WORKING CAPTAL MANAGEMENT

INTRODUCTION

Working capital management or short term financial management which is concerned

with decisions relating to current assets and current liabilities. The key difference between
long-term financial management and short-term financial management (also referred to as
working capital management) is in terms of pricing of the cash .while long-term financial
decisions like buying capital equipment or issuing debentures involve cash flows over an
extended period of time (5 to 15 years or even more), short-term financial decisions typically
involve cash flows within a year or within the operating cycle of the firm.

The management of current assets is similar to that of fixed assets in the sense that in both
cases a firm analyses their effects on its return and risk. The management of fixed and current
assets, however, differs in three important ways: First, in managing fixed assets, time is a
very important factor; consequently, discounting and compounding technique plays a
significant role in capital budgeting and a minor one in the management of current assets.
Second, the large holding of current assets, especially cash, strengthens the firm’s liquidity
position (and reduces risk ness), but also reduces the overall profitability. Thus, a risk-retire
trade off is involved in holding current assets. Third, levels of fixed as well as current assets
depend upon expected sales, but it is only current assets which can be adjusted with sales
fluctuations in the short run. Thus, the firm has a greater degree of flexibility in managing
currents assets.

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 tocontinue 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.The term working capital
refers to the capital required for day to day operating of a business enterprise. It is
represented by current assets over Current liabilities. Working capital management is to
manage the firm’s current assets and liabilities in such a way that a satisfactory level of
working capital is maintained. Every business needs funds for two purposes for its
establishment and to carry out its day to day-operation. Working capital is concerned with
decisions relating to Current assets and current liabilities. Working capital measures how
much in liquid assets a company has available to build its business. The number can be
positive or negative, depending on how much debt the company is carrying. In general,
companies that have a lot of working capital will be more successful since they can expand
and improve their operations. Companies with negative working capital may lack the funds
necessary for growth also called net current assets or current capital.
Funds are also needed for short term purpose for the purchase of raw materials, payment of
wages and other day-to-day expenses, these funds are known as working capital. Working
capital is required for financing short term or current assets such as cash, marketable
securities, accounts receivables, inventory, debtors and inventories. Funds, thus, invested in
current assets keep revolving fast and are being constantly converted into cash and this cash
flow out again in exchange for the other current assets. Hence, it is also known as revolving
or circulating capital or short term capital. Thus money invested in current assets is known as
working capital.

DEFINITION OF WORKING CAPITAL:

According to Gene Stenberg, “Circulating capital means current assets of a company
that are changed in the ordinary course of business from one form to another as for example,
from cash to inventories, to receivables, receivables into cash”.
Objectives of Working Capital Management

The goal of working capital management is to manage the firm current assets and
current liabilities in such a way that a satisfactory level of working capital is maintained.
This is so because if the firm cannot maintain a satisfactory level working capital, it is
likely to become insolvent and may even be forced into bankruptcy. The current assets
should be large enough to cover the liabilities in order to insure a reasonable margin of
safety. Each of the current assets must be managed efficiently in order to maintain the
liquidity of the firm while not keeping too high a level of any of them.
Each of the short-term sources of financing must be continuously managed to
ensure that they are obtained and used in a best possible way. The interaction between
current assets and cue lent liabilities is therefore, the main theme of the theory of
working capital management, to achieve optimum utilization of resources. Working
capital management has to focus attention of the most effective choice of working capital
sources and the effective operating combination and management of currentassets.
APPROACHES TO THE STUDY

NEED OF THE STUDY

The needs for working capital are as follows.

1. Adequate working capital is needed to maintain a regular supply of raw materials,

which is turn facilities smoother running of productionprocess.

2. Working capital ensures the regular and timely payment of wages and salaries,
thereby improving the morale and efficiency of theemployees.

3. Working capital is needed for the efficient use of fixedassets.

4. In order to enhance goodwill a healthy level of working capital is needed .It is

necessary to build a good reputation and make payment to creditors intime.

5. Working capital helps avoid the possibility of undercapitalization.

6. It is needed to pick up stock of raw materials even during the economicdepression

7. Working capital is needed in order to pay fair rate of divided and interest in time
which increases the confidence of the investors in thefirm.
OBJECTIVES OF THE STUDY
The present study is intended to analyse the practice of working capital
management milk dairy industry. The efficiency of the working capital management on
its various components the following are the objectives of the proposed study.

1. To study the sources and changes in working capital and its effects over the years on
thecompany.

2. To compare financial performance of present year with that of previousyear.

3. To conduct a study of the financial ratios of working capital management and analysis
them for understand the financial strength and weakness of thecompany.

4. To study the source and uses of funds of thecompany.

5. To illustrate the concepts of working capital with their respective balances and
analysis the reason responsible for changes in the working capitalbalances

6. To study attempts to understand the efficiencies and effectiveness of the management

in each segment of workingcapital

7. To find out the effectiveness of working capital management of Krishna district milk
producer Michal aided coordination unionlimited.

(a).Toanalyze changes in working

capitalmanagement (b).To analysis
changes in funds flow statement.
(c).To analysis change in cash
flowstatement.
METHODOLOGY OF THE STUDY
The present study is based both primary and secondary sources of data. Most of
data has been collected from internal records, and other reports of the company .collected
data has been tabulated and interpreted by using ration analysis technique also. At the
end meaningful interpretation also draw to reflect the working capital practices of milk
dairy industry, and finally suitable suggestions are offered for improving the efficiency
of working capital management in milk dairy industry.
In methodology data collected in two ways. They are
1. PrimaryData.
2. SecondaryData.

1. PrimaryData
The primary data comprises information obtained by me through detailed
discussion with managers and from the meeting with officials, staff and workers of the
particular company the period to arrive at certain conclusions about the study.

2. SecondaryData
The secondary data has been collected from information through annual reports ,public
reports, bulleting and other material supplied by the company to graph the trends
effectively the information of the last few years was collected from the balances sheet of
the company the main purpose behind this project work into know the financial
performance and position of the company by using ratio analysis to fulfil this objects we
need information there vertically for this information based on the secondary data.
SCOPE OF THE STUDY
The study helps to get an overall idea regarding the various departments in the
organization and overall functions of organization .This organization study mainly
focuses on organizational setup, overall performance, departmental performance etc.
apart from this

1. To get a practical vision of the organizational apart from the theory which have been
learned in theclass.

2. To understand the actual workingcondition.

3. To get in touch with the industrial and the organizationalenvironment.

LIMITATIONS OF THE STUDY

1. It is dealing with very limited payment for evaluating the desiredobjectives.

2. The organization is not willing to provide its confidentialdata.

3. And also the company provides limited financial information that is only few year’s
data.

4. The time limit for project is only their 60 days for that does not cover all the
relatedfields.

5. The reliability of the study depends upon the available information finished by
theofficials.

6. The study is conducted with the available data from the annual reports internalreports.

EXPECTED CONTRIBUTION
The liquidity position of the firm is sound yet careful tackling will bring up the
ratio to the standard level of 4.1: 1 current ratio. The quick ratio is also below the
standard 2:2 hence it should be increased to standard level to prevent the firm not to
suffer from liquidity. The firm is a following a policy of liberality in collecting the
payment. The efficiency in collecting the payment should be increased in light of
problem like liquidity, company can reduce credit sales by giving cash discounts.
Company should see that researchdevelopment department has been adopted the new
methods and processing systems then the company minimize its wastages. It can be
suggested that the company must concentrate on the gross working capital while
investing more in the current assets. Present company position is very well to continue
the working capital by increasing the investing in the current assets. It can be suggested
that the company need to maintain the efficiency of administration, selling and
distributing departments and also maintain net profit in future years to get more profits. It
can be suggested that the company must concentrate on the working capital turnover
ratio.

The company must concentrate on the operating cycle of the company. It can be
suggested that the company must concentrate on the inventory turnover ratio. Higher the
ratio more the efficiency of inventory management. The company must concentrate on
the inventory holding period and economic quantity period etc. It can be suggested that
the company must concentrate on increasing the current assets the company should invest
more on current assets. The company was unable to pay its short term liabilities, so the
company must concentrate on current ratio. It can be suggested that the company must
concentrate on increasing the liquid assets to maintain proper current financial position
and proper solvency. The company should finance some parts of its currents assets with
short-term funds. It should not depend on long-term funds as they involve higher interest
payments. Over all the company has favourable working capital position. However it has
to maintain optimum working capital position.