Professional Documents
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Need For The Study
Need For The Study
OBJECTIVES
Primary Objectives
To evaluate the TNPL performance during last 5 years.
Secondary objectives
The secondary objectives of the study is to analyse the financial performance of the company
through the relevant financial analysis.
To interpret the financial performance and financial positions of various business activities with
the help of financial statements of TNPL
To measure the short term and long term solvency of business
To determine future potential of the TNPL
To compare operational efficiency engaged in the same industry
The main purpose of our study is to render a better understanding of the concept working capital
management.
To provide valuable suggestions and recommendations to the company.
Growth and Expansions in the volume of business result in enhancement of the working capital
requirements. As business growth and expands it needs a larger amount of the working capital.
Normally the needs for increased working capital funds processed growth in business activities.
PRICE LEVEL CHANGES :
Generally raising price level requires a higher investment in the working capital. With increasing
prices, the same levels of current assets needs enhanced investments.
Principle of risk
variations
Principles of
Working Capital
Management
Principles of cost
of capital
Principles of
Equity principles
Principles of
maturity of
payments
Growth may be stunted. It may become difficult for the enterprises to undertake
profitable projects due to non-availability of working capital.
Implementations of operating plans may brome difficult and consequently the profit
goals may not be achieved.
Cash crisis may emerge due to paucity of working funds.
Optimum capacity utilization of fixed assets may not be achieved due to non-availability
of the working capital.
The business may fail to honor its commitment in time thereby adversely affecting its
creditability. This situation may lead to business closure.
The business may be compelled to by raw materials on credit and sell finished goods on cash. In
the process it may end up with increasing cost of purchase and reducing selling price by offering
discounts. Both the situation would affect profitable adversely.
Now avaibility of stocks due to non availability of funds may result in production stoppage.
While underassessment of working capital has disastrous implications on business
overassesments of working capital also has its own dangerous.
CONSEQUENCES OF OUR OWN ASSESMNET OF WORKING CAPITAL:
Working Capital is very essential for success of business & therefore needs efficient management
and control. Each of the components of working capital needs proper management to optimize
profit.
INVENTORY MANAGEMNT:
Inventory includes all type of stocks. For effective working capital management, inventory needs
to be managed effectively. The level of inventory should be such that the total cost of ordering
and holding inventory is the least. Simultaneously stock out costs should be minimized. Business
therefore should fix the minimum safety stock level reorder level of ordering quantity so that the
inventory costs is reduced and outs management become efficient.
RECEIVABLE MANAGEMENT:
Given a choice, every business would prefer selling its produce on cash basis. However, due to
factors like trade policies, prevailing market conditions etc. Business are compelled to sells their
goods on credit. In certain circumstances a business may deliberately extend credit as a strategy
of increasing sales. Extending credit means creating current assets in the form of debtors or
account receivables. Investment in the type of current assets needs proper and effective
management as, it gives rise to costs such as:
Thus the objective of any management policy pertaining to accounts receivables would be to
ensure the benefits arising due to the receivables are more than the costs incurred for the
receivables and the gap between benefit and costs increased resulting in increase profits. An
effective control of receivables help a great deal in properly managing it. Each business should
therefore try to find out coverage credit extends to its clients using the below given formula:
Average Credit = Total amount of receivable
(Extend in days) Average credit sale per day
Each business should project expected sales and expected investments in receivable based on
various factor, which influence the working capital requirement. From this it would be possible
to find out the average credit days using the above given formula. A business should
continuously try to monitor the credit days and see that the average. Credit offer to clients is not
crossing the budgeted period otherwise the requirement of investment in the working capital
would increase and as a result, activities may get squeezed. This may lead to cash crisis.
CASH BUDGET:
Cash budget basically incorporates estimates of future inflow and outflows of cash cover a
projected short period of time which may usually be a year, a half or a quarter year. Effective
cash management is facilities if the cash budget is further broken down into months, weeks or
even a daily basis.
There are two components of cash budget are:
1. Cash inflows
2. Cash outflows
The main sources for these flows are given here under:
1. Cash Sales
2. Cash received from debtors
3. Cash received from Loans, deposits etc.
4. Cash receipts other revenue income
RESEARCH METHODOLOGY
This project requires a detailed understanding of the concept Working Capital Management.
Therefore, firstly we need to have a clear idea of what is working capital, how it is managed in
TNPL, what are the different ways in which the financing of working capital is done in the
company.
The management of working capital involves managing inventories, accounts receivable and
payable and cash. Therefore one also needs to have a sound knowledge about cash management,
inventory management and receivables management.
Then comes the financing of working capital requirement, i.e. how the working capital is
financed, what are the various sources through which it is done.
And, in the end, suggestions and recommendations on ways for better management and control
of working capital are provided.
In preparing of this project the information collected from the following sources.
Primary data
The Primary data has been collected from Personal Interaction with Finance manager
Secondary data
The major source of data for this project was collected through annual reports, profit andloss
account of 5 year period from 2006-2010 & some more information collected frominternet and
text sources.
SAMPLING DESIGN
Sampling unit : Financial Statements
Sampling Size : Last five years financial statements
Ratio Analysis
Statement Showing Changes In Working Capital Position
Fund flow Statement
Cash flow Statement
Working Capital Trend Analysis
LIMITATIONS OF STUDY
The project study is mainly based on information gathered from secondary data mainly Balance
sheet and profit and loss account.
The findings and results are formed only from the past five years data due to time constraint.