Summer Internship Project Report On

“WORKING CAPITAL MANAGEMENT”

Submitted in partial fulfillment of the requirements for the

Two Year Full Time Post Graduate Diploma in Management
Session: 2018-2020

Under the Guidance of

INDUSTRY GUIDE: FACULTY

GUIDE:
MR. HARMESH CHAND MR. NIKHIL KAUSHIK
ASSISTANT MANAGER IMS GHAZIABAD
MRS. BECTOR’S FOOD SPECIALTIES LTD.

Submitted By
Sahul Rana
BM-017343

Institute of Management Studies

Ghaziabad
 DECLARATION

This is to certify that the project Working Capital Management is a bonafide work done
by Mr. Sahul Rana, Enrollment No. BM017343 and Batch 2018-20 in partial fulfilment of
the requirement of PGDM program of IMS GHAZIABAD. The project was undertaken at
Mrs. Bector’s Food Specialties Ltd.
The report is formally submitted to Mr. Harmesh Chand, Assistant Manager, Finance
Department, Mrs. Bector’s Food Specialties Limited, Tahliwal, Himachal Pradesh and Mr.
Nikhil Kaushik, faculty guide, IMS Ghaziabad.
The work done has not been submitted earlier at any other University or Institute for the
award of the degree.

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 ACKNOWLEDGEMENT

I would like to express my gratitude to everyone who supported me throughout my

internship. I am thankful for their aspiring guidance, invaluably constructive criticism and
friendly advice during the project. The summer internship opportunity at MRS. BECTOR’S
FOOD SPECIALTIES LTD. was a great chance for learning and professional growth. The
project undertaken during the internship was: WORKING CAPITAL MANAGEMENT.
First of all, I would like to thank Mr. Harmesh Chand, Assistant Manager, Finance
Department, Mrs. Bector’s Food Specialties Limited, Tahliwal, Himachal Pradesh for giving
me an opportunity to work and providing me valuable guidance and support throughout the
course of the internship program.
I would also thank Mr. Jyoti Prakash (Accountant) and the whole finance department for
their constant support and help throughout my term as an intern, who are largely responsible
for all the knowledge that I have assimilated during the last past Six weeks. Their contribution
is highly valuable. They helped me to make my work productive as well as enjoyable.
I am immensely thankful to Mr. Nikhil Kaushik faculty guide for his valuable suggestions,
comments, feedback and support throughout my internship period. He helped me to carry out
my project in a proper manner and whose guidance was extremely valuable for my both
practically and theoretically.
I perceive this opportunity as a big milestone in my career development. I will strive to use
the gained skills and knowledge in the best possible way, and I will continue to work on their
improvement in order to attain desired career objectives.

Sahul Rana
Roll No: BM-017343
Batch 2018-20

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 Preface for the Internship Report

This report is prepared to fulfill the requirement of the PGDM program of Institute Of
Management Studies, Ghaziabad on “Working Capital Management of Mrs. Bector’s
Food Specialties Ltd.”. I have chosen Mrs. Bector’s Food Specialties Ltd because it is one
of the leading companies in the non-glucose biscuits and premium bread segments in North
India. It is known for its innovative offerings, packaging and its commitment to quality.
Keeping up with changing consumer preferences.
The objective of the internship program was to familiarize the student with the
implementation of the knowledge he/she earned on the campus. The practical knowledge is
far different from the bookish knowledge that a student achieves in an institution.
The present report is not free of limitations. There might have problems regarding lack of
limitation in some aspects and also some minor mistakes such as typing mistakes. These few
drawbacks have occurred merely due to lack of secondary sources of information. Though I
have tried my best to keep the report free from errors. I apologize if any error is found which
was not deliberately made. If the report can help any person in providing information, I will
feel that the purpose of the report has been fulfilled.
I am grateful to Mrs. Bector’s Food Specialties Ltd., for providing all the required support
during the internship.
Thank you for showing your interest in this project report.

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 INDEX TABLE
SR NO. CONTENTS
1. Executive Summary
2. Industry Profile
 Bakery Segment in India
 Biscuit Industry in India
 Porter’s Five Forces Analysis

3. Company Profile
 Introduction
 Paradigm Shift and Moving Ahead
 About MBFSL
 Awards and Achievements
 Growth
 Products
4. Research Methodology
 Scope of the Study
 Objectives of the Study
 Research Methodology
 Limitation of the Study
5. Working Capital Management
 Introduction
 Breaking Down WCM
 Concept of Working Capital
 Components of Working Capital
 Classification Of Working Capital
 Importance of Working Capital
 Disadvantage of Excessive Working Capital
 Factors Determining the working capital requirement
 Management of Working Capital
 Schedule of Changes in Working Capital
6. Analysis and Findings
7. Conclusions and Recommendations
8. References

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 EXECUTIVE SUMMARY

TITLE OF THE STUDY:

“The study of working capital management”
As a part of curriculum, every student studying PGDM has to undertake a project on a
particular subject assigned to him/her. Accordingly I have been assigned the project work on
the study of working capital management in Mrs. Bector’s Food Specialties Ltd, Tahliwal.
Decisions relating to working capital (Current Assets-Current Liabilites) and short term
financing are known as working capital management. It 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 the firm is able to continue its
operation and that it has sufficient cash flow to satisfy both maturing short term debt and
upcoming operational expenses.
Working capital is used in Mrs. Bector’s Food Specialties Ltd., for the following purpose:-
Raw material, work in progress, finished goods, inventories, sundry debtors and its day to
day cash requirements. They keep certain funds which is automatically available to finance
the current assets requirement.
The various information regarding “Working Capital Management” such as classification,
determinants, sources have been discussed relating to Mrs. Bector’s Food Specialties Ltd.,
Ratio analysis have been carried out using financial information for the last five accounting
years i.e. from 2014 to 2018. Ratios like Working Capital Turnover Ratio, Quick Ratio,
Current Ratio, Inventory Turnover Ratio, Debtors Turnover Ratio, and Creditors Turnover
Ratio have also been analyzed. A statement of changes in working capital has also been
analyzed.

INDUSTRIAL PROFILE
The Indian biscuit industry gained prominence in the national bakery scene during the later
part of the 20th century. This was the time when the urban population was looking for
readymade food at a convenient cost. Earlier on, biscuits were regarded as part of people who
were ill, but at present is one of the most present fast foods across various age groups. Their
popularity has grown because they can be carried easily and they offer a wide variety of
tastes and are also not that expensive.

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 COMPANY PROFILE
Mrs. Rajni Bector started an enterprise in 1978, unveiling her love for baking by whipping
up remarkable ice creams, breads and biscuits. Cremica began its journey on the foundation
of quality, freshness and taste. The small enterprise in due course of time has become a huge
conglomerate, where the standards of goodness have remained the same.
Cremica is one of the leading companies in the non-glucose biscuits and premium breads
segment in North India, according to Techno Pak Report, with products sold under their well-
recognized brands, ‘Mrs. Bector’s Cremica’ and ‘English Oven’ and setting the standards
through consistent quality, globally certified production facilities and unmatched expertise
with love.

NEED FOR THE STUDY

 The study has been conducted for gaining practical knowledge about Working Capital
Management & activities of Mrs. Bector’s Food Specialties Ltd.,
 The study is undertaken as a part of the PGDM curriculum from 21 June 2019 to 05 July
2019 in the form of summer in plant training for the fulfillment of the requirement of the
PGDM.

OBJECTIVES OF THE STUDY

 To study the sources and uses of the working capital.
 To study the liquidity position through various working capital related ratios.
 To study the working capital components such as receivable accounts, cash management,
inventory management, etc.
 To make suggestions based on the finding of the study.

LIMITATIONS OF THE STUDY

 The study duration (summer in plant training) is short.
 The analysis is limited to just five years of data study (from year xxxx to year xxxx) for
financial analysis.
 Limited interaction with the concerned heads due to their busy schedule.
 The findings of the study are based on the information received by the selected unit.

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 METHODOLOGY
In preparing of this project the information is collected from the following sources.
 Primary data:
The Primary data has been collected from Personal interaction with Finance Manager i.e. Mr.
Mukesh Pareek, and Assistant Manager i.e. Mr. Harmesh Chand and other staff members.
 Secondary data:
The major source of data for this project was collected through annual reports, profit and loss
account of 5 year period from 2014 to 2018 & some more information collected from internet
and text sources.

SAMPLING DESIGN
1. Sampling Unit: Financial Statement.
2. Sampling Size: Last five years financial statements.
3. Tools Used: MS-Excel has been used for calculations.

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 INDUSTRY PROFILE

BAKERY SEGMENT IN INDIA

The Indian bakery market is valued at ₹ 387.00 billion and is expected to grow at a CAGR
of 10.29% over next five years. The per capita consumption of bakery products in India is
lower than the developed countries. There are around 2.00 million unorganized bakeries
operational across the country, comprising small bakery units, cottage and household type
manufacturing, characterized by low levels of packing and distribution mainly in neighboring
areas. The organized sector consists of large, medium and small‐scale manufacturers
producing bread, biscuits and other bakery products.

Biscuits: Biscuit industry is characterized by a few large players, regional brands as well as
small scale industries. In the unbranded sector, over 30,000 small, very small and tiny units
spread all over the country. After the dereserved of biscuit industry from small-scale industry
in 1997-98, it is growing at a rate of over CAGR of 10.00%. Although, per capita annual
consumption of biscuit in India is only 2.50 kg, compared to about 10.00 kg in the USA and
Western European countries and 4.20 kg in South-East Asian countries.

Bread: In the unbranded sector, there are about 75,000 bread manufacturers spread all over
including some of those operating even out of residential premises. Average per capita annual
bread consumption is estimated to be at ₹ 1.80 kg per person in India.

COMPANY BISCUITS BREADS BUNS CAKES OTHER

BAKERY ITEMS
National Players
Parle Y Y
Britannia Y Y Y Y Y
ITC Y Y Y
Regional Players
Surya Y Y
Anmol Y Y
Cremica Y Y Y Y Y
Bon Y Y Y

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BISCUITS INDUSTRY IN INDIA
India Biscuits Industry is the largest among all the food industries and has a turnover of
around Rs.3000 crores. India is known to be the second largest manufacturer of biscuits, the
first being USA. It is classified under two sectors: organized and unorganized. Bread and
biscuits are the major part of the bakery industry and covers around 80 percent of the total
bakery products in India. Biscuits stands at a higher value and production level than bread.
This belongs to the unorganized sector of the bakery Industry and covers over 70% of the
total production.
India Biscuits Industry came into limelight
and started gaining a sound status in the
bakery industry in the later part of 20th
century when the urbanized society called
for ready-made food products at a tenable
cost. Biscuits were assumed as sick-man's
diet in earlier days. Now, it has become
one of the most loved fast food product for
every age group. Biscuits are easy to carry,
tasty to eat, cholesterol free and reasonable at cost. States that have the larger intake of
biscuits are Maharashtra, West Bengal, Andhra Pradesh, Karnataka, and Uttar Pradesh.
Maharashtra and West Bengal, the most industrially developed states, hold the maximum
amount of consumption of biscuits. Even, the rural sector consumes around 55 percent of the
biscuits in the bakery products.
The total production of bakery products have risen from 5.19 lakh tons in 1975 to 18.95 lakh
tons in 1990. Biscuits contributes to over 33 percent of the total production of bakery and
above 79 percent of the biscuits are manufactured by the small scale sector of bakery industry
comprising both factory and non-factory units.
The production capacity of wafer biscuits is 60 MT and the cost is Rs.56,78,400 with a
motive power of 25 K.W. Indian biscuit industry has occupied around 55-60 percent of the
entire bakery production. Few years back, large scale bakery manufacturers like Cadbury,
nestle, and brooke bond tried to trade in the biscuit industry but couldn't hit the market
because of the local companies that produced only biscuits.

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 The Federation of Biscuit Manufacturers of India (FBMI) has confirmed a bright future of
India Biscuits Industry. According to FBMI, a steady growth of 15 percent per annum in the
next 10 years will be achieved by the biscuit industry of India. Besides, the export of biscuits
will also surpass the target and hit the global market successfully.

PORTER’S FIVE FORCES ANALYSIS

Bargaining
Power of
Suppliers

Competitiv
e Rivalry Bargaining
Within Power of
Industry Porter's Customers
Five
Force
Model

Threat of
Threat of
New
Substitute
Entrants

 Competitive Rivalry Within The Industry:

 Major players dominate the Indian Market.
 High competition among the players in the industry to capture maximum market share.
 Unorganized sector cannot compete with major players in the case of Advertising.

 Bargaining Power of Suppliers:

 In the case of major players bargaining power of suppliers is very low as they dictate the
prices.
 The ingredients are basic commodities such as wheat, sugar, etc.

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 Bargaining Power of Buyers:
High because of
 Availability of many biscuits from low, moderate prices.
 Availability of biscuits from non-organized sector.
 Loyalty of the buyers to biscuits that have brand identity makes them more powerful in the
case of new entries.

 Entry Barriers:
Low entry barriers because of,
 Capital intensive manufacturing, advertising and distribution.
 Heavy competition from major players.

 Threat of Substitutes:
It is high because,
 Substitute threat is more in the case of biscuits.
 Growing packaged industry and bread industry.
 Traditional Indian homemade snacks.

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 COMPANY PROFILE

Introduction
The CREMICA group was established in 1978 by Mrs. Rajni Bector turning her passion for
Ice Cream making (also her hobby) into a small backyard enterprise. She established the
CREMICA group today a widely diversified food products and services company with an
annual sales figure of Rs. 400 Crores, growing at the rate of 30 per cent per annum. In the
course of the past two decades, the CREMICA group has established itself as a huge food
products conglomerate, leading the food processing business through its range of products,
its internationally certified production facilities, the consistency of its quality, and its
unmatched expertise in the industry. Mrs. Bectors Food Specialties Ltd., is a part of Cremica
Group. Cremica, a name that always spelt quality, practical and great tasting food, is fast
becoming a household name in India. Its vast array of products has been carefully selected
to provide the best food processing industry has to offer. Today, Cremica is known for its
unique recipes, health oriented ingredients and state- of- the art standards, unleafing her own
story, Mrs. Bector said, I started the business as a hobby and sold kitchen-made ice creams
at a very small scale. My hobby converted in a profession when I saw the liking of my ice
creams at a stall I had put for a Diwali Melas in the late 1970s. Although I had no formal
training, the recipes were a runaway success. In 1982, with a small investment of 300/-, a
small unit was set up at home. We produced only ice creams and puddings in the first year.
Later the company ventured into the biscuits, breads and condiment business.
Today, Cremica group does sales of over Rs.400 crore (Rs.4 billion) and is an important link
in the supply chain to the fast food industry with an inventory of buns, breads, sauces,
ketchups and ice creams toppings. Cremica is an approved supplier of bakery and liquid
products to Worlds largest fast food giants Mc Donalds. Its products are also on the approved
list of Canteen Stores Department, which caters to the requirements of Indian Armed Forces.
It is also a major supplier to Indian Railways, Super Bazaars, Big Bazaar, Vishal Mega Mart,
Reliance, Pizza Hut, Cafe Coffee Day, Barista, Papa Johns, United Nations (World Food
Programme), Jet Airways to name just a few.
Cremica manufactures high quality Biscuits, Bread and Buns, Confectioneries, Indian
Gravies /Curries, Tomato Ketchup, Sauces, Mayonnaise, Thousand Island, Spreads, Syrups,

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Toppings, Salad Dressings, Biscuits, Bread & Buns, Ice-Cream, Confectionery and Indian
Snacks, Fruit & Flavored syrups for Milk and thick shakes, Ice Creams and Desserts etc.

PARADIGM SHIFT AND MOVING AHEAD: Demerger (2013)

In 2013 the business was divided equally among Mrs. Bector's Food’s founder Rajni Bector’s
three sons – Ajay, Anoop and Akshay Bector. An agreement was settled in which biscuits
and bakery business was demerged from the condiments business. It was agreed that Mr.
Ajay and Mr. Anoop would manage the biscuits and Bakery divisions ( divisions contributed
65% of total revenue of the business) while condiments will be managed by Mr. Akshay . As
a part of the entire settlement process, the PE Firm Motilal Oswal which currently has 20%
stake in the company will only have a stake in the biscuit business.

ABOUT MBFSL
MBFSL was established in 1995 as a joint venture (JV) with Quaker Oats for supplying
condiments such ketchup and sauces to McDonalds and gradually added buns, batter, and
bread. The JV partner withdrew from MBFSL in 1999 and during 2007, the biscuits and
bakery business was transferred to MBFSL through slump sale. During 2013-14, the
company pursuant to a business reorganisation scheme, demerged its food supplements
(sauces, spreads, and namkeen) division to a separate company named, Cremica Food
Industries Limited. † For complete rating scale and definitions, please refer to ICRA’s
Website, www.icra.in, or any of the ICRA Rating Publications.
As a result, MBFSL currently manufactures biscuits and bakery products which are marketed
under Mrs. Bectors Cremica and Mrs. Bector’s English Oven brand respectively. MBFSL
has five manufacturing locations namely Phillaur, Tahliwal, Noida, Mumbai (housed under
its wholly owned subsidiary, Bakebest Foods Private Limited), and Bangalore. The company
operates in consumer segment through its network of distributors and retailers besides
supplying to export markets and catering to institutional customers.
During FY2016, private equity investors – CX Partners and Gateway Partners acquired
46.75% stake in MBFSL from Mr. Ajay Bector and the earlier private equity investor Motilal
Oswal (which held 23.37% stake). Further, there was a family restructuring where in Mr.
Anoop Bector and his family became the major shareholders, holding 53.25% stake with the
exit of Mr. Dharamveer Bector and Mr. Ajay Bector.

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 VISION
A strong and successful, Biscuit and Confectionery Manufacturing Company, respected by
stakeholders with products enjoyed by consumers as part of a balanced diet Cremica Group
will follow this objective by encouraging:
1. The safety, quality and taste of their products and maintaining the culture and tradition of
their origins;
2. The development of a business environment in which companies can meet the needs of their
customers;
3. That products comply with the regulatory framework at national and European level;
4. That raw materials are sourced and products manufactured in a responsible manner from an
economical, environmental and social point of view.

MISSION
1. Promote the Cremica food categories to stakeholders through building confidence and trust
via responsible and transparent practices throughout the supply chain, meeting consumers
needs for safe, high quality, tasty and nutritious products;
2. Influence public policy, at European and Global levels via proactive and effective networking
and communication with external stakeholders. Use aligned internal policy frameworks to
influence current issues and to develop positions on future issues;
3. Enhance value to members by addressing their needs via a transparent, timely and efficient
decision making process on all non-competitive issues relevant to member’s activities. Make
best use of members’ expertise and commitment in order to optimise efficiency and aligned
positions through collective engagement.

AWARDS & ACHIEVEMENTS

 AWARDS RECEIVED BY THE ORGANISATION

 2010
Apeda Export Award for Outstanding Performance and Contribution in the Processed Foods
Sector.

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 2016
Food Safety System Certification 22000 from UK AS Management Systems for
manufacturing (pre-mixing, mixing, moulding, baking, cooling, sandwiching) of biscuits and
cookies for a period of three years from March 10, 2016.
 2018
Award of Honour by Income Tax Department, Ludhiana

 AWARDS RECEIVED BY DIRECTORS

 2009
 ‘Award for Excellence’ from FICCI Ladies Organisation.
 2010
 ‘Outstanding Women Entrepreneur’ by Small Industries Development Bank of India.
 ‘Hall of Fame 2010, The Premier League’ by the Human Factor.
 2014
 ‘Woman of Excellence’ from FICCI Ladies Organisation, Ludhiana.
 2015
 ‘Business Knight of Punjab’ by the Economic Times in 2015.
 2017
 ‘Lifetime Achievement Award’ by Global Achievers Forum.
 ‘Pride of Punjab’ by Global Achievers Forum.
 Felicitated with an award by State Bank of India for outstanding achievement as an
entrepreneur and serving as a role model for the women fraternity.

THE GROWTH
 Strong market presence through 'Mrs. Bectors Cremica' and 'English Oven' brands in
North and Northwest India and improving revenue diversity
MBFSL gets 90% of its biscuit revenue (Mrs. Bectors Cremica brand) from North and
Northwest India, and is among the top three biscuits in most of the states-Punjab, Haryana,
Himachal Pradesh, Jammu & Kashmir, Uttar Pradesh, Uttarakhand, and Delhi National
Capital Region (NCR) in that region. A network of 570 distributors and 135 super stockists
and 1271 Cremica preferred outlets ensure brand presence in over 450,000 retail outlets.

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 Furthermore, MBFSL has been increasing its premium product portfolio and leveraging its
presence, with focus on high-margin biscuits such as cookies, creams and crackers, and
reduced dependence on low-margin glucose biscuits. With enhanced capacity and increasing
distribution reach, growth of segment to increase to 15% from 3% in last 3 years.
Strong growth in bakery segment under the brand 'English Oven' led to increase in revenue
contribution to 25% in fiscal 2018 from 21% in fiscal 2016. The brand is amongst the leading
premium bakery brands in India. With addition of new lines and new products (premium
breads, croissants, buns) the growth of over 18-20% is likely to continue over the medium
term.
 Established relations with large institutional players
The company remains a preferred supplier of buns to Mc Donalds (Hardcastle Restaurants
Pvt Ltd in West and South and Connaught Plaza restaurants Pvt Ltd) in North and East) ,
Burger king, KFC (Devyani International Pvt Ltd )and is also targeting new QSR chains
supported by continued focus on quality and standards. Longstanding relations with large
institutional customers such as McDonald's (over 15 years), as the sole supplier of buns, has
resulted in a steady source of revenue over the past few years. MBFSL also supplies to
Domino's Pizza, Wendy's, KFC, and Burger King. It also sells bakery products in modern
retail chains such as Easy Day, Big Bazaar, and Reliance Retail, among others.
In biscuit segment as well, the company has also shown over 20% growth in exports segment
(branded and private label) driven by its strong focus on quality and healthy share of 23% of
Indian biscuit exports market.

Established customer relations should provide stability to operating income and profitability,
given the revenue visibility and cost plus profitability built into long-term contracts.

PRODUCTS
Straddling all segments in the biscuit industry, Cremica offers high quality products in
exciting and innovative formats, reinforcing our commitment to delivering a world class
product experience to the discerning consumers.

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 Health
 Digestive
 Oatmeal Cookies
 Digestive Cornflakes
 Marie Classic
 Creams
 Bourbon
 Twin Cream
 Magicream
 Crackers
 Ajwain Cracker
 Kalonji Cracker
 Jeera Lite
 Krack Bite
 Party Cracker
 Cookies
 Golden Bytes - Butter
 Golden Bytes – Mixed Nuts
 Coconut Cookies
 Cashew Cookies
 Coconut Crunches
 Butter Cookies
 Butter Gold

 Glucose
 English Oven Thy Bread

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 RESEARCH METHODOLOGY

SCOPE OF THE STUDY

The scope of the study is identified after and during the study is conducted. The main scope
of the study was to put into practical the theoretical aspect of the study into real life work
experience. The study of working capital is based on tools like Ratio Analysis, Statement of
changes in Working Capital. Further the study is based on last five year Annual Reports of
Mrs. Bector’s Food Specialties Ltd.

OBJECTIVES OF THE STUDY

 To study the sources and uses of the working capital.
 To study the liquidity position through various working capital related ratios.
 To study the working capital components such as receivable accounts, cash
management, inventory management.
 To make suggestion based on the finding of the study.

RESEARCH METHODOLOGY
This project “A Study on Working Capital Management of Mrs. Bector’s Food
Specialties Ltd.” is considered as an analytical research.
Analytical research is defined as the research in which, researcher has to use facts or
information already available, and analyze these to make a critical evaluation of the facts,
figures, datd or material.

Sources of Research Data

There are mainly two through which the data required for the research is calculated.
1. Primary Data: In this study the primary data has been collected from personal
interaction with the Assistant Manager i.e. Mr. Harmesh Chand and other staff
members.
2. Secondary Data: The major source of data for this study was collected through the
annual reports, profit and loss account of 5 years period from 2014-2018 and some
more information collected from internet and text sources.

18
Sampling Design
Sampling Unit: Financial Statement.
Sampling Size: Last Five Year financial Statement.

Tools Used for Analysis of Data

The data were analyzed using the following financial tools. They are:
 Ratio Analysis
 Statement of Changes in Working Capital
 Ms-Excel

Limitation of the Study

 The study duration (Summer in Plant Training) is short.
 The analysis is limited to just five years of data study (from year 2014 to year 2018)
for financial analysis.
 Limited interaction with the concerned heads due to their busy schedule.
 The findings of the study are based on the information received by the selected unit.

19
 WORKING CAPITAL MANAGEMENGT

INTRODUCTION
The project deals with the study of Working Capital Management. Working capital
management refers to a company's managerial accounting strategy designed to monitor and
utilize the two components of working capital, current assets and current liabilities, to ensure
the most financially efficient operation of the company. The primary purpose of working
capital management is to make sure the company always maintains sufficient cash flow to
meet its short-term operating costs and short-term debt obligations.

BREAKING DOWN Working Capital Management (WCM)

Working capital management commonly involves monitoring cash flow, assets, and
liabilities through the ratio analysis of key elements of operating expenses, including the
working capital ratio, collection ratio, and the inventory turnover ratio. Efficient working
capital management helps maintain the smooth operation of the operating cycle (the
minimum amount of time required to convert net current assets and liabilities into cash) and
can also help to improve the company's earnings and profitability. Management of working
capital includes inventory management and management of accounts receivables and
accounts payables. The main objectives of working capital management include maintaining
the working capital operating cycle and ensuring its ordered operation, minimizing the cost
of capital spent on the working capital, and maximizing the return on current asset
investments.

Elements of Working Capital Management

The working capital ratio, calculated as current assets divided by current liabilities, is
considered a key indicator of a company's fundamental financial health since it indicates the
company's ability to successfully meet all of its short-term financial obligations. Although
numbers vary by industry, a working capital ratio below 1.0 is generally indicative of a
company having trouble meeting its short-term obligations. Working capital ratios of 1.2 to
2.0 are considered desirable, but a ratio higher than 2.0 may indicate a company is not
effectively using its assets to increase revenues.

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 The collection ratio, also known as the average collection period ratio, is a principal measure
of how efficiently a company manages its accounts receivables. The collection ratio is
calculated as the product of the number of days in an accounting period multiplied by the
average amount of outstanding accounts receivables divided by the total amount of net credit
sales during the accounting period. The collection ratio calculation provides the average
number of days it takes a company to receive payment. The lower a company's collection
ratio, the more efficient its cash flow.
The final element of working capital management is inventory management. To operate with
maximum efficiency and maintain a comfortably high level of working capital, a company
must carefully balance sufficient inventory on hand to meet customers' needs while avoiding
unnecessary inventory that ties up working capital for a long period before it is converted
into cash. Companies typically measure how efficiently that balance is maintained by
monitoring the inventory turnover ratio. The inventory turnover ratio, calculated as revenues
divided by inventory cost, reveals how rapidly a company's inventory is being sold and
replenished. A relatively low ratio compared to industry peers indicates inventory levels are
excessively high, while a relatively high ratio indicates the efficiency of inventory ordering
can be improved.

Concept of Working Capital: Gross and Net Working Capital

There are two concepts or senses used for working capital.
These are:
1. Gross Working Capital
2. Net working Capital
Let us explain what these two concepts mean.

1. Gross Working Capital:

The concept of gross working capital refers to the total value of current assets. In other words,
gross working capital is the total amount available for financing of current assets. However,
it does not reveal the true financial position of an enterprise. How? A borrowing will increase
current assets and, thus, will increase gross working capital but, at the same time, it will
increase current liabilities also.

21
As a result, the net working capital will remain the same. This concept is usually supported
by the business community as it raises their assets (current) and is in their advantage to
borrow the funds from external sources such as banks and the financial institutions.
In this sense, the working capital is a financial concept. As per this concept:
Gross Working Capital = Total Current Assets

2. Net Working Capital:

The net working capital is an accounting concept which represents the excess of current
assets over current liabilities. Current assets consist of items such as cash, bank balance,
stock, debtors, bills receivables, etc. and current liabilities include items such as bills
payables, creditors, etc. Excess of current assets over current liabilities, thus, indicates the
liquid position of an enterprise.
The ratio of 2:1 between current assets and current liabilities is considered as optimum or
sound. What this ratio implies is that the firm/ enterprise have sufficient liquidity to meet
operating expenses and current liabilities. It is important to mention that net working capital
will not increase with every increase in gross working capital. Importantly, net working
capital will increase only when there is increase in current assets without corresponding
increase in current liabilities.
Thus, in the form of a simple formula:
Net Working Capital = Current Assets-Current Liabilities
After subtracting current liabilities from current assets what is left over is net working capital.

Components of Working Capital Management

They are several main components of working capital management. For example: cash,
inventory, accounts receivable, trade credits, marketable securities, loans, Insurances etc. Let
us understand some of them below:

1. Cash / Money:
Cash is the most liquid form of funds, hence it is one of the huge important components of
working capital. It is necessary for every business to maintain optimum level of cash in hand
regardless if other existing assets is substantial. Cash act as an effective instrument at various

22
stages of product life cycle. Cash in hand plays an important role to balance any gaps arising
between productions to distribution cycle.
2. Account Receivable:
Accounts receivable tend to be profits due which is owed to a business by their clients for
the sale of goods. Efficient, timely collection of account receivable is most essential to
maintain financial health of the company’s operation. For example: marketable securities
consist of commercial papers offered by companies, acceptance letter, treasury bill, etc.
These instruments can be bought and sold at quicker and reasonable rate. They usually have
less than one year as their maturity period. This attract company’s to investment additional
cash reserves and also can be used as highly liquid assets.
Accounts receivable have always been under assets side of a company’s balance sheet, but
they are not actually assets until these are typically collected. A commonly used method by
analysts to evaluate the organization’s accounts receivable cycle is that, day’s sales
outstanding, that reveals that the typical average days an organization sales cycle to collect
profits from sale of goods.
3. Account Payable:
Account payable, the money an organization need to pay out throughout the short term, is
also an another key components of working capital management. Normally company’s
effectively maintain balance between maximum cash flow simply by delaying payments as
long as it is fairly potential. In addition, they need to keep positive credit ranks / scores while
dealing with creditors as well as suppliers. Commonly, a business’s average time for account
receivables are significantly shorter than the average time for account payable’s.
4. Stock / Inventory:
Stock is one of the main components of working capital. An organization’s main asset that it
transforms in to sales profits and earnings. The speed at which business sells and restock is
significant to determine its success. Stock are of various types, which includes stock as raw
material, stock as work in progress or stock in finished goods. Investors give consideration
to their stock turnover level become a sign of this strength to sales and as a measure towards
how efficient the business looks in their buying as well as production process. Stock that is
minimal, puts the company into danger zone of getting rid of off product sales. Again
excessively high stock levels express inefficient utilization of working capital.

23
 CLASSIFICATION OF WORKING CAPITAL
Working capital may be classified in two ways:
1) On the basis of concept
2) On the basis of time
.
 On the basis of concept working capital can be classified as:
a) Gross working capital, and
b) Net working capital.
 On the basis of time, working capital may be classified as:
a) Permanent or fixed working capital.
b) Temporary or variable working capital

PERMANENT OR FIXED WORKING CAPITAL

Permanent or fixed working capital is minimum amount which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets. Every firm
has to maintain a minimum level of raw material, work- in-process, finished goods and cash
balance. This minimum level of current assts is called permanent or fixed working capital as
this part of working is permanently blocked in current assets. As the business grow the
requirements of working capital also increases due to increase in current assets.

TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary or variable working capital is the amount of working capital which is required to
meet the seasonal demands and some special exigencies. Variable working capital can further
be classified as seasonal working capital and special working capital. The capital required to
meet the seasonal need of the enterprise is called seasonal working capital. Special working
capital is that part of working capital which is required to meet special exigencies such as
launching of extensive marketing for conducting research, etc.
Temporary working capital differs from permanent working capital in the sense that is
required for short periods and cannot be permanently employed gainfully in the business.

24
 IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING
CAPITAL
 Solvency of the business: Adequate working capital helps in maintaining the solvency of
the business by providing uninterrupted of production.
 Goodwill: Sufficient amount of working capital enables a firm to make prompt payments
and makes and maintain the goodwill.
 Easy loans: Adequate working capital leads to high solvency and credit standing can
arrange loans from banks and other on easy and favorable terms.
 Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on
the purchases and hence reduces cost.
 Regular Supply of Raw Material: Sufficient working capital ensures regular supply of raw
material and continuous production.
 Regular Payment of Salaries, Wages And Other Day TO Day Commitments: It leads to
the satisfaction of the employees and raises the morale of its employees, increases their
efficiency, reduces wastage and costs and enhances production and profits.
 Exploitation Of Favorable Market Conditions: If a firm is having adequate working
capital then it can exploit the favorable market conditions such as purchasing its requirements
in bulk when the prices are lower and holdings its inventories for higher prices.
 Ability To Face Crises: A concern can face the situation during the depression.
 Quick And Regular Return On Investments: Sufficient working capital enables a concern
to pay quick and regular of dividends to its investors and gains confidence of the investors
and can raise more funds in future.
 High Morale: Adequate working capital brings an environment of securities, confidence,
high morale which results in overall efficiency in a business.

EXCESS OR INADEQUATE WORKING CAPITAL

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

25
 DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING
CAPITAL
 Excessive working capital means ideal funds which earn no profit for the firm and business
cannot earn the required rate of return on its investments.
 Redundant working capital leads to unnecessary purchasing and accumulation of inventories.
 Excessive working capital implies excessive debtors and defective credit policy which causes
higher incidence of bad debts.
 It may reduce the overall efficiency of the business.
 If a firm is having excessive working capital then the relations with banks and other financial
institution may not be maintained.
 Due to lower rate of return n investments, the values of shares may also fall.
 The redundant working capital gives rise to speculative transactions

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

Every business needs some amounts of working capital. The need for working capital arises
due to the time gap between production and realization of cash from sales. There is an
operating cycle involved in sales and realization of cash. There are time gaps in purchase of
raw material and production; production and sales; and realization of cash.
Thus working capital is needed for the following purposes:
 For the purpose of raw material, components and spares.
 To pay wages and salaries
 To incur day-to-day expenses and overload costs such as office expenses.
 To meet the selling costs as packing, advertising, etc.
 To provide credit facilities to the customer.
 To maintain the inventories of the raw material, work-in-progress, stores and spares and
finished stock.
For studying the need of working capital in a business, one has to study the business under
varying circumstances such as a new concern requires a lot of funds to meet its initial
requirements such as promotion and formation etc. These expenses are called preliminary
expenses and are capitalized. The amount needed for working capital depends upon the size
of the company and ambitions of its promoters. Greater the size of the business unit, generally
larger will be the requirements of the working capital.

26
 The requirement of the working capital goes on increasing with the growth and expensing of
the business till it gains maturity. At maturity the amount of working capital required is called
normal working capital.There are others factors also influence the need of working capital in
a business.

FACTORS DETERMINING THE WORKING CAPITAL

REQUIREMENTS
 NATURE OF BUSINESS: The requirements of working is very limited in public utility
undertakings such as electricity, water supply and railways because they offer cash sale only
and supply services not products, and no funds are tied up in inventories and receivables. On
the other hand the trading and financial firms requires less investment in fixed assets but have
to invest large amt. of working capital along with fixed investments.
 SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement of
working capital.
 PRODUCTION POLICY: If the policy is to keep production steady by accumulating
inventories it will require higher working capital.
 LENGTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw material
and other supplies have to be carried for a longer in the process with progressive increment
of labor and service costs before the final product is obtained. So working capital is directly
proportional to the length of the manufacturing process.
 SEASONALS VARIATIONS: Generally, during the busy season, a firm requires larger
working capital than in slack season.
 WORKING CAPITAL CYCLE: The speed with which the working cycle completes one
cycle determines the requirements of working capital. Longer the cycle larger is the
requirement of working capital.

27
 raw- work-in -
material progress

finished
Cash
goods

Accounts
sales
receivables

 RATE OF STOCK TURNOVER: There is an inverse co-relationship between the question

of working capital and the velocity or speed with which the sales are affected. A firm having
a high rate of stock turnover wuill needs lower amt. of working capital as compared to a firm
having a low rate of turnover.
 CREDIT POLICY: A concern that purchases its requirements on credit and sales its product
/ services on cash requires lesser amt. of working capital and vice-versa.
 BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need for
larger amt. of working capital due to rise in sales, rise in prices, optimistic expansion of
business, etc. On the contrary in time of depression, the business contracts, sales decline,
difficulties are faced in collection from debtor and the firm may have a large amt. of working
capital.
 RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require large
amt. of working capital.
 EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning
capacity than other due to quality of their products, monopoly conditions, etc. Such firms
may generate cash profits from operations and contribute to their working capital. The
dividend policy also affects the requirement of working capital. A firm maintaining a steady
high rate of cash dividend irrespective of its profits needs working capital than the firm that
retains larger part of its profits and does not pay so high rate of cash dividend.

28
 PRICE LEVEL CHANGES: Changes in the price level also affect the working capital
requirements. Generally rise in prices leads to increase in working capital.
OTHER FACTORS: These are:
 Operating efficiency.
 Management ability.
 Irregularities of supply.
 Import policy.
 Asset structure.
 Importance of labor.
 Banking facilities, etc.

MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in attempting to
manage the current assets, current liabilities. The basic goal of working capital management
is to manage the current assets and current liabilities of a firm in such a way that a satisfactory
level of working capital is maintained, i.e. it is neither adequate nor excessive as both the
situations are bad for any firm. There should be no shortage of funds and also no working
capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES of a firm has
a great on its probability, liquidity and structural health of the organization. So working
capital management is three dimensional in nature as
 It concerned with the formulation of policies with regard to profitability, liquidity and risk.
 It is concerned with the decision about the composition and level of current assets.
 It is concerned with the decision about the composition and level of current liabilities.

Schedule of Changes in Working Capital:

Many business enterprises prefer to prepare another statement, known as schedule of
changes in working capital, while preparing a funds flow statement, on a working capital
basis. This schedule of changes in working capital provides information concerning the
changes in each individual current assets and current liabilities accounts (items).
This schedule is a part of the funds flow statement and increase (decrease) in working
capital indicated by the schedule of changes in working capital will be equal to the amount
of changes in working capital as funds flow statement. The schedule of changes in working

29
capital can be prepared by comparing the current assets and current liabilities at two
periods.
The format of schedule of changes in working capital is as follows:

30
 ANALYSIS AND FINDINGS

1) Net Working Capital

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 MBFSL.

NET WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES

Year Current assets Current Liabilities NWC

2013-2014 816.53 729.43 87.10
2014-2015 919.47 676.12 243.35
2015-2016 1142.51 820.93 321.58
2016-2017 1229.59 885.18 344.41
2017-2018 1362.33 1187.29 175.04

NWC
400
344.41
350 321.58
300
RS. IN MILLIONS

243.35
250
200 175.04
150
87.1
100
50
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

NWC

31
INTERPRETATION
The above chart shows that during the year 2013-2014 the company has 87.10 million rupees
of NWC which has been increasing till the year 2016-2017 i.e. 344.41 million rupees. But in
the year 2017-2018 there is an decrease in the NWC of 169.37 million rupees and is at 175.04
million rupees. The reason for decrease in the NWC in the year is that there is an increase in
trade payables, provisions and other financial liabilities due to which the current liabilities
has been increased and thus results in the decrease in the NWC of Mrs. Bector’s Food
Specialties Ltd in the year 2017-2018. But company had a sufficient NWC which mean it
has sufficient funds to meet its current financial obligations and invest in other activities.

2) Ratio Analysis
Ratio Analysis is a powerful tool of financial analysis. Alexender Hall first presented it
in 1991 in Federal Reserve Bulletin. Ratio Analysis is a process of comparison of one
figure against other, which makes a ratio and appraisal of the ratios to make proper
analysis about the strengths and weakness of the firm’s operations. The term ratio refers
to the numerical and quantitative relationship between two accounting figures.
Note: I have used ratio analysis in this project to substantiate the managing of working
capital. For this, I used some of the ratios to get the desired output.

Various Working Capital Ratios used by me are as follows:

a) Liquidity Ratios:
Liquidity refers to the ability of a firm to meet its current obligations as and when
these become due. The short term obligations are met by realizing amounts from
current, floating and circulating assets.
Following are the ratios which can help to assess the ability of a firm to meet its
current liabilities.

i) Current Ratio
ii) Acid Test Ratio / Quick Ratio / Liquid Ratio
iii) Absolute Liquid Ratio

b) Turnover / Activity Ratios:

32
These are the ratios which indicate the speed with which assets are converted or
turned over into sales.
i) Inventory Turnover Ratio
ii) Debtors/ Account Receivable Turnover Ratio
iii) Creditors/ Account Payable Turnover Ratio
iv) Working Capital Turnover Ratio

33
 1. Current Ratio:-
It is a ratio, which express the relationship between the total current assets and total current
libilities. It measures the firm’s ability to meet its current liability. It indicates the availability
of current assets in rupees for every one rupee of current liabilities. A ratio of greater then
one means that the firm has more current assets then current liabilities claims against them.
A standard ratio between them is 2:1.

Current Ratio= Current Assets / Current Liabilities

Year Current Assets Current Liabilities Current Ratio

2013-2014 816.53 729.43 1.12
2014-2015 919.47 676.12 1.36
2015-2016 1142.51 820.93 1.39
2016-2017 1229.59 885.18 1.39
2017-2018 1362.33 1187.29 1.15

Current Ratio
1.60
1.36 1.39 1.39
1.40
1.12 1.15
1.20
CURRENT RATIO

1.00
0.80
0.60
0.40
0.20
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

Interpretation
The above graph shows that the current ratio is increasing from the year 2013-2014 to
2016-2017 i.e. from 1.12 to 1.39, but in the year 2017-2018 it decreased to 1.15 which
means the company is not meeting the standard ratio of 2 but it still have enough current
assets to cover its short term liabilities. Thus to increase its current ratio company needs to
sell some of its unused long term assets for cash, or reduce its overhead expenses, etc.

34
 2. Acid Test Ratio/ Quick Ratio/ Liquid Ratio:-

The acid-test ratio is a measure of how well a company can meet its short-term financial
liabilities. The acid-test ratio is a more conservative version of another well-
known liquidity metric -- the current ratio. Although the two are similar, the Acid-
Test ratio provides a more rigorous assessment of a company's ability to pay its current
liabilities. It does this by eliminating all but the most liquid of current assets from
consideration. Inventory is the most notable exclusion, because it is not as rapidly convertible
to cash and is often sold on credit. The standard quick ratio is 1:1.

Quick Ratio = Quick Assets/Current Liabilities

(Quick Assets = Current Assets – Inventory)

Year Current Assets Inventories Quick Assets Current Liabilities Quick Ratio
2013-2014 816.53 253.13 563.40 729.43 0.77
2014-2015 919.47 263.70 655.77 676.12 0.97
2015-2016 1142.51 313.92 828.59 820.93 1.01
2016-2017 1229.59 262.74 966.85 885.18 1.09
2017-2018 1362.33 344.20 1018.13 1187.29 0.86

Quick Ratio
1.20 1.09
0.97 1.01
1.00
0.86
0.77
0.80
QUICK RATIO

0.60

0.40

0.20

0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
DATE

35
Interpretation
The above graph shows that the quick ratio of MBFSL lower than its idle ratio in the years
2014 and 2015, and after that increased in the year 2016 and 2017 to 1.09, but again decreased
to 0.86 in the year 2018, which means the company may relies too much on inventory or
other assets to pay its short term liabilities.

36
 3. Absolute Liquid Ratio:-

Absolute Liquid Ratio may be defined as the relationship between Absolute liquid assets and
Current libilities. It include Cash in hand and cash at bank. The standard ratio is 0.5:1.

Absolute Liquid Ratio = Cash and Bank Balance / Current Liabilities

Absolute Liquid
Year Cash and Bank Balance Current Liabilities
Ratio
2013-2014 59.9 729.43 0.08
2014-2015 93.43 676.12 0.14
2015-2016 110.24 820.93 0.13
2016-2017 186.65 885.18 0.21
2017-2018 99.87 1187.29 0.08

Absolute Liquid Ratio

0.25
0.21
ABSOLUTE LIQUID RATIO

0.20

0.15 0.14 0.13

0.10 0.08 0.08

0.05

0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
DATE

Interpretation
The above chart shows that the Absolute Liquid Ratio of MBFSL is lower than the idle ratio
of 0.5:1 during the years which means that the company’s day to day cash management is in
a poor light.

37
 4. Inventory Turnover Ratio:-

Inventory Turnover Ratio is the ratio, which indicates the number of times the stock is turned
over i.e. sold during the year. This measures the efficiency of the sales and stock level of a
company. A high ratio means high sales, fast stock turnover and a low stock level. A low
stock turnover ratio means the business is slowing down and a high stock level.

Inventory Turnover Ratio = Net Sales / Closing Inventory

Year Net Sales Average Inventory Inventory Turnover Ratio

2013-2014 5402.58 253.13 21.34
2014-2015 5768.37 263.70 21.87
2015-2016 5721.62 313.92 18.23
2016-2017 6015.11 262.74 22.89
2017-2018 6533.31 344.20 18.98

Inventory Turnover Ratio

25.00 22.89
21.34 21.87

20.00 18.23 18.98

NO. OF TIMES

15.00

10.00

5.00

0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

Interpretation
The above chart shows that the inventory turnover ratio of MBFSL is higher then the ideal
ratio in all the years i.e. in 2013-14 it is 21.34 times and shows up and down in the following
and in the year 2017-18 stood at 18.98 times which means the company has more sales and
an effective inventory management.

38
 5. Inventory Holding Period:-

This period measures the average time taken for clearing the stock. It indicates that how
many days inventories take to convert from raw material to finished goods.

Inventory Holding Period = Days in a Year / Inventory Turnover Ratio

Year Days in a Year Inventory Turnover Ratio Inventory Holding Period

2013-2014 365.00 21.34 17.10
2014-2015 365.00 21.87 16.69
2015-2016 365.00 18.23 20.03
2016-2017 365.00 22.89 15.94
2017-2018 365.00 18.98 19.23

Inventory Holding Period

25.00
20.03 19.23
20.00
17.10 16.69 15.94
15.00
DAYS

10.00

5.00

0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

Interpretation
The above graph indicates that the inventory holding period of MBFSL is at 17.10days in
2013-14 and increased to 20.03 days in 2015-16 and then decrease in the next year to 15.94
days but increased in the year 2017-18 to 19.23, which shows that the company is
maintaining its inventory holding period by trying it to reduce it.

39
 6. Debtors Turnover Ratio:-
Debtors turnover ratio indicates the speed of debt collection of the firm. This ratio computes
the number of times debtors (receivables) has been turned over during a particular period.

Debtors Turnover Ratio = Net Sales / Average Debtors

Year Net Sales Average Debtors Debtors Turnover Ratio

2013-2014 5402.58 317.74 17.00
2014-2015 5768.37 374.50 15.40
2015-2016 5721.62 437.79 13.07
2016-2017 6015.11 504.40 11.93
2017-2018 6533.31 618.45 10.56

Debtors Turnover Ratio

18.00 17.00
15.40
16.00
14.00 13.07
11.93
12.00 10.56
10.00
DAYS

8.00
6.00
4.00
2.00
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

Interpretation
The above chart shows that the debtors turnover ratio of MBFSL is being decreasing
continuously during the years i.e. from 17 times in 2013-14 to 10.56 times in 2017-18. The
company needs to see after its credit policy to manage its collection process to improve and
maintain its debtors turnover ratio.

40
 7. Debtors Collection Period:-

Debtors collection period measures the quality of debtors since it measures the rapidity or
the slowness with which money is collected from them a shorter collection period implies
prompt payment by the debtors. It reduces the chances of bad debts. A longer collection
period implies too liberal and inefficient credit collection performance.

Average Collection Period = Days in a Year / Debtors Turnover Ratio

Debtors Turnover Average
Year Days in a Year Ratio Collection Period
2013-2014 365 17.00 21.47
2014-2015 365 15.40 23.70
2015-2016 365 13.07 27.93
2016-2017 365 11.93 30.61
2017-2018 365 10.56 34.55

Average Collection Period

40.00
34.55
35.00
30.61
30.00 27.93
23.70
25.00 21.47
DAYS

20.00
15.00
10.00
5.00
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

Interpretation
As we noticed before the debtors turnover ratio is being decreasing throughout the year which
showed its effect on average collection period also i.e. in 2013-14 it was 21.47 which
increased to 34.55 in 2017-18. So, as stated above the company needs to look after its credit
policy.

41
 8. Creditors Turnover Ratio:-

Creditor turnover ratio is the ratio, which indicates the number of times the debts are paid in
the year.
Creditor Turnover Ratio = Net Purchase / Average Creditors

Year Net Purchases Average Creditors Creditors Turnover Ratio

2013-2014 5655.71 232.07 24.37
2014-2015 5778.94 247.64 23.34
2015-2016 5771.83 254.39 22.69
2016-2017 5963.93 301.02 19.81
2017-2018 6612.57 366.17 18.06

Creditors Turnover Ratio

30.00
24.37
25.00 23.34 22.69
19.81
20.00 18.06
TIMES

15.00

10.00

5.00

0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

Interpretation
The above graph shows that the credit turnover ratio of MBFSL has shown an continous
decrease from the year 2013-14 i.e. 24.37 times to 18.06 times in 2017-18. The creditors
turnover ratio of MBFSL is decreasing through out the years, which means the company is
managing better payment terms with the creditors which allow it to make payments less
frequently.

42
 9. Creditors Payment Period:-

The Creditors payment period represents the average number of days taken by the firm to
pay the creditors and other bills payable.

Average Payment Period = Days in a Year / Creditors Turnover Ratio

Days in a Creditors Turnover
Year Year Ratio Average Payment Period
2013-2014 365 24.37 14.98
2014-2015 365 23.34 15.64
2015-2016 365 22.69 16.09
2016-2017 365 19.81 18.42
2017-2018 365 18.06 20.21

Average Payment Period

25.00
20.21
20.00 18.42
15.64 16.09
14.98
15.00
DAYS

10.00

5.00

0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

Interpretation
The above graph shows that the average payment period of MBFSL is subsequently
increasing throughout the years i.e. 14.98 days in 2013-14 to 20.71 days in 2017-18. Which
means that the company is managing better payment terms with the creditors as stated above
also.

43
 10. Working Capital Turnover Ratio:-

This ratio indicates the number of times the working capital is turned over in the course of
the year. It measures the efficiency with which the working capital is used by the firm. A
higher retio indicates efficient utilization of working capital and a low ratio indicates
otherwise. But a very high working capital turnover is not a good situation for any firm.
Working Capital Turnover Ratio = Net Sales / Net Working Capital

Working Capital Turnover

NWC
Year Net Sales Ratio
2013-2014 5402.58 87.10 62.03
2014-2015 5768.37 243.35 23.70
2015-2016 5721.62 321.58 17.79
2016-2017 6015.11 344.41 17.46
2017-2018 6533.31 175.04 37.32

Working Capital Turnover Ratio

70.00 62.03
60.00
50.00
NO. OF TIMES

37.32
40.00
30.00 23.70
17.79 17.46
20.00
10.00
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

Interpretation
The above graph shows that the working capital turnover ratio of MBFSL has decreased
during the years from 62.03 times in 2013-14 to 17.46 times in 2016-17 and then a increase
in the following year to 37.32 times in 2017-18. With this the company shows that it is
efficient in using its short term assets and liabilities to support sales.

44
3) Statement of Changes in Working Capital:

The purpose of preparing this statement is for finding out the increase or decrease in working
capital and to make a comparison between two financial years.

Current Assets
If the current assets increases as a result of this, working capital also increases.
If the current assets decreases as a result of this, working capital also decreases.

Current Liabilities
If the current liabilities increases as a result of this, working capital decreases.
If the current liabilities decreases as a result of this, working capital increases.

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 Statement of Changes in Working Capital Ratio for the year 2014-2015

Particulars As on 31 March As on 31 Effect on Working Capital

2014 March 2015 Increases Decreases
Current Assets
Inventories 253.13 263.70 10.57
Investments 79.22 50.35 28.87
Trade receivables 317.74 431.26 113.52
Cash and Cash 59.90 57.44 2.46
equivalents
Bank balance - 35.99 35.99
Loans 7.12 16.68 9.56
Other financial assets 66.08 30.65 35.43
Other current assets 33.34 33.40 0.06
(A) Total Current 816.53 919.47
Assets
Current Liabilities
Borrowings 157.44 90.81 66.63
Trade Payables 232.07 263.21 31.14
Other Financial 162.53 112.77 49.76
Liabilities
Other Current Liabilities 112.95 125.37 12.42
Provisions 48.85 69.02 20.17
Current Tax Liability 14.94 0.65
15.59
(B) Total Current 729.43 676.12
Liabilities
(A)-(B) Net Working 87.10 243.35
Capital
Increase in Working 156.25 156.25
Capital
Total 243.35 243.35 286.74 286.74

Interpretation
In the above table it shows an increase of 156.25 million rupees in working capital of MBFSL
during the year 2013-14 and 2014-15. It indicates an adequate working capital for MBFSL.

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 Statement of Changes in Working Capital Ratio for the year 2015-2016
Particulars As on 31 March As on 31 Effect on Working Capital
2015 March 2016 Increases Decreases
Current Assets
Inventories 263.70 313.92 50.22
Investments 50.35 102.70 52.35
Trade receivables 431.26 444.31 13.05
Cash and Cash 57.44 65.68 8.24
equivalents
Bank balance 35.99 44.56 8.57
Loans 16.68 36.08 19.4
Other financial assets 30.65 68.99 38.34
Other current assets 33.40 66.27 32.87
(C) Total Current 919.47 1142.51
Assets
Current Liabilities
Borrowings 90.81 191.83 101.02
Trade Payables 263.21 245.57 17.64
Other Financial 112.77 132.38 19.61
Liabilities
Other Current Liabilities 125.37 128.55 3.18
Provisions 69.02 94.25 25.23
Current Tax Liability 14.94 28.35 13.41
(D) Total Current 676.12 820.93
Liabilities
(A)-(B) Net Working 243.35 321.58
Capital
Increase in Working 78.23 78.23
Capital
Total 321.58 321.58 240.68 240.68

Interpretation
In the above table it shows an increase of 78.23 million rupees in working capital of MBFSL
during the year 2014-15 and 2015-16. It indicates an adequate working capital for MBFSL.

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Statement of Changes in Working Capital Ratio for the year 2016-2017

Particulars As on 31 March As on 31 Effect on Working Capital

2016 March 2017 Increases Decreases
Current Assets
Inventories 313.92 262.74 51.18
Investments 102.70 48.26 54.44
Trade receivables 444.31 564.48 120.17
Cash and Cash 65.68 127.74 62.06
equivalents
Bank balance 44.56 58.91 14.35
Loans 36.08 4.37 31.71
Other financial assets 68.99 100.41 31.42
Other current assets 66.27 62.68 3.59
(E) Total Current 1142.51 1229.59
Assets
Current Liabilities
Borrowings 191.83 165.59 26.24
Trade Payables 245.57 356.47 110.9
Other Financial 132.38 118.68 13.7
Liabilities
Other Current Liabilities 128.55 118.84 9.71
Provisions 94.25 112.96 18.71
Current Tax Liability 28.35 12.64 15.71
(F) Total Current 820.93 885.18
Liabilities
(A)-(B) Net Working 321.58 344.41
Capital
Increase in Working 22.83 22.83
Capital
Total 344.41 344.41 293.36 293.36

Interpretation
In the above table it shows an increase of 22.83 million rupees in working capital of MBFSL
during the year 2015-16 and 2016-17. The working capital has decreased from the last but
still it is sufficient for the efficient operations in the firm.

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 Statement of Changes in Working Capital Ratio for the year 2017-2018

Particulars As on 31 March As on 31 Effect on Working Capital

2017 March 2018 Increases Decreases
Current Assets
Inventories 262.74 344.20 81.46
Investments 48.26 0.18 48.08
Trade receivables 564.48 672.42 107.94
Cash and Cash 127.74 51.81 75.93
equivalents
Bank balance 58.91 48.06 10.85
Loans 4.37 4.37
Other financial assets 100.41 97.34 3.07
Other current assets 62.68 148.32 85.64
(G) Total Current 1229.59 1362.33
Assets
Current Liabilities
Borrowings 165.59 262.73 97.14
Trade Payables 356.47 375.87 19.40
Other Financial 118.68 295.65 176.97
Liabilities
Other Current Liabilities 118.84 100.17 18.67
Provisions 112.96 126.80 13.84
Current Tax Liability 12.64 26.07 13.43
(H) Total Current 885.18 1187.29
Liabilities
(A)-(B) Net Working 344.41 175.04
Capital
Decrease in Working 169.37 169.37
Capital
Total 344.41 344.41 463.08 463.08

Interpretation
In the above table it shows an decrease of 169.37 million rupees in working capital of
MBFSL during the year 2016-17 and 2017-18. It shows that due to increase in trade payables,
provisions and other financial liabilities and decrease in current assets such as investments,
cash and cash equivalents, bank and other financial assets the working capital has been
decreased.

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 CONCLUSION AND RECOMMENDATIONS

Findings

 Net Working Capital of MBFSL was increased from 2013-14 to 2016-17 i.e. from
87.1 to 344.41 million rupees and then decreased to 175.04 million rupees in 2017-
18, but still had a positive net working capital.
 The current ratio and quick ratio of MBFSL is lower than the ideal ratios i.e. 1.15:1
and 0.81:1 in the year 2017-18. And also a low absolute liquid ratio of 0.08:1 in 2017-
18 which is too low then the ideal ratio of 0.5:1.
 The inventory turnover ratio of MBFSL was decreased from 21.34 times in 2013-14
to 18.98 times in 2017-18 but still high then the ideal ratio. And also efficient
inventory holding period of 19 days in 2017-18.
 The debtor’s turnover ratio of MBFSL was decreased from 17 times in 2013-14 to
10.56 times in 2017-18, but still had a high debtor turnover ratio and a low collection
period of 34 days in 2017-18 which is good for the firm.
 The creditors turnover ratio of MBFSL was decreased from 24.37 times in 2013-14
to 18.06 times in 2017-18 but still had a high ratio and also paying its suppliers very
frequently i.e. 20 days of average payment period in 2017-18.
 The working capital turnover ratio of MBFSL was decreased from 62.03times in
2013-14 to 17.46times in 2016-17 and then increased to 37.32times in 2017-18, but
still had a high working capital turnover ratio for MBFSL.

Suggestions

 The company had a positive net working capital which means it has a sufficient
working capital to meet its current obligations and even invests in its growth.
 The Liquidity ratios of the company is lower as compared to the standards. Thus the
company needs to improve its liquidity ratios by raising the value of its current assets,
reducing the value of current liabilities, or negotiating delayed or lower payments to
creditors.
 The company had a high inventory turnover ratio then the standards which means a
efficient inventory holding period and just need to maintain it like this only.

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  The debtors turnover ratio of MBFSL is high as compared to the standard and thus
need to just maintain it like this only and also had an efficient collection period which
is good for the company.
 The creditors turnover ratio of MBFSL was high as compared to the standards and
low payment period which means they are paying its suppliers very frequently but it
needs to negotiate with the suppliers for the delay or lower payments to have more
cash which lead to the increase in the liquidity ratio of the company.
 The company had a high working capital turnover ratio which indicates that
management is being extremely efficient in using a firm’s short term assets and
liabilities to support sales.

Thus, the Mrs. Bector’s Food Specialties Ltd. need to increase its cash & cash equivalents,
bank balances, need to invest more to increase its liquidity position which is lower then the
standards and sell fixed assets which will lead to increase in cash thus increase in the liquidity
positions.

Conclusion

The study on working capital management conducted in Mrs. Bector’s Food Specialties Ltd.
to analyze the liquidity position through the annual report of the company from 2013-14 to
2017-18 by using the financial tools such as ratios, net working capital and changes in
working capital.

The company had a positive working capital which needs to be maintain it and need to
increase quick assets by generating more cash or increase in investments by selling fixed
assets which are not in use for long or, negotiate with suppliers for delays or lower payments.
By increasing the quick assets MBFSL can improve their Liquidity position which is not so
good for the company. As company has a high debtors and creditors turnover ratio and a
positive net working capital which is good but also need to improve the liquidity ratios which
is also necessary for the company’s day to day operations.

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 REFERENCES

 Annual Report of Mrs. Bector’s Food Specialties Ltd.

 http://www.cremica.in/
 https://www.indianmirror.com/indian-industries/biscuit.html
 Chand.S, “Financial Management”
Retrieved from: https:// http://www.yourarticlelibrary.com/financial-management
 https://www.spsec.co.in/2017/07/27/the-success-story-of-cremica-group/

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