“Major Research Project”

(SUBMITTED TOWARDS THE PARTIAL FULFILLMENT OF MASTER OF BUSINESS ADMINISTRATIONAWARDED

BY DEVI AHILYA VISHVAVIDHYALAYA, INDORE)

ON

“Study of working capital management at reliable auto tech pvt. Ltd.”

BM COLLEGE INDORE

MBA IV SEM

2008-2010

GUIDED BY SUBMITTED BY
DR V. IYENGAR Mr.KAILASH
HANWAT
Director & Faculty Guide .
 BM COLLEGE OF MANAGEMENT & RESEARCH
(i)
CERTFICATE

This is to certify that Mr. kailash hanwat undergone the project entitles
“study of working capital management” At reliable autotech
pvt.ltd. towards the partial fulfillment of his two years Master Degree Of
Business Administration (MBA) successfully. He has carried out this project
with full sincerity and dedication and the work is original and genuine.

External Examiner

Director Faculty & Guider

Dr. Vijayalaxmi Iyengar Dr.shailesh tripathi

BM COLLEGE OF MANAGEMENT & RESEARCH

 (ii)
DECLARATION

I , Kailash Hanwat, student of BM college of Technology , hereby

declare that the my major research project on “ Study of working capital
management ” At reliable autotech pvt.ltd ,is an original study conducted
under guidance of Dr. Shailesh Tripathi , Sr.Lecturer , BMCT.
The Paper has not been produced at any other College/Institution
/Organisation and I, had completed this project within the given time frame
to the best of my ability and capacity.

DATE
____________

Research Supervisor Researcher

Dr. Shailesh Tripathi Kailash Hanwat

BM COLLEGE OF MANAGEMENT & RESEARCH

 (iii)
ACKNOWLEDGEMENT

I am very much indebted to Dr. SHAILESH TRIPATHI who helped

for successfully completing this project in the light of their guidance.

I also pay our sincere regards to Director Mam Dr. Vijaylaxmi Iyengar,
who helped me throughout the project and kept close look to achieve the
ultimate results.

Kailash Hanwat
M.B.A. IVth Sem
 BM COLLEGE OF MANAGEMENT & RESEARCH, INDORE
(iv)
PREFACE

The project on study “of working capital management (With special reference to
reliable autotech pvt. ltd)” is an attempt to know about the importance of working capital
management.
Chapter one: The first chapter of project consists of the history of the company, purpose
of study, meaning and definition of working capital, kind of working capital, current
asset, current liabilities and theoretical background.
Chapter two: In the second chapter objective of the study is defined. This is;
 To find out working capital of the company from the past data available.
 To calculate ratios related to working capital so as to analyze the financial
position of the company.
 To get knowledge of working capital and its related terms.
 To study the constituents of Current Assets & Current Liabilities of the
company.

Chapter three: The third chapter consists of the research methodology and review of
literature. In this chapter the research methodology and the past researches were explained.
The data are collected from various primary data, estimating data and sources data.

Chapter four: the fourth chapter consist company profile, vision, mission, dynamic
growth strategy management, board of management, overview on company, quality
certificates, product and service portfolio, automotive skin component, automotive
structural component, pressed part and assembling, chassis component, high tonnage
stamping, break part and client.

Chapter five: The fifth chapter theoretical background in these consist of the importance
of working capital, format of working capital, key point of working capital, suitable
example, working capital cycle, source of additional working capital, five most common
source of working capital financing, managing working capital through different ratio and
inventory management.

Chapter six: In the six chapter of study consist ratio analysis to know the financial position
of the company and to find out how the company is doing, different Ratios have to be taken
into consideration.
Chapter seven: The seventh chapter consist the past data of company and graph shows the
level of different ratio.
Chapter eight: This chapter consist the result of the different ratio and their impact on the
company and also give the suggestion for it.

Chapter nine: In the last chapter of the project the out come i.e. the result and conclusion
comes from the project is explained.
 INDEX

SR. PARTICULARS PAGE NO.

NO

CERTIFICATE (i)
DECLARATION (ii)
ACKNOWLEGEMENT (iii)
PREFACE (iv)

1 INTRODUCTION
1.1 ABOUT THE COMPANY
1.2 PURPOSE OF REPORT
1.3 MEANING & DEFINITION
1.4 KIND OF WORKING CAPITAL
1.5 CRRENT LIABILITIES
1.6 CURRENT ASSETS
1.7 THEORETICAL BACKGROUND

2 OBJECTIVES & SCOPE

3 RESEARCH METHODOLOGY
3.1 ORIMARY DATA
3.2 PRODUCE EMPLOYED FOR
EMPLOYMENT DATA
3.3 SOURCE DATA
3.4 REVIEW OF LITERATURE

4 ORGANISATION PROFILEE

5 RATIO ANALYSIS
6.1 TO ANALYSIS OF DIFFERENT
RATIO

6 COMPARATIVE ANALYSIS

7 FINDINGS & RECOMMENDATIONS

8 CONCLUSION & OVERVIEW

REFERENCES
BIBLIOGRAPHY
ANNEXTURES
QUESTIONNAIRES
RESPONSE SHEET
PERCENTAGE ANALYSIS
SYNOPSIS
 CHAPTER:1
INTRODUCTION

INTRODUCTION
Today’s corporate world is moving on the wheels of competition and profit is nerve of
success, and can be achieved only if any business activity runs with its integrated approach
of all functions.
1.1 About company:-
Reliable Autotech Pvt Ltd is the biggest vendor of Mahindra&Mahindra and mostly
manufacture Automotive skin parts, Automotive Skin Components, Press parts
Assemblies, Chasis Components,Brake Parts & High Tonnge Stampings with the head
quarters at Nashik. All the units around are equipped with the state-of-the-art technology.
1.2 Purpose :-
The main objective of this project was to analyze the working capital & its major
components & to study financial position of the firm by calculation of some financial ratios.
The main part of this project was to forecast the working capital for the current year. During
my project with RELIABLE AUTOTECH PVT LTD. I got an opportunity to study and
understand the basics of working capital.
1.3 Meaning & definition:-
“Working Capital can be simply defined as difference between Current Assets &
Current Liabilities”.

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.

Working capital typically means the firm’s holdings of current, or short-term, assets
such as cash, receivables, inventory and marketable securities. These items are referred to
as circulating assets because of their cyclical nature. In a retail establishment, cash is
initially employed to purchase inventory, which is in turn sold on credit and results in
accounts receivables. Once the receivables are collected, they become cash-part of which
is reinvested in additional inventory and part going to profit or cash throw-off.

The need for working capital to run the day to day business activities cannot be
overemphasized. We will hardly find a business firm which does not require any amount
of working capital. Indeed, firms differ in their requirements of the working capital.
 There are two concepts of working capital—gross and net.

Gross working capital refers to the firm’s investment in current assets. Current assets are
the assets which can be converted into cash within an accounting year an include cash,
Short-term securities, debtors, bills receivable and stock.

Net working capital refers to the difference between current assets and current liabilities.
Current liabilities are those claims of outsiders which are expected to mature for payment
within an accounting year and include creditors bills payable, and outstanding expenses.
1.4 Kind of working capital:-
Working Capital is the capital that allows businesses to operate on a day-to-day basis.
Depending on the nature and the time period for which the working capital is held in
business, it can be classified as:

KINDS OF WORKING CAPITAL

ON THE BASIS OF CONCEPT ON THE BASIS OF TIME

GROSS NET WORKING PERMINANT TEMPORARY

WORKING CAPITAL WORKING WORKING
CAPITAL CAPITAL CAPITAL

1.5 Current asset:-

Current Assets are simply those assets which can be converted into cash within accounting
year.
1.6 Current liabilities:-
Current Liabilities are those which are paid within those accounting year.
So proper study of the working capital is very essential.Working
capital plays a very important role, because working capital is the money any business has
on hand in order to address everyday expenditures and future expansion that is vital for the
growth of their business.
If a company's current assets do not exceed its current liabilities, then it may run into
trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A
declining working capital ratio over a longer time period is also a red flag that warrants
further analysis.
So to consider this problem working capital needs for current year are always predicted in
advanced.
1.7 Theoretical background

WORKING CAPITAL

Working capital is like a "SALT IN FOOD". It is absolutely vital for any business.
Working capital is especially necessary for those businesses with higher day-to-day
expenditures and outflow of money. So what is Working Capital? Simply we can say
working capital is the money any business has on hand in order to address everyday
expenditures and future expansion that is vital to the growth of their business.

Working capital is the money most of the business use to pay things like additional new
space, advertising, & marketing, renovations, new equipment, paying bills and many more.
Many businesses have assets that they can generate cash for working capital. The assets that
typically are used to generate working capital are usually currently owned existing
equipment. Business like restaurants and hotels however can have a difficult time generating
working capital from these traditional sources. In addition to it they may require greater
working capital than other industries.
 Format of working capital
Particulars Amount Amount
A]CURRENT ASSETS.
1.Raw material. xxxx
2.Work-in-progress. xxxx
3.Finished Goods. xxxx
4.Debtors. xxxx
5.Cash. xxxx
6.0ther current assets. xxxx
Total current assets Xxxx
B]CURRENT LIABILITIES.
1.Trade Creditors. xxxx
2.0utsandings expenses. xxxx
3.Other current liabilities. xxxx
Total current liabilities Xxxx
WORKING CAPITAL (A-B) Xxxx
It is a measure of both a company's efficiency and its short-term financial health.

The working capital is calculated as:

Working Capital= Current Assets- Current Liabilities

Positive working capital means that the company is able to pay off its short-term liabilities.
Negative working capital means that a company currently is unable to meet its short-term
liabilities with its current assets (cash, accounts receivable, inventory).

Also known as "net working capital".

If a company's current assets exceed its current liabilities, then it may run into trouble
paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining
working capital ratio over a longer time period is also a red flag that warrants further
analysis. For example, it could be that the company is being more aggressive with its sales
efforts and, as a result, is having a harder time collecting on its receivables.

Working capital also gives investors an idea of the company's underlying operational
efficiency. Money that is tied up in inventory or money that customers still owe to the
company cannot be used to pay off any of the company's obligations. So, if a company
is not operating in the most efficient manner (slow collection), it will show up in the
working capital. This can be seen by comparing the working capital from one period to
another slow collection may signal m underlying problem in the company's operations.
There are various possibilities for managing the working capital of companies. It can be
divided on the basis of qualities and values.

• To hedge purchase and sales risks, primarily in cases where the buyer and the
seller do not know each other very well, we recommend using guarantees and
letter of credit.
• To finance stocks it is wise to use a working capital loan .
• Revolving credit line is recommended to be used in case of repetitive deliveries
when the need for cash fluctuates.
. Overdraft is a good product for ensuring constant liquidity if incoming and outgoing
payments are made at different times.
• Factoring is suitable for financing accounts receivable with the aim of ensuring
quick accrual of funds from buyers and allowing for the desired growth of the
company. Factoring helps to save the company's resources upon administration of
invoices/receivables.

Decisions relating to working capital and short term financing are referred to as working
capital management. These involve managing the relationship between a firm's short-term
assets and its short-term liabilities The goal of Working capital management is to ensure
that the firm is able to continue its operations and that it has sufficient cash flow to satisfy
both maturing short-term debt and upcoming operational expenses.

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 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 till receiving payment from the customer. As
a management tool, this metric makes explicit inter-relatedness of decisions relating to
inventories, accounts receivable and payable, and cash. Because this number effectively
corresponds to the time for which 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. ROC measures are therefore useful as a management tool, in that they
link short-term policy with long-term decision making.

The key points of working capital are:-

The current assets (cash, inventories/stock and accounts receivable/debtors) in the

business need to be monitored and kept at realistic levels.

Current liabilities constitute all the short-term payments that need to be met by the business
(obligations that need to be paid within one year). Short-term loans and accounts payable
are examples.

Most successful businesses keep the working capital ratio as low as possible, and keep
cash circulating, so as to maximize profit.

The size of the working capital ratio depends on the type of industry the business operates
in, and on financial arrangements such as overdrafts and creditor policy.
 Example
Daniel's Hockey Shop, a hypothetical business with current assets of Rs.50 000 and current
liabilities of Rs.25 000, has working capital of Rs.25 000 (Rs.50 000 minus Rs.25 000).
The business has Rs.2 of current assets for every Rs.l of current liabilities. Daniel's working
capital or current ratio is expressed as 2:1. This business seems to have an adequate
working capital and a safe working capital ratio. This business appears also to be liquid.

Working capital (current) ratios may vary Situation 1

Adequate or safe
working capital
ratio for most
businesses

CA CL

Rs.50 000 : Rs.25 000

2 :1

A ratio generally considered

too low for most businesses,
but often seen in businesses
with high stock turnovers
and few accounts receivable,
such as fruit shops.
Rs. 25000: Rs. 25000
1: 1
Situation 3
A ratio generally considered too low or
unsafe. In this situation, the business has
only 80 paise of current assets to pay for
every rupee in current liabilities.
Exceptions could be large companies
with continuously high and predictable
cash flows.
Current assets: Current Liabilities

20000 : 25000

0. 8:1
WORKING CAPITAL CYCLE
In working capital cycle cash flows, around and out of a business. It is the business's life
blood and every manager's primary task is to keep it flowing and to use the cash flow to
generate profits. If a business is operating profitably, then it should, generate cash surplus.
If it doesn't generate surplus, the business will eventually run out of cash and expire.

The faster a business expands the more cash it will need for working capital and investment.
The cheapest and best sources of cash exist as working capital right within business. Good
management of working capital will generate cash which will help improve profits and
reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks
can represent a substantial proportion of a firm's total profits.

There are two elements in the business cycle that absorb cash -Inventory (stocks and
work-in-progress) and Receivables (debtors owing you money). The main sources of cash
are Payables (your creditors) and Equity and Loans.

Equity &

Payables
Inventory

Receivables

Loans

WORKING CAPITAL CYCLE

Each component of working capital (namely inventory, receivables
and payables) has two dimensions TIME and MONEY.

When it comes to managing working capital - TIME IS MONEY.

If you can get money to move faster around the cycle (e.g. collect money due from debtors
more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative
to sales), the business will generate more cash or it will need to borrow less money to fund
working capital. As a consequence, you could reduce the cost of bank interest or you'll
have additional free money available to support additional sales growth or investment.
Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an
increased credit limit, you effectively create free finance to help fund future sales.

Collect receivables (debtors) faster You release cash from the cycle

Collect receivables (debtors) slower Your receivables soak up cash

Get better credit (in terms of duration or You increase your cash resources
amount) from suppliers

Shift inventory (stocks) faster You free up cash

Move inventory (stocks) slower You consume more cash

"More businesses fail for lack of cash than for want of profit”.

SOURCES OF ADDITIONAL WORKING CAPITAL

Sources of additional working capital include the following:

 Profits (when secured as cash)

 Existing cash reserve
 Payables (credit from suppliers)
 New equity or loans from shareholders
 Long term loans

If you don’t have sufficient working capital and you try to increase sales then you can
easily stretch your financial resources. This is called as overtrading.
Early warning sings include:

 Pressure on existing cash

 Exceptional cash generating activities

Eg: offering high discounts for early cash payments.

Bank overdraft exceeds usual limit.
Paying bills in cash to creditors to generate additional supplies.
Management preoccupied with surviving rather than managing
The five most common sources of short-term working
capital

financing are:
1. Equity: If our business is in first year of operation and has not yet become
profitable, then you might have to rely on equity funds for short term needs on
working capital. These funds might be injected from yourself, a family member or
a third party investor.

2. Trade Creditors: If you have a particularly good relationship established with

your trade creditors, you might be able to solicit their help in providing short-term
working capital. If the previous payments have been paid on time in the past, a
trade creditor may be willing to extend terms to enable you to meet a big order.
For instance, if you receive a big order that you can fulfill, ship out and collect in
60 days, you could obtain 60-day terms from your supplier if 30-day terms are
normally given. The trade creditor will want proof of the order and may want to
file a lien on it as security, but if it enables you to proceed, that should not be a
problem.

3. Factoring: Factoring is another resource for short-term working capital financing.

Once you have filled an order, a factoring company buys your account receivable
and then handles the collection. This type of financing is more expensive than
conventional bank financing but is often used by new businesses.

4. Line of credit: Lines of credit are not often given by banks to new businesses.
However, if your new business is well-capitalized by equity and you have good
collateral, your business might qualify for one. A line of credit allows you to
borrow funds for short-term needs when they arise. The funds are repaid once you
collect the accounts receivable that resulted from the short-term sales peak. Lines
of credit typically are made for one year at a time and are expected to be paid off
for 30 to 60 consecutive days sometime during the year to ensure that the funds are
used for short-term needs only.
 5. Short-term loan: While your new business may not qualify for a line of credit
from a bank, you might have success in obtaining a one-time short-term loan (less
than a year) to finance your temporary working capital needs. If you have
established a good banking relationship with a banker, he or she might be willing
to provide a short-term note for one order or for a seasonal inventory and/or
accounts receivable buildup.

The two most common sources for long-term working capital financing are:

 Bonds: These debt securities are promises made by the issuing company to pay
the principal when due and to make timely interest payments on the unpaid
balance.

 Long-term loan: Commercial banks make loans to borrowers who can repay the
principal with interest, and they will often require collateral for upwards of 85 -
90 percent of the loan value. You will need to demonstrate a track record of sales
revenues to justify your ability to make periodic installments. Unfortunately, as a
small business or start up, your fledgling business idea probably doesn't have
either the sufficient assets or customer base to warrant serious consideration for a
bank loan.
MANAGEMENT OF WORKING CAPITAL

Working capital management is important because maintaining a balance of income to

debt can be difficult and owners must be diligent to assure that it is kept. Sometimes it
takes a little assistance to maintain levels of fluidity or make major purchases. If working
capital dips too low, a business risks running out of cash. Even very profitable businesses
can run into trouble if they lose the ability to meet their short-term obligations. Working
capital financing can be used as a fast cash option to cushion the periods when the flow is
not ideal or readily available. Even when owners are meticulous in managing working
capital, finding the right levels to remain comfortable and competitive can be difficult.
Lack of working capital (for all practical purposes, cash) is the single most important
reason why businesses fail to expand - or fail to survive. Businesses that are profitable, but
whose debtors do not pay on time or who have purchased large stocks of goods that take
months to sell - or don't get sold - risk running out of cash and even going out of business.
Similarly, businesses that are well managed but not profitable (eg :- start-ups or those
investing for growth or perhaps suffering a temporary downturn) can continue for long
periods without making profits, providing they have enough cash to pay their VAT,
employees, suppliers, their bank and other creditors. Some of the best options available for
the business are as follows. These options include the obvious and the less well known and
there are many ways of structuring each of them:

Bank Overdrafts - Just because one bank has turned you down or quoted a high rate of
interest, does not mean that another bank will not be very interested in helping you.

Stock & Inventory Loans – Quite simply these are loans to enable business to purchase
stock lines, the best known perhaps being cars, vans & other commercial vehicles seasonal
businesses can find these loans a highly efficient form of finance.
A business' need for working capital can come as result of several reasons that include the
following:

 Increasing sales growth or seasonal growth.

 Need to increase inventory to support sales growth or for adding product lines.
 Customers paying slower.
 Desire to take discounts on purchases from vendors.
 Recent operating losses have reduced your cash reserves.
 Increased expenses due to additional marketing efforts, new employees, office
relocation, etc.

It is important to identify whether this is a short term situation that will correct itself in
less than twelve months or is it a permanent situation that will take time to rebuild cash
balances. Different industries have different optimum working capital profile, reflecting
their method of business and what they are selling.
  Business with lot of cash sales and few credit sales should have minimal trade
debtors. Supermarkets are good examples of such business.
 Business that existed to trade complete product will not have finished goods in
stock. Comparing these with manufactures who will have to maintain stock of raw
material and work-in-progress.
 Some finished goods, notably foodstuffs, have to be sold within a limited period
because of the perishable nature.
 Larger companies would be able to use their bargaining strength as customers to
obtain favorable, extended credit terms from suppliers. By contrast, smaller
companies particularly that have recently started trading may be
required to pay their suppliers immediately.
 Some business will receive their money at certain time of the year, although they
may incur expenses throughout the year at a fairly consistently level. This is often
known as "season of cash flow”. For example travel agents have a peak season
during the week of Christmas.

Working capital need also fluctuate during the year

The amount of fund tied up in the working capital would not typically be constant figure
throughout the year. Only in most unusual of business would there be constant need for
working capital funding. For most business there would be weekly fluctuations. In
principle, the working capital need can be separated into two parts:

• FIXED PART
• FLUCTUATING PART

The fixed part is probably defined in amount as the minimum working capital requirement
for the year. It is widely advocated that the firm should be funded in the way shown in the
diagram below:
The more permanent needs (fixed assets and the fixed element of working capital) should
be financed from fairly permanent sources (e.g. equity and loan stocks); the fluctuating
element should be financed from a short-term source (e.g. a bank overdraft), which can
be drawn on and repaid easily and at short notice.

Poor working capital management can lead to:

• Over-capitalization (and therefore waste through under utilization of

resources and hence poor returns); and
• Overtrading (trying to maintain a level of sales which is higher than working
capital can sustain - for businesses which extend credit terms, more sales means
more debtors and higher working capital demands).
Working capital has a direct impact on cash flow in a business. Since cash flow is the name
of the game for all business owners, a good understanding of working capital is imperative
to make any venture successful and thus it is necessary to manage working capital
effectively. Management will use a combination of policies and techniques for the
management of working capital. These require managing the current assets, generally Cash
and Cash equivalent and Debtors. There are also short terms financing options which are
considered.

 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 hence increases cash
flow
 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.
 Short term financing - inventory is ideally financed by credit granted by the supplier;
dependent on the cash conversion cycle, it may be necessary to utilize a bank (or
overdraft), or to "convert debtors to cash" through "factoring".
Approaches to Working Capital Management

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

 Ratio analysis can be used to monitor overall trends in working capital and to
identify areas requiring closer management
 The individual components of working capital can be effectively managed by
using various techniques and strategies.

Financial ratio analysis calculates and compares various ratios of amounts and balances
taken from the financial statements.

The main purpose of working capital ratio analysis is:

 To indicate working capital management performance.

 To assist in identifying areas requiring closer management.

Three key points need to be taken into account when analyzing financial ratios:

 Ratio analysis is somewhat one-sided; the results are based on highly summarized
information. Consequently, situations which require control might not be apparent, or
situations which do not warrant significant effort might be unnecessarily highlighted.
 Different departments face very different situations. Comparisons between
them, or with global "ideal" ratio values, can be misleading;

However, financial ratio analysis is valuable because it raises questions and indicates
directions for more detailed investigation.
The following ratios are of interest to those managing working capital:

 Working capital ratio.

 Liquid interval measure.
 Stock turnover.
 Debtor’s ratio.
 Creditors’ratio.

Working Capital Ratio

Current Assets divided by Current Liabilities.

The working capital ratio (or current ratio) attempts to measure the level of liquidity, that
is, the level of safety provided by the excess of current assets over current liabilities. The
"Quick Ratio" a derivative, excludes inventories from the current assets, considering only
those assets most swiftly realizable. There are also other possible refinements. There is no
particular benchmark value or range that can be recommended as suitable for all
government departments. However, if a department tracks its own working capital ratio
over a period of time, the trends-the way in which the liquidity is changing-will become
apparent.

Liquid Interval Measure

Liquid Assets divided by Average Operating Expenses

This is another measure of liquidity. It looks at the number of days that liquid assets (for
example, inventory) could service daily operating expenses (including salaries).
Stock Turnover

Cost of Sales divided by Average Stock Level

This ratio applies only to finished goods. It indicates the speed with which inventory is
sold-or, to look at it from the other angle, how long inventory items remain in the shelves.
It can be used for the inventory balance as a whole, for classes of inventory, or for
individual inventory items. The figure produced by the stock turnover ratio is not important
in itself, but the trend over time is a good indicator of the validity of changes in inventory
policies. In general, a higher turnover ratio indicates that a lower level of investment is
required to serve the department. Most departments do not hold significant inventories of
finished goods, so this ratio will have only limited relevance.

Debtor Ratio

There is a close relationship between debtors and credit sales to third parties (that is, sales
other than to the Crown). If sales increase, debtors will increase, and conversely, if sales
decrease debtors will decrease. The best way to explain this relationship is to express it as
the number of days that credit sales are carried on the books:

Credit Sales per Period x Days per period Average Debtors

Where trading terms are 30 days net cash, and customers buy from day-to-day during the
30 day period and pay 30 days after a statement is rendered, a collection period of 45 days
(the average between 30 and 60 days) would be satisfactory. If the average collection
period extends beyond 60 days, debtors are holding cash that should have flowed into the
department. This means that the department is unable to satisfy pressing liabilities or to
invest that cash. The debtor ratio does not solve the collection problem, but it acts as an
indicator that an adverse trend is developing. Remedial action can then be instigated.
Creditor Ratio

This ratio is much the same as the debtor ratio. It expresses the relationship between credit
purchases and the liability to creditors. It can be stated as the number of days that credit
purchases are carried on the books.

Credit Purchases per Period x Days per period Average Creditors

Note that non-credit purchases (such as salaries) and non-cash expenses (such as
depreciation) need to be excluded from "credit purchases" and any provisions need to be
excluded from "creditors". There is no need to pay creditors before payment is due. The
department's objective should be to make effective use of this source of free credit, while
maintaining a good relationship with creditors. As with debtors, if a department has been
granted credit terms of 30 days net cash, credit purchases should not be carried on the
books for more than an average of 45 days. If payment is withheld for 60 days or more it
is likely that creditors will become impatient and impose stricter and less convenient
trading terms-for example, "cash on delivery". The Public Finance Act 1989 (section 49)
places a legal constraint on the amount of credit allowed to a department. It restricts to a
maximum of 90 days the purchase of goods and services through the use of a credit card
or suppliers' credit.
HANDLING RECEIVABLES (DEBTORS)

Cash flow can be significantly enhanced if the amounts owing to a business are collected
faster. Every business needs to know who owes them money how much is owed how long
it owes for what it is owed.

Late payments erode profits and can lead to bad debts.

Slow payment has a crippling effect on business; in particular on small businesses who
can least afford it. If you don't manage debtors, they will begin to manage your
business as you will gradually lose control due to reduced cash flow and, of course, you
could experience an increased incidence of bad debt. The following measures will help
manage your debtors:

1. Have the right mental attitude to the control of credit and make sure that it gets the
priority it deserves.
2. Establish clear credit practices as a matter of company policy.
3. Make sure that these practices are clearly understood by staff, suppliers and
customers.
4. Be professional when accepting new accounts, and especially larger ones.
5. Check out each customer thoroughly before you offer credit. Use credit agencies,
bank references, industry sources etc.
6. Establish credit limits for each customer and stick to them.
7. Continuously review these limits when you suspect tough times are coming or if
operating in a volatile sector.
8. Keep very close to your larger customers.
9. Invoice promptly and clearly.
10. Consider charging penalties on overdue accounts.
11. Consider accepting credit /debit cards as a payment option.
12. Monitor your debtor balances and ageing schedules, and don't let any debts get too
large or too old.
Recognize that the longer someone owes you, the greater the chance you will never get
paid. If the average age of your debtors is getting longer, or is already very long, you may
need to look for the following possible defects:

 weak credit judgment,

 poor collection procedures,
 lax enforcement of credit terms,
 slow issue of invoices or statements,
 errors in invoices or statements,
 Customer dissatisfaction.

Debtors due over 90 days (unless within agreed credit terms) should generally demand
immediate attention. Look for the warning signs of a future bad debt. For example

1. Longer credit terms taken with approval, particularly for smaller orders.
2. Use of post-dated cheques by debtors who normally settle within agreed
terms.
3. Evidence of customers switching to additional suppliers for the same goods.
4. New customers who are reluctant to give credit references
5. Receiving part payments from debtors.

Profits only come from paid sales.

The act of collecting money is one which most people dislike for many reasons and
therefore put on the long finger because they convince themselves there is something more
urgent or important that demands their attention now. There is nothing more important
than getting paid for your product or service. A customer who does not pay is not a
customer. Here are a few ideas that may help you in collecting money from debtors:

 Develop appropriate procedures for handling late payments.

 Track and pursue late payers.
 Get external help if your own efforts fail.
 Don't feel guilty asking for money; its yours and you are entitled to it.
 Make that call now. And keep asking until you get some satisfaction.
 In difficult circumstances, take what you can get now and agree terms for the
remainder. It lessens the problem.
 When asking for your money, be hard on the issue - but soft on the person. Don't give
the debtor any excuses for not paying.
 Make it your objective is to get the money - not to score points or get even.
MANAGING PAYABLES (CREDITORS)

Creditors are a vital part of effective cash management and should be managed carefully
to enhance the cash position. Purchasing initiates cash outflows and an over-zealous
purchasing function can create liquidity problems. Consider the following:

 Who authorizes purchasing in your company - is it tightly managed or spread among

a number of (junior) people?
 Are purchase quantities geared to demand forecasts?
 Do you use order quantities which take account of stock holding and purchasing
costs?
 Do you know the cost to the company of carrying stock?
 Do you have alternative sources of supply? If not, get quotes from major suppliers
and shop around for the best discounts, credit terms, and reduce dependence on a
single supplier.
 How many of your suppliers have a returns policy?
 Are you in a position to pass on cost increases quickly through price increases to
your customers?
 If a supplier of goods or services lets you down can you charge back the cost of the
delay?
 Can you arrange (with confidence!) to have delivery of supplies staggered or on a
just-in-time basis?

There is an old adage in business that "if you can buy well then you can sell well".
Management of your creditors and suppliers is just as important as the management of your
debtors. It is important to look after your creditors - slow payment by you may create ill-
feeling and can signal that your company is inefficient (or in trouble!).

Remember, a good supplier is someone who will work with you to enhance the future
viability and profitability of your company.

INVENTORY MANAGEMENT

Managing inventory is a juggling act. Excessive stocks can place a heavy burden on the
cash resources of a business. Insufficient stocks can result in lost sales, delays for
customers etc.

The key is to know how quickly your overall stock is moving or, put another way, how
long each item of stock sit on shelves before being sold. Obviously, average stock-holding
periods will be influenced by the nature of the business. For example, a fresh vegetable
shop might turn over its entire stock every few days while a motor factor would be much
slower as it may carry a wide range of rarely-used spare parts in case somebody needs
them.

Now-a-days, many large manufacturers operate on a. just-in-time (JIT) basis whereby all
the components to be assembled on a particular today, arrive at the factory early that
morning, no earlier - no later. This helps to minimize manufacturing costs as JIT stocks
take up little space, minimize stock-holding and virtually eliminate the risks of obsolete or
damaged stock. Because JIT manufacturers hold stock for a very short time, they are able
to conserve substantial cash. JIT is a good model to strive for as it embraces all the
principles of prudent stock management.

The key issue for a business is to identify the fast and slow stock movers with the objectives
of establishing optimum stock levels for each category and, thereby, minimize the cash
tied up in stocks. Factors to be considered when determining optimum stock levels include:

 What are the projected sales of each product?

 How widely available are raw materials components etc.?
 How long does it take for delivery by suppliers?
 Can you remove slow movers from your product range without
compromising best sellers?

Remember that stock sitting on shelves for long periods of time ties up money which is
not working for you. For better stock control, try the following:

 Review the effectiveness of existing purchasing and inventory systems.

 Know the stock turn for all major items of inventory.
 Apply tight controls to the significant few items and simplify controls for the
trivial many.
 Sell off outdated or slow moving merchandise - it gets more difficult to sell the
longer you keep it.
 Consider having part of your product outsourced to another manufacturer rather
than make it yourself. Review your security procedures to ensure that no stock "is
going out the back door!”
 CHAPTER:2

ORGANISATION PROFILE
COMPANY PROFILE

Reliable is a multifaceted engineering company in the auto-component field with

capabilities to produce sheet metal parts of thickness ranging from thin steels of 0.8 mm to
very thick steels of 10 mm requiring presses ranging from low tonnage (10 tons) to very
high tonnage (800 tons) and other capabilities like spot welding, mig welding, robotic
welding, projection welding, and CNC machining, robotic plasma cutting.

It has the understanding of diverse processes and can handle forgings, tubes, wires,
variety of fasteners, and many special processes of surface treatments like electroplating,
ED Coating, Powder coating etc.

Due to these diverse skills of production, procurement and management of variety of

processes along with its commitment to on time delivery and superior quality, it has
gained the attention of world players in the automotive sector.

 Incorporated in 1984.
 Based in Nashik, 170 km north east of Mumbai (India).
 Specialized in Sheet Metal, Machined and welded components for automotive
sector.
 Using Enterprise- wide Resource Planning (ERP), JIT and Supply Chain
Management (SCM) along with the adopting to requirements of e-Commerce.
 Multiple process capabilities , Good Infrastructure
 TS 16949 certified
 Safe, Progressive, Customer-Focused
Vision
“To become global player in Auto-Components market by 2010”

Mission
We are committed to our customers in their efforts to increase their market share by
providing competitively priced, high quality products on time.

Dynamic growth strategy

Reliable develops and produces sheet metal & Machined components for the automotive
industry. The company is known for its knowledge and experience in automotive
components.

The production of auto components demands a high degree of accuracy to achieve class-A
standard finish. Its quality of work and promptness in delivery secured a leading role for
Reliable in Indian automotive market as a supplier to most leading manufacturers.
Reliable has production and engineering centers in India only.

Management

Reliable professionals are constantly meeting the exciting challenges of creating

revolutionary solutions that consistently exceed the automotive industry's ever-changing
demands.

Board of Management:

Rajendra Bagwe
Director

Devendra Bapat
Director
Amol Chitnis
Director

Overview

Driven by zeal to constantly enhance the quality horizon the Reliable includes units, which
are already TS 16949 accredited for world class quality .In real sense Reliable has drawn
powerfully on its belief in quality.

Our full compliance with these standards has enabled us to satisfy the most demanding
requirements imposed on us by our customers. We are confidence to achieve a world class
quality status & compete in a global market.

Quality Policy Objectives

To develop a ‘GOOD QUALITY CULTURE’

 Top management commitment

 Transparent systems
 Robust processes
 Mistake-proofing
 Empowered employees
 Minimum inspection
 Continual improvements
 Self-certification of quality
 Valuing internal customer
Quality Certifications

The Quality Manual and the Processes now being carried out meet every single
specification required by TS 16949

Reliable is an integrated engineering and manufacturing company focused in auto-

components market. Since 1984 we have been providing Sheet Metal & Machined
Components and related value added services to automotive sector. Some of the
important components manufactured by us are automotive skin components like door
panels and fenders, structural components like bumpers and body cross members, and
chassis components. While other companies are talking about making sheet metal
business simple, Reliable actually delivers simplicity without compromising the level of
service that business customers expect.

Products & Services Portfolio

The company offers a complete range of products and services specifically designed to
meet the components requirements for automotive sectors.

Automotive Skin Components

 Door panels
 Fenders
 Reinforcements

Automotive Structural Components

 Body Cross Members

 Chassis Components
 Bumpers
 Wind Shield
 Front Axle
Pressed parts and assemblies

 Chassis brackets
 Battery Trays
 Mounting Gussets
 Assembly Fender

Chassis Components

High Tonnage Stampings

Brake parts
Clients

Since 1984 we have been serving a wide variety of customers. Well

established names of the industry prefer to work with us because of our
record of consistently delivering High Quality Products, on time and at a
competitive price.

Developing long-term relationships is an integral part of our business. From Fortune 500
companies to small businesses, our clients have come to expect the best from us.

The following partial client list is representative of the scope of businesses served by
Reliable:

 Mahindra & Mahindra.

 Trelleborg Automotive Europe Emerson Process Management.
 Dana India.
 Bosch Chassis Systems India Limited.
 Fisher Controls USA Industrial Products International, Inc. USA.
 CHAPTER:3
OBJECTIVIES & SCOPE
OBJECTIVES

 To find out working capital of the company from the past data available.
 To calculate ratios related to working capital so as to analyze the financial
position of the company.
 To get knowledge of working capital and its related terms.
 To study the constituents of Current Assets & Current Liabilities of the
company.
 CHAPTER:4
RESARCH METHEDOLOGY
RESEARCH METHODOLOGY

Primary Data:-
Data was collected from concerned company officials which was required with respect to
the project. Some data was purely based on the judgment of the company officials. Other
relevant material in print was made available by the concerned persons.

Procedure Employed for Estimating Data:-

The basic technique of ratio analysis was used to evaluate the financial analysis of the firm
from the past data. The estimations were done from financial statement provided by the
officials of company. For the estimation of working capital & evaluation of ratios data from
previous balance sheets & profit & loss accounts were used. Sometimes for certain items
basis of percentage was also used.

Source of the data:-

In view of confidentiality of information, actual data related to working capital of the

organization under study could not be included under the study paper. Hence the data
related to estimation of working capital and projection of ratio had to be modified.

Review of literature:-

Moss and Stine (1993) :- Revealed that firm size was a factor in the length of the CCC
and the study indicated that larger firms have shorter CCC. Further the study revealed
that when the CCC was compared to the current and quick ratios, a significant positive
relationship was found. While Jose et al. (1996) examined the relationship between
aggressive working capital management and profitability of US firms using Cash
Conversion Cycle (CCC) as a measure of working capital management where a shorter
CCC represents the aggressiveness of working capital management. The results indicated
a significant negative relationship between the cash conversion cycle and profitability
indicating that more aggressive working capital management is associated with higher
profitability.
Chiou and Cheng (2006):- Analyzed the determinants of working capital management
and explored that how working capital management of a firm was influenced by the
different variables like business indicators, industry effect, operating cash flows, growth
opportunity for a firm, firm performance and size of firm. The study has depicted
consistent results of leverage and operating cash flow for both net liquid balance and
working capital requirements while variables like business indicator, industry effect,
growth opportunities, performance of firm, and size of firm were unable to produce
consistent conclusions for net liquid balance and working capital requirements of firms.
In the study of Uyar (2009) he examined industry benchmarks for cash conversion cycle
(CCC) of merchandising and manufacturing companies and found that merchandising
industry has shorter CCC than manufacturing industries. He further examined the
relationship between the length of the CCC and the size of the firms and the findings
indicated a significant negative correlation between the length of CCC and the firm size,
in terms of both net sales and total assets. The study further showed significant negative
correlation between the length of CCC and the profitability.

Nazir and Afza (2008):- Used external and internal factors to explore the determinants of
working capital requirements of a firm. Internal factors were operating cycle, operating
cash flows, leverage, size, ROA, Tobin's q and growth while industry dummy and level
of economic activity as external macroeconomic factors. They found that operating cycle,
leverage, ROA and q had an influence on the working capital requirements significantly.
The study further revealed that working capital management practices are also related to
industry and different industries are following different working capital requirements.
While Rehman (2006) studied the impact of the different variables of working capital
management including Average Collection Period, Inventory Turnover in Days, Average
Payment Period and Cash Conversion Cycle on the Net Operating Profitability of firms
and concluded that there was a strong negative relationship between above working
capital ratios and profitability of firms. Furthermore the study stated that managers can
create a positive value for the shareholders by reducing the cash conversion cycle up to
an optimal level.

Ramachandran and Janakiraman (2009):- Found negative relationship between EBIT and
the cash conversion cycle (ccc). The study revealed that operational EBIT dictates how to
manage the working capital of the firm. Further, it was found that lower gross EBIT was
associated with an increase in the accounts payable days. Thus the study concluded that
less profitable firms wait longer to pay their bills, taking advantage of credit period
granted by their suppliers. While the positive relationship between average receivable
days and firms EBIT suggested that less profitable firms will pursue a decrease of their
accounts receivable days in an attempt to reduce their cash gap in the CCC. In the study
of Ganesan (2007) he depicted that the working capital management efficiency was
negatively associated to the profitability and liquidity. The study revealed that when the
working capital management efficiency was improved by decreasing days of working
capital, there was improvement in profitability of the firms in telecommunication firms in
terms of profit margin. Padachi (2006) examined the trend in working capital needs and
profitability of firms to identify the causes for any significant differences between the
industries. The results showed that high investment in inventories and receivables was
associated with lower profitability. The findings also revealed that an increasing trend in
the short-term component of trend in the short-term component of working capital
financing. In the study of Raheman and Nasr (2007) they studied the effect of Working
Capital Management on liquidity as well on profitability of the firm. The results showed
that there was a negative relationship between variables of the working capital
management and profitability of the firm. Further the study also found that there was a
negative relationship between liquidity and profitability and a positive relationship
between size of the firm and its profitability and negative relationship between debt used
by the firm and its profitability.

Afza and Nazir (2007a):- Found the negative relationship between working capital
policies and profitability. In line with the study Afza and Nazir (2007b) further
investigated the relationship between the aggressive/conservative working capital policies
profitability as well as risk of public limited companies. They found a negative
relationship between the profitability measures of firms and degree of aggressiveness of
working capital investment and financing policies. The firms yield negative returns if
they follow an aggressive working capital policy. Lazaridis and Tryfonidis (2006)
investigated the relationship of profitability and working capital management. The results
of showed that there was a negative relationship between profitability (measured through
gross operating profit) and the cash conversion cycle which was used as a measure of
working capital management efficacy. Thus managers can create profits for their
companies by handling correctly the cash conversion cycle and keeping each component
like accounts receivables, accounts payables, inventory to an optimum level. Samiloglu
and Demiraunes (2008) analyzed the effect of working capital management on the
profitability of the firms. The study depicted the accounts receivable period, inventory
period and leverage affects the profitability of the firm negatively while growth affects
firm's profitability positively.
 CHAPTER: 6
RATIO ANALYSIS
RATIO ANAYSIS

To know the financial position of the company and to find out how the company is doing,
different Ratios have to be taken into consideration.

Ratio Analysis is a widely used tool for financial analysis. It is defined as the systematic
use of ratio to interpret the financial statement; the strength and weakness of the firm as
well as its historical performance and current financial conditions can be determined.

A ratio explains relationship between two entities. The data for these ratios are taken from
various Balance Sheets, Profit & Loss A/c or various Other Financial Statement of the
company.

Working capital ratios reflect a firm's ability to meet the short term current obligations.
Largely these ratios indicate the relationship concerning Current Assets and Current
Liabilities. Some of these ratios are taken into consideration further:-
1. CURRENT RATIO:-
This ratio is an indicator of the firm's commitment to meet its short term liabilities. An
ideal current ratio is 2:1. A very high current ratio is also not desirable since it means less
efficient use of funds. This is because a high current ratio means excessive dependence of
long term sources of raising the funds. Long term liabilities are costlier than Current
liabilities and therefore, this will result inconsiderably lowering down the profitability of
the concern. Thus higher current ratio would indicate inadequate employment of funds
while poor current ratio is danger signal to the management

Current Ratio= Current Assets

Current Liabilities

2. ACID TEST RATIO:-

This ratio is ascertained by comparing the liquid ratio (i.e. Assets which are immediately
converted into cash without much loss) to Current Liabilities .Prepaid expenses and stock
are not liquid assets. The Ratio may be expressed as:
Acid Test Ratio = Liquid assets
Current Liabilities.
This Ratio is an indicator of short term insolvency of the company, i.e, it provides a better
measure of the liquidity position of a company in meeting its current liabilities.

3.0PERATING RATIO:-

This ratio is the test of the operational efficiency with which the business is being
carried. The operating ratio should be low enough to leave a portion of sales to give fair
returns to investors.
Operating Ratio = Cost of goods sold+ operating expenses x 100
Net Sales.

4. OPERATING PROFIT RATIO:-

The operating profit ratio is indicative of "management's ability" to operate the business
with sufficient success not only to recover from revenues of the period, the cost of
merchandise or services, the expenses of the operating business and the cost of the
borrowed funds, but also to leave a margin of reasonable compensation to the owners for
providing their capital at risk. A high operating profit ratio ensures adequate returns to the
owners as well as enables a firm to withstand adverse economic conditions when selling
price is declining or cost of production is rising or demand is falling. A low operating profit
ratio has opposite implication.

Operating Profit Ratio = EBIT

Sales.

5. DEBT EQUITY RATIO:-

This ratio is determined to ascertain the soundness of the long term financial position of
the company. Generally, it should be 0.6:1. The investors may take debt equity ratio as
quite satisfactorily if shareholders funds are equal to borrowed funds.

Debt Equity Ratio = Loans Funds

Shareholder's Equity.
6. CASH TO CURRENT ASSETS RATIO:-

As cash on hand is most liquid form of assets the ratio of cash to current assets will indicate
liquidity position of the company much better than the earlier ratios. While high ratio is
indicative of better liquidity. But the opportunity loss sustained by keeping a large amount
of idle cash should be taken into consideration.

Cash to Current assets Ratio = Cash

Current Assets.

7. WORKING CAPITAL TURNOVER RATIO:-

This ratio indicates whether or not working capital has been effectively utilized in making
sales. Very low and very high turnover will call for a closer look, as they may be an
indicator of the symptoms of under trading or over trading.

Working Capital Ratio = Net Sales

Working Capital
Value after the calculation of different ratios over the year :- data from the data analysis

RATIOS 2008-09 2007-08 2006-07 2005-06

CURRENT RATIO 1.411792964 1.711612944 1.963327002 1.939719576

ACID TEST RATIO 1.020808436 1.324586471 1.619167279 1.698282101
OPERATING RATIO 0.123526519 0.154870857 0.160459501 0.158561788
NET PROFIT RATIO 0.111057911 0.126830396 0.137317353 0.140128716
DEBT-EQUITY RATIO 2.717684535 1.778688353 1.15271757 2.133117837
-
CASH TO CURRENT ASSETS RATIO 0.068331053 0.01885484 0.02 0.02
WORKING CAPITAL RATIO 7.282785062 6.616015101 6.306291931 5.708560968
 CHAPTER: 7
DATA ANLYSIS

current assets,loans &

advances 2008-2009 2007-2008 2006-2007 2005-2006
 1.stock in trade
raw material 50351559.3 16657643.76 9759790.514 5662087.492
consumables 5562495.28 6250153.52 3661993.852 2124485.106
finished goods 37091848.31 15189013.32 8899313.147 5162886.394
work in progress 24098604.52 10183295.7 5966440.044 3461396.584
117104507.4 48280106.3 28287537.56 16410855.58

2.sundry debtors
drs outstanding for more than six
months 5843742.99 23739000.13 18375974.17
other debts 278701755.7 104705826.2 71217000.4 55127922.51
278701755.7 110549569.2 94956000.53 73503896.68

3.Cash & bank bal

cash in hand
i.current a/c -29105562.33 1135772.87 910527.9209 743928.1975
ii.deposits a/c 88500 2726271 2185600.599 1785700.226
foreign currency in hand 123361.86 163791 131308.189 107282.6677
-28893700.47 4025834.87 3227436.709 2636911.092
4.Loan & advances
advances 9270160 16583253 12533268.9 10240050.77
deposits 1873900 801976 606116.3548 495214.9593
prepaid 1290499 552782 417780.8448 341339.2865
advance tax 9530709.68 20092622 15185575.13 12407063.29
21965268.68 38030633 28742741.23 23483668.31

5.Interest accrued 12568 170196 128630.5065 105094.9221

6.Other current assects 33958352.65 12460979.72 6029488.924 15705128

total 422848751.95 213517319.07 161371835.46 131845554.58

CURRENT LIABLITIES &

PROVISIONS

CURRENT LIABLITIES
1.Sundry crs
i.trade 201019102 69570133.12 45625043.7 34751950.48
ii.cap goods 5613363.02 7510111.67 4925233.829 3751480.946
iii.Exp 23474990.76 4384472.66 2875397.067 2190149.277
iv.others 62717345.67 13785994.89 9041043.78 6886435.173
292824801.4 95250712.34 62466718.38 47580015.88
2.provisions
Exp 6687069.4 29495551.03 19726332.12 20391435.38
6687069.4 29495551.03 19726332.12 20391435.38

total 299511870.83 124746263.37 82193050.50 67971451.25

WORKING CAP 123336881.12 88771055.70 79178784.96 63874103.33

The table above gives forecasted working capital.

 CURRENT RATIO

2.5
2
RATIO

1.5
1
The above graph shows the projected levels of current ratio for the following years.

ACID TEST RATIO

2
1.5
ratio

1
0.5
0
1 2 3 4
YEAR

The above graph shows the projected levels of acid test ratio for the following years.

OPERATING RATIO

0.2
0.15
ratio

0.1
0.05
0
1 2 3 4
year

The above graph shows the projected levels of operating ratio.

NET PROFIT RATIO

0.15
0.1
o
 The graph shows net profit ratio over the years

DEBT-EQUITY RATIO

3
2
ratio

1
0
1 2 3 4
year

The graph shows debt-equity ratio.

CASH TO CURRENT ASSETS RATIO

0.05

0
ratio

1 2 3 4
-0.05

-0.1
year

The above graph shows the projected levels of cash to current ratio.

WORKING CAPITAL RATIO

8
6
ratio

4
2
0
The above graph shows the trend of working capital ratio over the years.
 CHAPTER:8
FINDINGS
&
RECOMENDATIONS
FINDINGS:
As seen from the data analyzed the current ratio has been decreasing over the years.
For the previous year it was 1.7 & for current year it is projected to be around 1.4.
It has been observed that current ratio has decreased from 1.9 to 1.4.

The acid test ratio of the company has been on the greater side of 1:1. Though it has been
decreasing continuously over the years.

The above findings suggest that operating ratio has been constant over the period over the
period of time considered.

The net profit ratio has been increasingly over the years but only marginally so nothing
much can be interpreted.

The debt-equity ratio has been fluctuating between a range of 2.5 to1.5.

The working capital ratio has gone up over the period of years.

Cash to Current Asset Ratio shows that company has very little cash in hand.
RECOMMENDATIONS:

The current ratio is decreasing gradually which is not a good sign for the company and
could be seen as threat to the liquidity of the firm, as a result of which creditors may shy
away from the organization. It also suggests that current liabilities are increasing
continuingly. The company should try and revive its policy so that its short term solvency
is not under threat.

The firm has to keep in mind that a acid test ratio of 1:1 may not signify sound liquidity
positions all debtors may not be liquid, and generating cash might be a problem so company
should be cautious.

A constant operating ratio is a good sign as it suggests that company has kept a sound check
on all factors regarding operating ratio.this could be be godsign for investors as company
is soon planning to get listed in stock market.

The debt-equity ratio is on the higher side suggesting more debts which is not good.the
company has to try and pay its debt.

The working capital ratio seems to be sufficient and the company does not need to borrow
much loan on short term basis.
 CHAPTER: 9
CONCLUSION & OVERVIEW
Based on the above conclusion I can say that though the working capital of the project
has been increasing the current ratio of the company has been decreasing suggesting an
increase in current liabilities from which we can say company has high credit liability &
working capital is not moving as expected & cash is being held up at the company. The
liquid ratio suggests a good liquid position of the company, which is good from any
investors point of view.
The company has tendency to hold up cash & thus very conservative policy towards
working capital which might be revived by them.
OVERVIEW OF WORKING CAPITAL
 Working Capital is often referred as net current assets.
 Working Capital is Current Assets- Current Liabilities.
 Working Capital is measure of time between purchase of material & payment from
creditors.
 Working Capital is necessary to meet operational needs of business.
 Poor working capital often results in over-capitalization.
 Working Capital means granting credit terms & facilities.
 Business must determine to what extent credit must be granted.
 Effective stock management is also necessary.
 Effective ratios for working capital management are:
 Debtors Collection Period.
 Creditors’ payment period.
 Stock holding days.
 The Debtors collection period is a period how long it takes to get paid by customers.
 Stock holding days are the days when the stock items are held.
 Stock holding period differs from industry to industry.
 Creditor’s payment period measures time taken to pay customers.
 Effective Working Capital management results in shorter Debtors collection period
& longer Creditors collection period.
 The Cash operating cycle is defined as
 Debtor’s collection period+ Stock holding days-Creditors payment
period.
BIBLIOGRAPHY
BIBILOGRAPHY
1. Management Accounting : By Prasnna Chandra
2. Financial Management : By S M Inamdar
3. Financial Management : By Verma
4. Financial Management : By M Y Khan & P K Jain
5. www.religroup.com
ANNEXTURES
QUESTIONNAIRES :-

1.Working capital should be manage by every company ?

a) YES
b) NO

2.When the current ratio is 1 is it working capital possible?

a) YES b) NO

3.Why we are compute working capital?

a) FOR FINANCE
b) FOR ANNUAL REPORT

4. Increasing current assets is good for company or not?

a) YES b) NO

5. What is the purpose of working capital ?

a) growth of business
b) show in account only
 APPENDIX-B

RESPONSE SHEET

Q1 Q2 Q3 Q4 Q5
R1 a a a a a
R2 a a a a a
R3 a b a a a
R4 a b a a a
R5 a a a a a
R6 a a a a a
R7 a a b b a
R8 a a b a a
R9 a b b a a
R10 a a b a a
R11 a a b a a
R12 a a b a a
R13 a b b b a
R14 a a a b a
R15 a a a a a
R16 a b a a b
R17 a b b b a
R18 a a b b a
R19 a a b b a
R20 a b b b a
R21 a a a a b
R22 a b a b a
R23 a b a b a
R24 a a a b a
R25 a a b b a
R26 a a b b b
R27 a a a a b
R28 a a a a b
R29 a a a a a
R30 a a a a a
R31 a a b b a
R32 a a b a a
R33 a a a a b
R34 a b b a b
R35 a a b b b
R36 a a b b a
R37 a b a a a
R38 a a b a a
R39 a a a a a
R40 a a b a a
R41 a b b b a
R42 a a a a a
R43 a a a a a
R44 a a b a a
R45 a b a a a
R46 a b b a a
R47 a a b b b
R48 a b a a a
R49 a b a a b
R50 a b b b a

Where R1-R50 are the respondents and Q1-Q5 are the questions.
 APPENDIX-C

PERCENTAGE ANALYSIS

S. No. YES NO

Q. 1 50 0

Q. 2 33 17

Q. 4 32 18
 “AN ANALYTICAL STUDY ON WORKING CAPITAL”

Of

RELIABLE AUTOTECH PVT. LTD.

A project Synopsis For

Degree Of
Masters Of Business Administration

Session ~ 2010-11

Submitted to

Devi Ahilya Vishwavidyalaya , Indore

Research Supervisor Researcher

Mr. Lalit Kumar Dubey kailash hanwat

-------------------------------------------------------------------

Research Centre

BM College of Technology, Indore

 TABLE OF CONTEN

SR. PARTICULARS
NO

1 INTRODUCTION
o ABOUT THE COMPANY
o PURPOSE OF REPORT
o DEFINITION
o CRRENT LIABILITIES
o CURRENT ASSETS

2 OBJECTIVES & SCOPE

3 RESEARCH METHODOLOGY
o ORIMARY DATA
o PRODUCE EMPLOYED FOR ESTIMATING DATA
o SOURCE DATA

4 ORGANISATION PROFILEE

5 RATIO ANALYSIS
o TO ANALYSIS OF DIFFERENT RATIO

6 COMPARATIVE ANALYSIS

7 FINDINGS & RECOMMENDATIONS

8 CONCLUSION & OVERVIEW

REFERENCES
o BIBLIOGRAPHY

ANNEXTURES
o QUESTIONNAIRES

CHAPTER:1
INTRODUCTION
About the Company:-
Corporate world is moving on the wheels of competition and profit is nerve of success, and
can be achieved only if Today’s any business activity runs with its integrated approach of
all functions.
Reliable Autotech Pvt Ltd is the biggest vendor of Mahindra&Mahindra and mostly
manufacture Automotive skin parts, Automotive Skin Components, Press parts
Assemblies, Chasis Components,Brake Parts & High Tonnge Stampings with the head
quarters at Nashik. All the units around are equipped with the state-of-the-art technology.
Purpose of the report:-
The main objective of this project was to analyze the working capital & its major
components & to study financial position of the firm by calculation of some financial ratios.
The main part of this project was to forecast the working capital for the current year. During
my project with RELIABLE AUTOTECH PVT LTD. I got an opportunity to study and
understand the basics of working capital.
Definition:-
“Working Capital can be simply defined as difference between Current Assets & Current
Liabilities.”

Current Assets: Current Assets are simply those assets which can be converted into cash
within accounting year. Current Liabilities: current liabilities are those which are paid
within those accounting year.
So proper study of the working capital is very essential. Working capital plays a very
important role, because working capital is the money any business has on hand in order to
address everyday expenditures and future expansion that is vital for the growth of their
business.
If a company's current assets do not exceed its current liabilities, then it may run into
trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A
declining working capital ratio over a longer time period is also a red flag that warrants
further analysis.
So to consider this problem working capital needs for current year are always predicted in
advanced.
 CHAPTER:2
OBJECTIVIES & SCOPE
OBJECTIVES
 To find out working capital of the company from the past data available.
 To calculate ratios related to working capital so as to analyze the financial
position of the company.
 To get knowledge of working capital and its related terms.
 To study the constituents of Current Assets & Current Liabilities of the
company.
 CHAPTER:3
RESARCH METHEDOLOGY

RESEARCH METHODOLOGY

Primary Data
Data was collected from concerned company officials which was required with respect to
the project. Some data was purely based on the judgment of the company officials. Other
relevant material in print was made available by the concerned persons.

Procedure Employed for Estimating Data

The basic technique of ratio analysis was used to evaluate the financial analysis of the firm
from the past data. The estimations were done from financial statement provided by the
officials of company. For the estimation of working capital & evaluation of ratios data from
previous balance sheets & profit & loss accounts were used. Sometimes for certain items
basis of percentage was also used.

Source of the data

In view of confidentiality of information, actual data related to working capital of the

organization under study could not be included under the study paper. Hence the data
related to estimation of working capital and projection of ratio had to be modified.
 CHAPTER:4

ORGANISATION PROFILE

COMPANY PROFILE

Reliable is a multifaceted engineering company in the auto-component field with

capabilities to produce sheet metal parts of thickness ranging from thin steels of 0.8 mm to
very thick steels of 10 mm requiring presses ranging from low tonnage (10 tons) to very
high tonnage (800 tons) and other capabilities like spot welding, mig welding, robotic
welding, projection welding, and CNC machining, robotic plasma cutting.

Vision
“To become global player in Auto-Components market by 2010”

Mission
We are committed to our customers in their efforts to increase their market share by
providing competitively priced, high quality products on time.
 CHAPTER: 5

THEORETICAL BACKGROUND

WORKING CAPITAL

Working capital is like a "SALT IN FOOD". It is absolutely vital for any business.
Working capital is especially necessary for those businesses with higher day-to-day
expenditures and outflow of money. So what is Working Capital? Simply we can say
working capital is the money any business has on hand in order to address everyday
expenditures and future expansion that is vital to the growth of their business.

Format of working capital

Particulars Amount Amount
A]CURRENT ASSETS.
1.Raw material. xxxx
2.Work-in-progress. xxxx
3.Finished Goods. xxxx
4.Debtors. xxxx
5.Cash. xxxx
6.0ther current assets. xxxx
Total current assets Xxxx
B]CURRENT LIABILITIES.
1.Trade Creditors. xxxx
2.0utsandings expenses. xxxx
3.Other current liabilities. xxxx
Total current liabilities Xxxx
WORKING CAPITAL (A-B) Xxxx

Also known as "net working capital".

The working capital is calculated as:

Working Capital= Current Assets- Current Liabilities
Positive working capital means that the company is able to pay off its short-term liabilities.
Negative working capital means that a company currently is unable to meet its short-term
liabilities with its current assets (cash, accounts receivable, inventory).

Example
Daniel's Hockey Shop, a hypothetical business with current assets of Rs.50 000 and current
liabilities of Rs.25 000, has working capital of Rs.25 000 (Rs.50 000 minus Rs.25 000).
The business has Rs.2 of current assets for every Rs.l of current liabilities. Daniel's working
capital or current ratio is expressed as 2:1. This business seems to have an adequate
working capital and a safe working capital ratio. This business appears also to be liquid.

CHAPTER: 6
 RATIO ANALYSIS

RATIO ANAYSIS

To know the financial position of the company and to find out how the company is doing,
different Ratios have to be taken into consideration.

Ratio Analysis is a widely used tool for financial analysis. It is defined as the systematic
use of ratio to interpret the financial statement; the strength and weakness of the firm as
well as its historical performance and current financial conditions can be determined.

A ratio explains relationship between two entities. The data for these ratios are taken from
various Balance Sheets, Profit & Loss A/c or various Other Financial Statement of the
company.

1. CURRENT RATIO:-
Current Ratio= Current Assets
Current Liabilities

2. ACID TEST RATIO:-

Acid Test Ratio = Liquid assets
Current Liabilities.

3.0PERATING RATIO:-
Operating Ratio = Cost of goods sold+ operating expenses x 100
Net Sales.

4. OPERATING PROFIT RATIO:-

Operating Profit Ratio = EBIT
 Sales.

5. DEBT EQUITY RATIO:-

Debt Equity Ratio = Loans Funds
Shareholder's Equity.

6. CASH TO CURRENT ASSETS RATIO:-

Cash to Current assets Ratio = Cash
Current assets

7. WORKING CAPITAL TURNOVER RATIO:-

Working Capital Ratio = Net Sales
Working Capital
 CHAPTER: 7
COMPARATIVE ANALYSIS

The analysis is based on the working capital performance of RELIABLE AUTOTECH

PVT. LTD. to know the different position of working capital in different financial year.
In these, I have analyzed different monetary value of current assets and
current liabilities of the last three financial year. I have also compared the Current Ratio,
Acid Test Ratio, Operating Ratio, Net Profit Ratio, Debt Equity Ratio and Cash To
Current Ratio.
 CHAPTER:8
FINDINGS & RECOMMENDATIONS

FINDINGS:
.

RECOMMENDATIONS:

CHAPTER: 9
CONCLUSION & OVERVIEW
 BIBLIOGRAPHY

BIBLIOGRAPHY
6. Management Accounting : By Prasnna Chandra
7. Financial Management : By S M Inamdar
8. Financial Management : By Verma
9. Financial Management : By M Y Khan & P K Jain
10. www.religroup.com
 ANNEXTURES

QUESTIONNAIRES :-

1.Working capital should be manage by every company ?

c) YES
d) NO

2.When the current ratio is 1 is it working capital possible?

a) YES b) NO

3.Why we are compute working capital?

a) FOR FINANCE
b) FOR ANNUAL REPORT

4. Increasing current assets is good for company or not?

a) YES b) NO

5. What is the purpose of working capital ?

a) growth of business
b) show in account only