A Study on Working Capital Management

SUMMER PROJECT REPORT SUBMITTED TO THE SIKSHA O

ANUSANDHAN
(DEEMED TO BE UNIVERSITY)
IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR THE
AWARD OF THE
DEGREE OF BACHELOR OF BUSINESS ADMINISTRATION
(BBA)

By
SUBHANKAR SAMAL
(Registration Number: 1941303122)

Guide
Dr. Dhruti Sundar Sahoo

Institute of Business & Computer Studies

Faculty of Management Sciences
Siksha ‘O’ Anusandhan (Deemed to be University)
Bhubaneswar
May-2021
 DECLARATION

I hereby declare that the project “Working Capital Management.” submitted

for the BBA Degree is my original work and the project has not formed the

basis for the award of any degree, associateship, fellowship or any other similar

titles.

Place: Bhubaneswar

Date: Signature of the Student

 ACKNOWLEDGEMENTS

I take this opportunity to express my deepest gratitude to all those

people, without those spontaneous support, guidance,
encouragement and understanding, this project would never have
reached completion.

I extend my grateful thanks to my project guide, Dr. Dhruti

Sundar Sahoo. The contribution made by him to fulfil this project is
highly commendable. He continuously guided me and always present
to give suggestions and to shed light on my doubts. Mere words of
gratitude will never suffice to their valuable guidance, patience and
faith shown in my work.
I acknowledge the timely help extended by all my
colleagues and all the unmentioned names from the concerned
field.

Subhankar Samal
 Table of Content
Subject Items Page no:
 Introduction
 Objectives of the study
 Need for the study
 Scope of the study
 Research methodology
 Limitations of the study
 Components of working capital
 Working capital cycle
 Calculation of duration of operating cycle
 Types of working capital
 Sources of working capital
 Techniques of analyzing working capital
A.Fund flow analysis
B.Working capital budgeting
C.Ratio analysis
A Study on
Working
Capital
Management
1.0 INTRODUCTUON

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.

Working capital management is concerned

with the problems that arise in
attempting to manage the current assets, the
current liabilities and the
interrelationship that exists between them. The
term current assets refer to those
assets which in the ordinary course of business
can be, or will be, converted in
to cash within one year without undergoing a
diminution in value and without
disrupting the operation of the firm.

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. The excess of current
assets‘ of a business organization over
its current liabilities‘ is termed as the working
capital‘ of that organization.

The major current assets are cash, marketable

security, account receivable
and inventory. Current liabilities are those
liabilities which are intended, at their
inception, too be paid in the ordinary course of
business, within a year, out of
the current assets or earning of the concern.
The basic current liabilities are
account payable, bills payable, bank
overdraft and outstanding expenses.
 1.1 Objective of the study

1. To examine the effectiveness of working

capital management polices with the help of
accounting ratio.

2. To evaluation the financial performance of

the company.

3. To test hypothesis .

4.To make suggestion for policy makers for

effective management of
Working capital
 1.2 Need of the study

l. The projects is helpful in knowing the

company's position of funds maintenance and
setting the standards for working capital
inventory levels, quick ratio current amount
turnover level and web torn turnover level.

2.This project is helpful to the management

for expanding the dualism and the project
viability and present availability of funds.

3.This project is also useful as it companies

the present year data with the previous year
data and thereby it shows the trend analysis
i.e., increasing fund or decreasing fund.

4.The project is useful in further expansion

decision to be taken by
Management.
 1.3 Scope of the study
• The study covers Working Capital
Management and its importance to the
company especially relating to inventory,
debtors, and cash.
 
• The comparative statements are prepared
based on the information given by the
financial department of the company.
1.4 Limitation of the study

The following are the various aspects involved

in the analysis of the
Study .

1. Study is limited to the accounting year

2010-2011

2. Study is based on information provided by

the company.

3.Study the working capital management

does not take in to account the price level
changes.
1.5 Components of working capital

Current assets:
These are those assets which converts into
cash within one year.

These includes
• Inventory
• Debtors
• Bills Receivables
• Cash and Bank balances
• Prepaid expenses

Current liabilities:
These are those liabilities which are to be paid
within one year.

These includes
• Creditors
• Bills payable
• Bank overdraft
• Proposed dividend
• Provision for taxation
1.6 Working capital cycle

Raw material

Cash Work-in-progress

Debtors &
Finished goods
B/R

sales
1.7 Calculation of duration of operating
cycle

DURATION OF RAW MATERIAL

STORAGE
+
DURATION OF WORK IN
PROGRESS
+
DURATION OF FINISHED GOODS
+
DURATION OF RECEIVABLES
FROM DEBTORS
-
DURATION OF CREDIT PERIOD
ALLOWED BY THE SUPPLIERS

O =R+W+F+D-C
1.8 Types of working capital

TYPES OF
WORKING
CAPITAL

BASIS OF BASIS OF
CONCEPT NATURE

GROSS NET
WORKIN WORKIN FIXED VARIABLE
G G WORKIN WORKING
CAPITAL CAPITAL G CAPITAL
CAPITAL

SEASONAL SPECULATIV PRECAUTION

E ARY
1.9 Sources of working capital

SOURCES OF
WORKING
CAPITAL

LONG TERM SHORT TERM

SOURCES SOURCES

OWNED BORROWED INTERNAL EXTERNAL

SOURCES SOURCES SOURCES SOURCES

ISSUE OF DEPRECIATION ADVANCE FROM

DEBENTURES
SHARES FUNDS CUSTOMERS

RETAINED LONG TERM PROVISION FOR PUBLIC

EARNINGS DEBTS TAX DEPOSITS

SALE OF FIXED
ASSETS

RESERVES
1.10 Techniques of analysing working
capital

The analysis can be conducted through using

following tools.

 Fund flow analysis

 Working capital budgeting

 Ratio analysis
 Fund flow analysis:

It is an effective tool to be used to identify

the sources from which we can get the
funds and also in which we apply those
resources.

It is used to estimate changes in financial

position of a firm.

 Working capital budgeting:

It is prepared to estimate the future long

term and short-term working capital needs
and sources of finance them.

The main objective of preparing this

budget is to availability of funds as and
when needed and effective utilization of
resources.
 Ratio analysis:

A ratio is a simple arithmetic expression of

relationship of one number to another
number.

This technique is used to measure short

term liquidity or working capital position
of a firm.
Bibliography

1. Shashi K. Gupta & R. K. Sharma Management

Accounting (Principles & Practices), Kalyani
Publishers 11th Revised Edition
2. S. N. Maheswari , Principles of Management
Accounting, Sultan Chand & Sons, 2014 Edition
3. N. Ramachandran and Ram Kumar Kulkarni,
Financial Accounting for Managers . The McGrow-
Hill Companies (2012 Edition)
4. Robert S. Kaplan & Anthony A. Atkinson ,
Advanced Management Accounting Pentice- Hall
of India (P) Ltd. , 3rd Edition.