past Performance - Across historical time periods for the same firm (the last 5 years
for example),

Future Performance - Using historical figures and certain mathematical and statistical
techniques, including present and future values, This extrapolation method is the main
source of errors in financial analysis as past statistics can be poor predictors of future
prospects.

Comparative Performance - Comparison between similar firms.

46

These ratios are calculated by dividing a (group of) account balance(s), taken from the
balance sheet and / or the income statement, by another, for example:
n / equity = return on equity
Net income / total assets = return on assets
Stock price / earnings per share = P/E-ratio
Comparing financial ratios are merely one way of conducting financial analysis.
Financial ratios face several theoretical challenges:
a. They say little about the firm's prospects in an absolute sense. Their insights
about relative performance require a reference point from other time periods
or similar firms.
b. One ratio holds little meaning. As indicators, ratios can be logically interpreted
in at least two ways. One can partially overcome this problem by combining
several related ratios to paint a more comprehensive picture of the firm's
performance.
c. Seasonal factors may prevent year-end values from being representative. A
ratio's values may be distorted as account balances change from the beginning
to the end of an accounting period. Use average values for such accounts
whenever possible.
d. Financial ratios are no more objective than the accounting methods employed.
Changes in accounting policies or choices can yield drastically different ratio
values.
e. They fail to account for exogenous factors like investor behavior that are not
based upon economic fundamentals of the firm or the general economy
(fundamental analysis)
B. Ratio Analysis
Financial ratio analysis is a valuable tool for your small business. First, you have to learn to
calculate the ratios and understand what they mean. They are a comparative tool of analysis
for liquidity, profitability, debt, and asset management. These are the major categories of
financial ratio analysis.
You need to have industry ratios and/or time series data from your own firm for a basis of
comparison. Then, you can compare the ratios for your firm to the ratios of other firms in
your industry and other quarters or years of data for your firm.
If you do an accurate financial ratio analysis using comparative data, you can learn a lot
about the financial position of your firm and make necessary financial adjustments to
enhance your performance.

47

Ratio Analysis is a technique of analyzing financial statement. IT help in estimating financial

soundness or weakness on which basis management can take various decisions. It is also
significant for other parties related to business to interpret various conditions of the business,
regarding-:
1
Profitability

Liquidity

Capital Structure

Debt Return Capacity

Return from the Business

4.3.2 USEFULNESS OF RATIO ANALYSIS

1
Helpful in comparative study

Helpful in determining trends of business

Helpful in measuring operating efficiency

Helpful in finding week points

Helpful in determining profitability

Helpful in taking decisions

Helpful in finding debt capacity

Helpful in controlling and forecasting

48

CHAPTER -5
RESEARCH METHODOLOGY

49

5.1 OBJECTIVES OF STUDY

To develop an understanding of LG Electronic India Ltd

To develop an understanding of work in capital of LG Electronics Ltd

To develop an understanding forex management of LG Electronics Ltd

The researcher has elaborated the above objective for simplicity of research in to
following points
5.1.1 Objectives of Forex management:

To study the foreign management strategies of the company

To study the payment method of the company at international level

the impact of forex on companys performance

Control of foreign exchange risk can be effective if a firm is able to manage the
fundamental relationship among inflation, foreign exchange rates and interest rate.

The objective in exposure management is two-fold the minimization of exchange

losses as a result of currency movements and the minimization of protection costs.

5.1.2 Objectives of working capital:

Every business needs some amount of working capital. It is needed for following purposes For the purchase of raw materials, components and spares. To pay wages and salaries.
To incur day to day expenses and overhead costs such as fuel, power, and office expenses
etc.
To provide credit facilities to customers etc.

50

5.2 RESEARCH APPROACH

The term research is defined as the systemic methods consisting of identification of problem,
formulating a hypothesis, collection the facts or data analysis of facts & reaching certain
conclusion either in the form of solutions towards the concerned problems or in certain
generalization for some theoretical formulation.
It may also be defined as systematic design, collection, and analysis & reporting of data &
findings with respect to a particular market situation facing a company.
The purpose of research is to discover answers to questions through the application of
scientific procedures. The main aim of research is to unravel the truth which is hidden and
which has not been discovered as yet. Research means search for knowledge. Increased
account of research makes progress possible. Research has its special significance in solving
the various operational & planning problems of business & marketing.
Logical and systematized applications of the fundamental of science to the general and
overall question of a study, and scientific techniques which provide precise tools, specific
procedure and technical, rather than philosophical means for getting and ordering the data
prior to their logical and manipulation.
According to redman and mory, Research is a systematized effort to gain new knowledge
Research design is divided into the following parts:
1. FORMULATION OF RESEARCH PROBLEM
The formulation of problem is done after deciding the nature of research design. It is
the first & foremost step in any research process is the definition of the problem
chosen for investigation in a clear and concise manner.
2. DEVELOPING THE RESEARCH PLAN

After formulating the research problem an efficient prepared so that it yields the
desired results with minimal expenditure of effort, time & money. The information
needed in the project could only be provided by companies.
5.2.1 SAMPLING METHOD AND SAMPLE
SAMPLING PLAN
The researcher is provided with study problem to prepare the management report of price
fluctuation and vendor payment report. For this the researcher were provided with a list of
vendor these were majorly banks:
51

State bank of India

Deutshe

Standard chartered

ICICI

Shinhan

Citi

HSBC

PNB

Bank of America.

This formed the sample for the present study. The report was prepared in excel sheet.
5.3 DATA, ITS TYPE AND COLLECTION
Primary data can be collected in various ways: through observation, focused group, surveys,
behavioral data, and experiments. During this research data have been collected using survey
method. Survey method is best suited for descriptive research. Companies undertake surveys
to learn about peoples knowledge, beliefs, preferences, and satisfaction, and to measure these
magnitudes in the general population.
DATA COLLECTION: There are two important sources of collection of data:

Census data
Sample data

TYPES OF DATA: There are two types of data

1) Primary data
2) Secondary data
a) PRIMARY DATA
We collect primary data during the course of doing experiment research but in case we do
research of the descriptive type and perform surveys whether sample survey or census
52

surveys .The objective of primary data are formulated o the basis of research objective.
We can obtain primary data either through observation or through direct communication.
b) SECONDARY DATA
Secondary data are those data which have been already collected and analyzed by some
earlier agencies for its own use and later the same data are used by a different agency.
5.3.1 METHOD FOR COLLECTING SECONDRY DATA
Internal secondary data
External secondary data
METHOD USED IN RESEARCH:
I have used the primary and secondary data as provided by his training supervisor
5.4 STATISTICAL TOOLS
1
Excel package

Data is tabulated than analyzed with the help of ratio analysis.

The organization has provided their-own side for data pupation.

The following tools are used:

Current ratio
Liquid ratio
Absolute liquid ratio
Debt equity ratio
Debt total capital ratio.

53

CHAPTER 6
DATA ANALYSIS AND
INTERPRATATION

54

6.1 Data Analysis & Interpretation

The researcher is now presenting the analysis of the data as per the classification
presented below in sequence. Further all the figures are in Lakhs for the financial
years under which they are mentioned in the table.

Fig: 6.1 Classification of Ratios

A) LIQUIDITY RATIO
Liquidity means ability of the firm to pay. Its short-term debts in time. Liquidity ratios are
calculated to measure the short-term financial position of the firm.

i)

CURRENT RATIO:-

This ratio establishes the relationship between current assets and current liability.
Current Assets are those which are converted into cash with one year or an operating cycle.
They include cash in hand, bank balance stock, Debtors, Prepaid Expenses, B/R, Short-term
Investment, etc.
Current liabilities are those liabilities which have to be paid during one year. These includes
creditors, B/P, Outstanding expenses, Dividend payable, short-term loans, bank overdrafts,
etc.
55

CURRENT RATIO =CURRENT ASSETS/CURRENT LIABILITY

Ideal Current Ratio is 2:1

Particulars
Current Assets
Current liabilities
Current Ratio

Table-6.1 Current ratio

2013
7499.56
7472.65
1.003

2014
6837.38
7268.95
0.9406

Fig. 6.2 Current ratio

ANALYZE- We can see that in 2013 the current ratio is more than 2014, means for every one
rupee there is 0.94 rupees in business. current assets going down and it is the over trading
situation.

56

ii)

QUICK/ LIQUIDITY/ ACID TEST RATIO:

This ratio establishes a relationship between quick assets and current liability.
Objective-: The objective of computing this ratio is to measure the ability of the firm to meet
its short-term obligations as and when due without relying upon the realization of stock.
LIQUIDITY RATIO = LIQUIDITY ASSETS/CURRENT LIABILITY
Liquid Assets= current Assets-stock- prepaid expenses
Ideal Current Ratio is 1:1
Table 6.2 Quick/ Liquidity/ Acid Test Ratio
In Lakh Particulars
2013
2014
Liquidity Assets
5769.32
4953.83
Current liabilities
7472.65
7268.95
Liquidity Ratio
0.772
0.6815

Fig 6.3 Quick/ Liquidity/ Acid Test Ratio

ANALYZE- we can see that the liquidity ratio in 2013 is more than 2014 and the liquidity
position is not as much stronger as in the last year.

57

iii)

ABSOLUTE LIQUID RATIO

This is called the super quick ratio. This is calculated by dividing absolute liquid assets by
current liability.
ABSOLUTE LIQUID RATIO= (Cash +Bank +Marketable Securities)/Current Liability.
Absolute Liquid Ratio is 0.5:1
Table 5.3 Absolute Liquid Ratio is 0.5:1
In lakh Particulars
2013
2014
Absolute Liquid assets
1227.49
1614.06
Current liabilities
7472.65
7268.95
Absolute Liquid Ratio
0.164
0.222
By this ratio it shows that the liquidity fund means cash and marketable security position is
less than the idle ratio .it shows a not satisfactory poison in cash against the current liability
so I recommend that the company should increase the cash position by controlling the un
necessary expenses

Fig 6.4 Absolute Liquid Ratio

ANALYZE- The absolute ratio is more in 2014 than 2013 and the absolute liquid position is
much stronger than the last year.

58

B) PROFITABILITY RATIO:Profitability ratios are calculated to know the answer of the following question: Are the profit earned by the firm adequate?
What is the rate of return on capital employed and share holders funds?
What is the rate of net profit and gross profit on sales?
What are the earning per share?
How much dividend related to sales?
Profitability Ratios are related to sales.
i)

GROSS PROFIT RATIO

This ratio measures the relationship between gross profit and net sales.
Objective- The main objective of computing this ratio is to determine the efficiency with
which production and purchase operations are carried on.
GROSS PROFIT RATIO=(GROSS PROFIT/NET SALES)*100

Particulars

Table 6.4 Gross Profit Ratio

(In lakh)
2013

2014

Gross profit

6513.96

7805.22

Net sales

51954.36

65704.03

Gross profit Ratio

12.5

11.87

59

Fig 6.5 Gross Profit Ratio

ANALYZE- The gross profit ratio is less in 2014 than 2013 and it shows what portion of
sales is left to cover operating expenses and non- operating expenses to pay dividend and to
create reserves.

60

ii)
NET PROFIT RATIO
This ratio measures the relationship between net profit and net sales.
Objective- To determine the overall profitability due to such various factors such as
operational efficiency, trading on equity etc.
NET PROFIT RATIO= NET PROFIT/ NET SALES *100

Particulars
Net profit
Net sales
Net profit Ratio

Table 6.5 Net Profit Ratio

(In lakh)
2013
1851.92
51954.36
3.56

Fig 6.6 Net Profit Ratio

61

2014
2519.77
65704.03
3.835

iii)

OPERATING PROFIT RATIO

This ratio is measures the relationship between operating profit and net sales.
Objective- The main objective of computing this ratio is determine the operational efficiency
of the management.
OPERATING PROFIT RATIO= OPERATING PROFIT/NET SALES*100
Table 6.6 Operating Profit Ratio
(In lakh)
Particulars
2013
Operating profit
48306.67
Net sales
51954.36
Operating profit Ratio
92.9

2014
61636.43
65704.03
93.8

Fig 6.7 Operating Profit Ratio

ANALYZE- As the operating profit ratio is less in 2014 than to 2013.the ratio may decrease
due to low gross profit, high operating expenses. higher the ratio, greater is the capacity of
the firm to withstand adverse economic conditions and vice versa.

62

C) PROFITABILITY RATIO BASED ON INVESTMENT

To know whether the business is earning adequate return on the capital invested or not.
i)
RETURN ON TOTAL ASSETS
This ratio measures a relationship between net profit before interest and tax, and total assets.
Objective- To find out how efficiency the total assets have been used by the management.
RETURN ON TOTAL ASSETS =( PBIT/TOTAL ASSETS)*100
Table 6.7 Return on Total Assets
Particulars
2013
PBIT
1851.92
TOTAL ASSETS
21660.28
RETURN ON TOTAL ASSETS
8.55

Fig 6.8 Return on Total Assets

63

2014
2519.77
22673.43
11.11

ii)

RETURN ON CAPITAL EMPLOYED

This ratio measures a relationship between net profit before interest and capital employed.
Objective-To find out how efficiency the long-term funds supplied by the creditors and
shareholders have been used.
RETURN ON CAPITAL EMPLOYED= (PBIT/ CAPITAL EMPLOYED)*100
Capital Employed= Fixed Assets + Net working capital
Table 6.8 Return on Capital Employed
Particulars
PBIT
CAPITAL EMPLOYED
RETURN ON TOTAL ASSETS

2013
1851.92
13952.56
13.279

Fig 6.9 Return on Capital Employed

64

2014
2519.77
15171.92
16.608

iii)

RETURN ON SHARE HOLDERS FUND

This ratio measures a relationship between net profit after interest, and tax and shareholders
funds.
Objective-: To find out how efficiently the funds supplied by the equity share holders have
been used.
RETURN ON TOTAL SHARE HOLDERS FUND= (PBIT/ TOTAL SHARE HOLDER
EQUITY)*100
TOTAL SHAREHOLDER EQUITY=Preference share capital+ Ordinary sh. Capital+ sh.
Premium+ reserves and surplus-Accumulated loss
Table 6.9 Return on Shareholder Fund
Particulars
2013
2014
PBIT
1851.92
2519.77
TOTAL SHARE HOLDER
5410.87
6704.62
EQUITY
RETURN ON TOTAL SHARE 34.22
37.58
HOLDERS FUND

Fig 6.10 Return on Shareholder Fund

65

iv)

RETURN ON EQUITY SHARE FUNDS

This ratio measures a relationship between net profit after interest, tax , and preference
dividend and equity shareholders funds.
Objective- To find out how efficiency the funds supplied by the equity shareholders have
been used.
RETURN ON EQUITY SHARE FUNDS=(NET PROFIT AFTER INTEREST, TAX AND
PREFERENCE DIVIDEND/EQUITY SHAREHOLDERS FUNDS)*100
Table 6.10 Return on Equity Shareholder Fund
Particulars
2013
2014
PROFITAFTER INT. TAX,
1197.42
1583.21
PREFENCE DIVIDEND
EQUITY SHARE HOLDER
5410.87
6704.62
FUND
RETURN ON EQUITY SHARE 22.13
23.61
HOLDERS FUND

Fig 6.11 Return on Equity Shareholder Fund

66

v)

EARNING PER SHARE

This ratio measures the earning available to an equity shareholder on a per share basis.
Objective - To measure the profitability of the firm on per equity share basis.
EARNING PER SHARE= NET PROFIT AFTER INTEREST, TAX AND PREFERENCE
DIVIDEND/ NUMBER OF EQUITY SHARE
Table 6.11 Earnings per Share
Particulars
PROFITAFTER INT. TAX,
PREFENCE DIVIDEND
NUMBER OF EQUITY SHARE

2013
1197.42

2014
1583.21

216.5

216.5

RETURN ON EQUITY SHARE

HOLDERS FUND

5.53

7.31

Fig 6.12 Earnings per Share

67

vi)

DEBT EQUITY RATIO

This ratio establishes a relationship between long-term debts and share-holders funds.
Objective -To measure the relative proportion of debt and equity in financing the assets of a
firm.
DEBT EQUITY RATIO= LONG TERM DEBTS/SHAREHOLDERS FUNDS
Table 6.12 Debt Equity Ratio
Particulars
LONG TERM DEBTS
SHAREHOLDERS FUND
DEBT EQUITY RATIO

2013
5564.16
5410.87
1.028

Fig 6.13 Debt Equity Ratio

68

2014
4487.19
6704.62
0.669

vii)

DEBT- TOTAL FUND RATIO-:

This ratio is a variation of the debt- equity ratio and gives the similar indications as the
debt-equity ratio. In this ratio, the outside long-term liabilities are related to the total
capitalization of the firm and not merely to the share holders funds.
DEBT- EQUITY RATIO= LONG TERM DEBTS/ CAPITAL EMPLOYED
Table 6.13 Debt Total Fund Ratio
(in lakh)
Particulars
2013
LONG TERM DEBTS
5564.16
CAPITAL EMPLOYED
10975.03
DEBT TOTAL FUND RATIO
0.507

Fig 6.14 Debt Total Fund Ratio

69

2014
4487.19
11191.81
0.401

D) ACTIVITY RATIO
i)
CAPITAL TURN OVER RATIO
This ratio establishes a relationship between net sales and capital employed.
Objective- TO determine the efficiency with which the capital employed is utilized.
CAPITAL TURN OVER RATIO=NET SALE/CAPITAL EMPLOYED
Table 6.14 Capital Turnover Ratio
(in lakh)
Particulars
2013
NET SALES
51954.36
CAPITAL EMPLOYED
13952.56
CAPITAL TURN OVER RATIO 3.72

Fig 6.15 Capital Turnover Ratio

70

2014
65704.03
15171.92
4.33

ii)

FIXED ASSETS TURNOVER RATIO

This ratio establishes a relationship between net sales and fixed assets.
Objective - To determine the efficiency with which the fixed assets are utilized.
FIXED ASSETS TURNOVER RATIO=NET SALES/NET FIXED ASSETS
Table 6.15 Fixed Assets Turnover Ratio
Particulars
NET SALES
NET FIXED ASSETS
FIXED ASSETS TURNOVER
RATIO

2013
51954.36
12372.58
4.199

2014
65704.03
14980.57
4.385

Fig 6.16 Fixed Assets Turnover Ratio

71

iii)

STOCK TURNOVER RATIO

This ratio establishes a relationship between cost of goods sold and average inventory.
Objective- To determine the efficiency with which the inventory is utilized.
STOCK TURNOVER RATIO= COST OF GOODS SOLD/ AVERAGE INVENTORY
Table 6.16 Stock Turnover Ratio
(in lakh)
Particulars
2013
COST OF GOODS SOLD
50102.44
AVERAGE INVENTORY
1730.24
STOCK TURNOVER RATIO
28.96

2014
63184.26
1883.35
33.54

Fig 6.17 Stock Turnover Ratio

A company should maintain adequate stock of materials for a continuous supply to the
factory for the uninterrupted production. It is not possible for a company to procure raw
materials whenever it is needed. A time lag exists between demand for materials and its
supply. Also there exists uncertainty in procuring raw materials in time on many occasions.
Inference: The standard norm of absolute quick ratio is 0.5:1.From the above table the firm
not maintain the sufficient level of quick assets because of the day-to-day expenses .It is
fluctuating between. The standard norm for this ratio is 1:2 means for every 2 rupees of
current Liabilities.
Company must have 1 rupee of cash and bank balance and marketable securities.
72

iv)

DEBTORS TURNOVER RATIO

This ratio establishes a relationship between net credit sales and average trade debtors.
Objective - To determine the efficiency with which the trade debtors are managed.
DEBTORS TURNOVER RATIO=NET CREDIT SALES/ AVERAGE TRADE DEBTORS
Table 6.17 Debtors Turnover Ratio
Particulars
2013
2014
NET CREDIT SALES
51954.36
65704.03
AVERAGE TRADE DEBTORS
4155.26
3726.34
STOCK TURNOVER RATIO

12.50

Fig 6.18 Debtors Turnover Ratio

73

17.63

v)

Net Profit Ratio:

As every business is to earn profit, this ratio is very important because it measures the
profitability of sales. A business may yield high gross income but low net income because of
increasing operating and non-operating expenses. This situation can easily be detected by
calculating this ratio.
The profits used for this purpose may be profits after/before tax. To obtain this ratio, the
figure of net profits after tax is divided by the figure of net profits after tax is divided by the
figure of sales the ratio is also known as sales margin as we can ascertain with its help the
margin which the sales leave later deducting all the expenses. The unit of expression is
percentage, as is the case with profitability ratios.
Inference: Higher the ratio better is the profitability.
From the table the ratio is declining from 2011 to 2012 is increase. Again decrease in the year
2014.Net Profit Ratio is not effective over the period of study. Company has not control over
the cost of goods sold, selling, administrative and distribution expenses. So, effective steps
are to be taken to increase the profits.

74

CHAPTER 7
CONCLUSIONS AND
RECOMMENDATIONS

75

7.1 THE FINDINGS : Project was mainly focused on basic concepts of import system in FOREX and
working capital management in LGEIL.
This FOREX Management includes bill of entry, payment method & hedging
techniques.
The researcher has studied about a rule that comes under the act of FEMA and also
the techniques used to reduce the fluctuation risk.
As per the policy, LG hedges minimum 20% & maximum 50% of NET OPEN
EXPOSURE.
They keep on monitoring the exchange rates and trap the best possible existing rate
for the payments to the vendors.
The management keeps very good relations with some of the bank for future
exchange rates, which will help them in taking the forward contract at the best
possible rate.
In foreign exchange, RBI wants to know where Indian currency is used when it goes
out of country in import or export system. So letter is made after getting bill of entry
when goods has been received and then it is send to RBI.
The researcher has also studied the working capital management and procedure to
prepare a cash flow of the company. Thus overall project was very useful for me for
understanding the corporate going process.

7.2 RECOMMENDATIONS
The company may increase the performance by reducing the borrowed capital, so that
the interest an finance charges will be less.
The company may increase the sales by using new technique.
Company should use software for reducing the paper work.
The company may reduce the operating inefficiencies through effective utilization of
all the resources.

76

 The company may strike a balance between the current assets and current liabilities to
maintain the solvency position.
Optimum utilization of working capital can be planned so as to result in sound
financial position.
Current knowledge about the fluctuation in the currency of other countries.

77

QUESTIONNAIRE
Questionnaire Code:./07/15

Completion Date:.

This questionnaire is designed to assist in studying Forex and working capital of LG

electronics. Information provided will only be used for purpose of this study and will
be kept confidential. Kindly complete it as required.
Name of the Respondent..
1. What is your position in the company?
[]
[]
[]

Managing Director
Finance Officer/Accountant
Procurement Manager/Officer

2. How long have you served in the current position?

[]
[]
[]
[]
[]

Less than 2 years

2 4 years
4 6 years
6 8 years
More than 8 years

3. What is the companys current asset base?

..
4. What is the companys current membership size (No of outgrower farmers)?
.
5. What is your leading source of your receivables?
[]
[]
[]
[]
[]

Loans and interests

Sales
Subscriptions and fines
Return from other investments
........ (Specify)

78

6. How many days do you allow prior to actual receipts from day of notice/invoice?
[]
[]
[]
[]
[]
[]

0 days
15 days
15 30 days
30 45 days
45 60 days
More than 60 days

7. From your experience, how would you classify the following tools in terms of their
application to realizing the companys receivables? (1-Highly Preferred; 2-Moderately
Preferred; 3-Lowly Preferred)
1
[]
[]
[]
[]
[]
[]

Insistence on cash payment

Prompt invoicing
Sending overdue notices
Asset attachment
Additional charges
Debt Collection services

2
[]
[]
[]
[]
[]
[]

3
[]
[]
[]
[]
[]
[]

8. What are the companys outstanding annual debts in the last five years, each ending
31st December?
Year
Debts

2010

2011

2012

2013

2014

9. How would you classify the company in terms of its credit uptake?
[]
[]
[]
[]

High credit consumer

Moderate credit consumer
Low credit consumer
No credit at all

10. Rank the following creditors depending on their credit-volume advancement to the
company.
[]
[]
[]
[]

Suppliers
Lending Institutions
Members
.(Specify)

79

11. What is the companys preferred period (days) for credit payment?
[]
[]
[]
[]
[]
[]

0 days
15 days
15 30 days
30 45 days
45 60 days
More than 60 days

12. How significant are the following payment techniques to the company? (1-Not
Significant; 2-Moderately Significant; 3-Highly Significant)

Payment in installments
Negotiation for extensions
Change of payment conditions
Immediate settlement when cash is available
Investing cash to pay at maturity of grace period

1
[]
[]
[]
[]
[]

2
[]
[]
[]
[]
[]

3
[]
[]
[]
[]
[]

13. What is the leading form of inventory in the company?

[]
[]
[]

Farm inputs
General merchandise
..(Specify)

14. How long (days) does it take to receive ordered goods from suppliers?
[]
[]
[]
[]
[]

Less than 10 days

10 20 days
20 30 days
30 40 days
More than 40 days

15. What is the companys key consideration leading to inventory ordering?

[]
Actual demand
[]
Demand projections
[]
Stock replenishment
[]
Unpredictable supply
[]
No definite consideration
..(Specify)

80

16. How common do the following inventory situations affect the company (in the past 5
years)?
High

Moderate

Low

Non-Existent

Stock-outs
Inventory surpluses
Emergency ordering
Supply stoppage
17. What is the companys average inventory conversion cycle (days)?
. days
18. What is the companys recommended value of buffer inventory?
[]
[]
[]
[]

A tenth of ordered quantities or less

Tenth a third of ordered quantities
Third half of the ordered quantities
There is no recommended buffer quantity

19. What proportion of your current assets is held in form of cash?

%
Justification?

.
20. What proportion of your current assets is invested in short-term securities?
..%
Justification?

21. The following statements relate to corporate efficiency in cash management. To what
extent do you agree or disagree with each of them in the context of your entity?

There is a well-defined policy on minimum liquidity

There are regular cash flow projections
There are regular bank reconciliations and audits
There are ready investment avenues for excess cash
Excess cash is held to meet future obligations

81

1
[]
[]
[]
[]
[]

2
[]
[]
[]
[]
[]

3
[]
[]
[]
[]
[]

4
[]
[]
[]
[]
[]

5
[]
[]
[]
[]
[]

22. How has the company performed in the last five years on net profits and total
assets? (Complete the table below)
Year

2010

2011

2012

2013

2014

Net Profit .
Total Assets .
23. From your experience, what hinders Sugarcane Outgrower Companies from
optimizing their returns through management of their working capital?

24. What would be your advice to finance practitioners in the industry regarding
working capital management?

..

82

BIBLIOGRAPHY
REFERRED BOOKS:
Introduction to Financial Management IM PANDEY
International financial management P G Apte
International Finance Chandra
Financial management M.Y.KHAN AND P.K.JAIN
WEBSITES:
www.lgindia.com
www.forexcapital.com
www.easy-forex.com
www.thehindubusinessline.com
www.yourdictionary.com
www.export911.com
www.wikipedia.com

83