Project Report On Working Capital Manage

Project Report on Working Capital Manage
Masters in Business Administration (Shri Dharmasthala Manjunatheshwara Institute for

Management Development)
Studocu is not sponsored or endorsed by any college or university

Downloaded by Rushikesh Jagtap (rushikeshj9303@gmail.com)
A Project Report
On
Analytical Study Of Working Capital
In Forbes Marshall Ltd.
AT
Forbes Marshall Ltd.
BY
Bhupendra A. Thorat
Under The Guidance Of

Dr. Sanjay V.
Patankar
Submitted To
“Univesity Of Pune”
In partial fulfillment of the requirement for the degree of
Master in Business administration (M.B.A.)
Through All India Shri. Shivaji Memorial Society’s Institute
of Management (MBA) Pune - 411001
2014-2015
[1]

➢ DECLARATION
I hereby declare that the project titled "WORKING CAPITAL MANAGEMENT" for
ForbesMarshall Limited, Pimpri has been carried out by me under the guidance &
Supervision of Dr. Sanjay patankar.
The information has been collected from genuine & authentic sources. The work has been
Submitted in fulfillment of the Master degree in Business administration to Pune University,
and not submitted to anywhere else for any other purpose.
Place:- Pune
Name – Bhupendra A. Thorat
[2]

Acknowledgement
This is shown my deepest to all those who have been an integral part to
complete successfully my industrial project in Forbes Marshall Ltd. Pune.
This gave me immense pleasure to mention the valuable help provide those who
spared no pains to make me whatever little could with my merge capabilities, I would
specially like to thanks mr.(director) Offering me this golden opportunity.
I am highly oblique and thankful to Mr. Parimal Lokhande, Finance Manager

and also Mr. Deepak from account dept. Who in spite of busy schedule render his time
and supported me manually and share there valuable knowledge of my project. I hope
that the work done by me will be useful to the company.
I am very thankful to Director as well as my project guide Dr. Sanjay V.

Patankar, for his support proper guidance without which it would have not been
possible me to do this project. I am sure that this project will prove to be very
beneficial to by Forbes Marshall ltd. And will definitely help the company to prove to
improve their international trade business.
Once again, express my heartfelt towards all those who have supported and
helped me directly and indirectly.
Date: Bhupendra A. Thorat
Place: M.B.A. (Finance)
[3]

INDEX
Chapter CONTENTS Page No.
No.
1 Introduction To The Study 6-13
2 Company Profile 14-21
4 Objective and Scope Of The Study 22-23
5 Research Methodology 25-28
7 Data collection & Data Analysis 29-59
8 Findings 60-61
9 Conclusion 62-63
10 Suggestions 64-65
11 Limitations 66-67
12 Bibliography 68-69
LIST OF TABLES
[4]

Sr No. Title Page No.
4.1 Current Asset 30

4.2 Current liabilities 31
4.3 Net Working Capital 32
4.4 Working capital Turnover Ratio 34
4.5 Current Ratio 36
4.6 Size of cash compare to current assets 38
4.7 Cash Profit Ratio 39
4.8 Creditors Turnover Ratio 42
4.9 Inventories to Total Assets Turnover Ratio 44
4.10 Inventory Turnover Ratios 46
4.11 Inventory Conversion Period 48
4.12 Debtors Turnover Ratio 50
4.13 Average Collection Period 52
4.14 Absolute Liquid Ratios 54
4.15 Gross Profit Ratios 56
4.16 Current Assets Turnover Ratio 59
[5]

1.ITRODUCTION
OF
WORKING CAPITAL
[6]

➢Working Capital :-
Working capital (abbreviated WC) is a financial metric which represents operating
liquidity available to a business, organization or other entity, including governmental entity. Along
with fixed assets such as plant and equipment, working capital is considered a part of operating
capital. Gross working capital equals to current assets. Net working If current assets are less than current
liabilities
working capital (WC) is calculated as current assets minus current liabilities. Current assets
such as cash, account receivable, inventory, etc. And current liabilities such as creditor, expenses
paid etc.
the liquidity position of the business is depend on the investment in current assets, the more
the better where as the role of fixed assets as far as liquidity is concerned, negligible.
Working capital management involved not only managing the different component of current
assets but also managing the current liabilities. Working capital can be define in simple words as that
part of total capital which is required and necessary for daily working of business.
The term working capital is also defined as excess of current assets over current liabilities.
The concept of working capital is useful to know whether the current assets are sufficient or not to
meet the current liabilities. It also indicates that whether solvency of the business.
There are two aspect of working capital and these are follows:
[7]

1) Gross working capital.
2) Net working capital.
1) Gross working capital:
Gross working capital refer to the firm’s investment in current assets. Current assets
are the assets which can be converted into cash within an accounting year and include cash,
short term securities, debtors, bills receivable and stock.
2) Net working capital:

Net working capital refer to the difference between current assets and current
liabilities. Current liabilities are those claim outsider claims which are expected to mature for
payment within an accounting year and include creditors (account payable), bills payable, and
outstanding expenses.
Net working capital can be positive or negative. A positive net working capital will arise when
current assets exceed current liabilities. A negative net working capital occurs when current
liabilities are excess of current assets.
➢ Objective of working capital:
1) To minimize the amount of capital employed in financing the current assets. Thus will also
lead to an improvement in the “return on capital employed”.
2) To manage the current assets in such a way that the marginal return on investment in these
assets is not less than the cost of capital acquired to finance them. This will ensure the
maximization of the business unit.
3) To maintain the proper balance between the amount of current assets and current liabilities in
such a way that the firm is always able to meet its financial obligation whenever due. This
will ensure the smooth working of the unit without any production held ups due to paucity of
fund.
[8]

➢ Requirement Of Working Capital:
1. Nature of Business:
The nature of business concern has got a bearing on its working capital requirement.
In certain types of enterprise like public utilities and railway’s current capital requirement when
compared to fixed capital is small, while in manufacturing concerns a larger amount of working
capital is needed.
2. Size of the Business:
The amount of working capital required depends upon the volume of business, large
size, is the need of working capital. However if the company is very small its need of working
capital us large due to its high overhead charges high cost of buying and selling, less efficient
technical equipment.
3. Production Cycle:
Another factor which has a strong bearing on the quantum of working capital is the
production cycle. The term production cycle refer to the time lag between the procurement of raw
material and completion of finished product. During this process of converting raw material into
finished product some funds are inevitable locked up. The longer the time span in production
cycle the large shall be the requirement of fund and vice versa.
4. Terms of Purchase and Sale:
[9]

The requirement of working capital depend upon the term of purchase. Cash
purchases are more working capital as compared to credit purchases. Similarly policy of credit
sales need more working capital than that of cash sales. Cash purchased and credit sales require
still more working capital as compare to credit purchase and credit sales – on the contrary cash
sales and credit purchases require less working capital.
5. Degree of Seasonally:
Companies that experiences strong seasonal movement have special working capital
problem in controlling the internal financial saving that may take place. Aggregating this
difficulty is the fact that no matter how clearly define a pattern may distort ordinary relationship.
Although seasonally may pull a financial manager from the security of fixed programmers meet
recurring requirements, flexible arrangement are preferable to guard against unforeseen
contingencies.
6. Large Stock of Raw Material
Some of the companies are require to store large quantities of raw material for the
production. The reasons for keeping such large reserves of raw materials may be seasonal nature of
raw material, long distance scarcity etc. In such a case the working capital needed is comparatively
more.
7. Rapidity of Turnover:
There is a high degree of inverse correlation between the quantum of working capital
and the velocity with which the sales are effected when a company has to carry on a large slow
moving stock, it needs a larger working capital as against another whose turnover is rapid.
8. Expansion:
If expansion of the business is being made a normal rate retained profit can be made
use of for the purpose however for rapid sudden growth such profits are not available and this
necessitates provision of more working capital.
9. Sales Policy:
Working capital needs vary on the basis on the sales policy of the same industry. A
department store which caters to the “carrier trade” by carrying a quality line of merchandise and
offering extensive charge accounts will usually have a slower turnover of assets a higher margin
on sales, and respectively larger account receivable than many of its non carriage, usually have a
rapid turnover, a low margin on sales, and small or no account receivable.
10. Dividend Policy:
[10]

A desire to maintain an established dividend policy may affect the volume of working
capital or change in working capital may bring about an adjustment of dividend policy in either
event the relationship between dividend policy and working capital is well established and a very
few companies ever declare dividend without giving consideration to its effect on cash and their
needs for cash.
11. Cash Requirement:
When more cash is require for payment of taxes interest dividends other expenses
more working capital is necessary. Discount policies cost reduction programs, price increase,
changes in stock levels etc. also affect the cash position and in turn the working capital.
12. Operating Efficiency:
Another important determinant of working capital is the operating efficiency of a

business firm. The operational efficiency implies the optimum utilization of resources at
minimum possible cost by eliminating waste improve co-ordination and proper planning. It
results in higher profits, improve the internal generation of funds and hence releases the pressure
on working capital due to other factors as price rise etc.
➢ Working Capital Cycle:
[11]

PPru rccah ses
aC sh Pr uod cotin
C sah P ruod cotin
Detbors Sa els
Detbo rs Sla es
The need of working capital arises mainly because of time gap between the production of goods and
their actual realization after sales this gap is technically referred as the “working capital cycle” of the
business.
Working capital consists of the following 6 steps:
1) Conversion of cash into raw material.

2) Conversion of raw material into work-in-process.
3) Conversion of work-in-process into finished goods.
4) Time for sale of finished goods-cash sales and credit sales.
5) Time for realization form debtor and bill receivable into cash.
6) Credit period allowed by creditors for credit purchase for raw materials inventory.
➢ Source Of Working Capital:
The following sources are available for financing the working capital.
a. Loan from financing institution.

b. Floating debentures.
c. Public deposit.
d. Issue of share.
e. Retained earning or internal resources.
f. Trade creditors and advance from customer.
g. Bank credit.
[12]

While selecting the source of finance, the cost of financing flexibility, risk of
financing taxes and return are to be taken into account.
[13]

TABLE SHOWING CALCULATION
OF NET WORKING CAPITAL
Particular Amount
(A) Current Assets:

i) Cash in hand & Bank .....
ii) Debtors .....
iii) Marketable Securities .....
iv) Inventory .....
v) Short term loan .....
vi) Prepaid expenses .....
vii) Account receivable .....
viii) Any other .....
Total Current Assets .....
Less: (B) Current Liabilities:

i) Creditors .....
ii) Outstanding expenses .....
iii) Account Payable .....
iv) Bank overdraft .....
v) Dividend paid .....
vi) Any other (if any) .....
Total Current Liabilities .....
Working capital (A-B) .....
Add: Contingency .....
Net Working Capital .....
[14]

2. COMPANY PROFILE
[15]

➢ Company Profile
In 1926
we made our first supply of textile accessories to a thriving textile industry in Ahmedabad, Western
India.
In 1946,
the Spirax department was set up as a representative of Spirax Sarco, U.K.,world leaders, in the
technology of efficient and effective use of steam as a source of energy. Hundreds of surveys were
done in process industries, especially textile mills, and it was proved that by using Spirax products,
great savings could be made in fuel bills.
[16]

In 1946,
soon after the association with Spirax Sarco, UK became operative, Forbes Marshall finalized a tie
up with Cochran boilers for selling packaged boilers.
Later, Spirax Marshall, a joint venture born out of our association with Spirax Sarco, was
formed. The superior technology and manufacturing quality of Spirax Marshall steam traps and other
steam related equipment, made them very popular with Indian industry. The products of Spirax
Marshall soon became the standard for increasing steam efficiency in the process industry.
In 1958,
following the policy of indigenous manufacture as prescribed to Indian companies by the
Government, the first manufacturing unit of the Spirax Marshall division was established in
Kasarwadi, Pune, with 12 people. Forbes Marshall today has six manufacturing divisions in joint
venture with leading International companies, and has representations with several more.
A leader in Process Efficiency and Energy Conservation over the last 50 years, through joint
ventures, technology tie-ups and focused investment in manufacturing and research,Forbes Marshall
has added products and services to serve complex and critical needs in industry.
In 1962,
building on the expertise gained through studying hundreds of process plants for energy conservation
recommendations and improvements, Forbes Marshall entered the field of control instrumentation
introducing a range of world class pH analysers. In joint venture with Cambridge Instruments, UK,
and later with Polymetron of France (now part of Hach Ultra Analytics, USA), Forbes Marshall
began manufacture of a complete range of water quality analysers. A natural extension of the
expertise in Steam processing and analysis of liquids was the management of process media; through
a joint venture with Krohne Messtechnik, Germany, Forbes Marshall began manufacturing a wide
range of flow and level equipment. Krohne Marshall's vortex flowmeter,manufactured in India for
the world market, soon became known as one of the most accurate and intelligent flowmeters in the
world.
Continuing its mission to become a specialist in process control,Forbes Marshall
[17]

in 1985
introduced a range of control valves and desuperheating stations in collaboration with Arca Regler,
Germany. These control valves set a new standard in accuracy and reliability with actuators
guaranteed and tested to work over one million strokes.Several more products and services,
including instrumentation systems, gas analysers, data acquisition systems, vibration monitoring
systems, steam and water analysis systems, energy audits, and training were added. Forbes Marshall
became the only company to offer a truly complete line of products and services for optimizing
process efficiency and maximizing energy conservation.
I n 2000
we began to get truly global. International operations commenced with the incorporation of Forbes
Marshall Inc., in the United States. Later Forbes Marshall opened several more sales, manufacturing
and customer support facilities in different parts of the world.
For over half a century, Forbes Marshall has been building steam engineering and control
instrumentation solutions that work for process industry. Forbes Marshall’s goal is to provide
solutions in Energy, Efficiency and Process Automation, using the best technology the world has to
offer. 50 years ago company started out with steam generation solutions. Today it comprise seven
business divisions; each one partnering the world technology leader in its respective field,
manufacturing products that cover the entire spectrum of energy generation, energy efficiency,
control and instrumentation for the process industry.
But we are proud of much more than just the products we make. We are committed to creating a
progressive work culture that uniquely puts people first. We are concerned with the community
beyond our factory’s gate. Putting people first is the way we have become industry’s first choice to
better harness their steam, air and water. We do much more than sell products. We build steam
engineering and control instrumentation solutions that work for you.
[18]

FORBES MARSHALL
1)Forbes Marshall 4)Forbes Vyncke

2)Spirax Marshall 5)Forbes Marshall Arca
3)Krohne Marshall 6)Forbes Marshall Codel
➢ Director List:
Director's
Director's Name Date Of Appointment Designation
30-03-1988 Director
Kiran Surajbansi Vohra
18-10-1985 Director
Darius Minocher Forbes
10-03-1989 Director
Rati Farhad Forbes
18-10-1985 Director
Maharookh Darius Forbes
[19]

18-10-1985 Director
Naushad Darius Forbes
20-04-1988 Director
Srinivas Patalay
28-03-2013 Director
Mateesh Kant Rai
05-09-2013 Director
Jehangir Ardeshir
02-09-2009 Secretary
Dharmesh Niranjan Thaker
18-10-1985 Director
Farhad Darius Forbes
05-09-2013 Director
Marcus John Dyne Steel
05-09-2013 Director
Viraf Sohrab Pudumjee
➢ VISION AND MISSION OF FORBES MARSHAL
To be a developed company in a developing country, Pursuing market leadership in their chosen fields
of Steam Engineering, Process Control and Utilities Management.
[20]

Dedicated to growth and an increasing international presence, committed role model organization for
our customers , suppliers ,society and members.
To be an organization that continuously achieves economic value by optimizing resources
through operational excellence, powered by technology, driven by innovation creating customer delight.
➢ DIVISIONS OF FORBES MARSHALL

Forbes Marshall has their 3 plants spread all over India. Forbes Marshall with their divisional companies
provides engineering and control instrumentation solutions in Steam Engineering. The divisions of
Forbes Marshall with their specialization are as follows:
[21]

1) Forbes Marshall
Turnkey solutions for process Industries, steam, water and Gas Analysis Solutions.
2) JN Marshall
High Efficiency Packaged Boilers and Burners.
3) Spirax Marshall
Steam systems, Trapping, valves and controls, steam Flowmetering,
Automatic Boiler Controls.
4) KrohneMarshall
Advanced Flowmetering and Level Control.
5) Forbes Polymetron
Process Analysers and control systems
6) Forbes Marshall Arca Pvt. Ltd.

Control valves, Actuators, Positioners, and Pressure Reducing Desuperheating stations.
7) Forbes Marshall Controls Pvt. Ltd.

Distributed Control Systems, Smart Transmitters, Controllers
and Transducers.
8) Sempell Valves
Forged High Performance Valves.
➢ Product:
[22]

Boilers and Accessories
Packaged Oil / Gas Boilers, Marshall Burners, Efficiency in Steam Generation

Oxymiser Flue gas analyser, Boiler Fuel Additives
Accuflo Steam Metering, Effimax Series,
Automatic Blowdown Control, Medium and High
Pressure Blowdown Systems, Feedwater tank
systems, Blowdown Heat Recovery Units
Deaerator Head, Flash Vessel, Steam Injector, Effipro
Oxygen Analyzer Pressure reducing

Oxitec 5000 Zirconia based analyser and Desuperheating solutions
Combined Pressure Reducing &Desuperheating
Valves, Pressure Reducing, PRDS,
desuperheating stations, Desuperheaters
Transmitters and Controllers

IMAGO Multichannel process and program Water Quality Analyzers
controller, Process Automation Controller 353, Silica analyzers, Sodium Analyzers, Aquamon &
Procidia, Internet Control System, Dicon/Dtron - compact pH Conductivity Analysers
controllers, DS III Series Transmitter
Water Quality Control Systems

Gauges
Standard Pressure Gauges, Dial Automatic Titrator 8810, Conductivity Cells
Thermometers, Pressure Sensors
[23]

3. SCOPE & OBJECTIVES
[24]

➢ OBJECTIVE OF THE STUDY
1. To study the working capital management of Forbes Marshall.

2. To study the various element of working capital of Forbes Marshall, such as, receivables,
cash management, inventory etc.
3. To study the liquidity position of the Forbes Marshall.
4. To estimate the working capital requirement of Forbes Marshall.
➢ SCOPE OF STUDY
The study was directed towards the analysis of working capital management in Forbes Marshall
which includes the analysis of the various components maintained in Forbes Marshall,
determination of operating cycle and the cash conversion cycle, the companies policy towards its
various suppliers and customers. The study further includes ratio analysis to determine the various
liquidity and profitability of the firm.
Data from the primary and secondary sources has been taken in to consideration the organization.
The data from 2009-10,2010-11,2011-12 years has been used for the study of comparative
analysis and ratio analysis of the organization.
[25]

3. RESEARCH
METHODOLOGY
[26]

➢ Research Methodology:
When we talk about research methodology, we not only talk of the research methods
but also the comparison of the logic behind the methods, we used in this context of our research
study and explain why we are using a particular method or technique and why using the others.
Research methodology is a way to systematically solve the research problem. It may be understood
as a science of studying how research is done systematically. I this, we study the various steps that
are generally adopted by researcher in studying his research problem along with the logic behind
them. “The present study based upon the case study method of research to investigate procedures at
micro level”. As the study is analyzing probing in nature, thus, it is based on the secondary data
gathered through the financial data provided by account department of the Forbes Marshall.
Therefore it provides a historical prescriptive of decision.
Area of the research:Finance.
Topic of the Research: Working Capital Management.
Period of Research: 2009-2010 To 2011-2012.
[27]

➢ DATA COLLECTION:
Type of data: Primary and Secondary Data.
• Method of data collection:
1. Primary Data:
By visiting concern department in the company. This also helped to know the
operating cycle in the company.
2. Secondary Data:
This project is based on primary data collected through personal interview of head of
account department of Forbes Marshall. But primary data collection had limitation such as matter
confidential information thus project is based on secondary information collected through three
years financial statements of the company, supported by various books and internet sides. The
data collection was aimed at study of working capital management of the company.
➢ Limitation Of Research:
1. The main limitation for the research is the data source. The data is collected from the audited
financial statements, which are prepared on the historical cost basis.
2. Confidential data was not allowed to be accessed or published in the project report.
3. Statement of account for the financial year 2013-2014 not available.
[28]

➢ Total Working Capital:
Total working capital
2009-2010 2010-2011 2011-2012

Particular Amount in
rs.
Current Assets
Sundry Debtors 1,84,35,270 2,10,53,973 2,44,29,347
Inventory 28,64,000 1,48,81,000 42,36,000
Cash & Bank 6,85,700 5,50,724 1,97,909
Loan & Advances 17,70,086 6,82,735 9,99,462
Total Current Assets 2,21,62,056 3,71,68,432 2,98,62,718
Current Liabilities
Trade creditors 5,56,651 95,35,257 13,43,835
Provision - - -
Outstanding Expenses 2,06,403 3,45,171 16,98,637
Other Liabilities - - -
Total Current Liabilities 7,63,054 98,80,42 30,42,472

8
[29]

4. DATA
COLLECTION AND
DATA ANALYSIS
[30]

A. DATA COLLECTION
TABLE NO. – 4.1 Current Asset (In Rs.)
Particulars 2009-10 2010-11 2011-12

Bank Balance 190,028,711 194,067,577 323,755,903
Inventories 763,125,970 538,489,241 821,597,701
Sundry Debtors 621,176,511 780,498,201 1,318,610,623
Loan & Advance 287,536,477 277,077,729 320,250,424
Other Current Assets 50,735,386 23,174,262 10,552,939
Total 1744603055 1,813,667,010 2,794,767,590
Current Assets (In 10 Lacs)
2009-2010 2010-11 2011-2012
Interpretatio :- the position of current assets is high in the year 2011-12 as
Compared to other years.
TABLE NO. – 4.2 Current
liabilities (In Rs.)
[31]

Particulars 2009-10 2010-11 2011-12
Sundry Creditors 16,325,317 99,302,950 25,737,871
Provisions 69,338,926 97,551,537 147,734,446
Other Current 1,580,485,007 1,114,639,176 2,105,398,070
Liabilities
Total 1,666,149,250 1,311,493,663 2278870387
Current Liabilities (In 10 Lacs)
Interpretation: - in the year 2011-12 the current liabilities is high. Due to increase in provisions
in this year.
TABLE NO. – 4.3 Net Working Capital (in Rs.)
(Current Asset- Current Liabilities = Working
Capital )
Year Current Assets Current Liabilities Working Capital
[32]
2009-2010 2010-11 2011-2012

2009-10 1915603055 1,666,149,250 249,453,805
2010-11 1813667010 1,311,493,663 502,173,347
2011-12 2794767590 2,145,870,387 648,897,203
Working Capital (In Lacs)
2009-2010 2010-11 2011-2012
Interpretation : - The net working capital of the company has increased in 2011-12. This has
happened due to increase in current assets. The working capital increased due to the increase in
the sales. In 2009-10 the net working capital is decreased due to decrease in sales. As for day to
day working we require more working capital.
Working Capital Turnover Ratio :
The ratio compares the net sales with net working capital. The indication given by this ratio is the
number of times working capital is turned around in a particular period. It measures the
efficiency with which working capital is being used by from. A higher ratio indicates better use of
working capital.
[33]

Net Sales
Working turnover ration=
Working capital
TABLE NO. 4.4 Working capital Turnover Ratio(in Rs.)
Year Net Sales Working Capital Turnover Ratio
2009-10 5,230,820,000 249,453,805 20.97
[34]

2010-11 6,341,540,000 502,173,173,347 12.63
2011-12 8,609,250.00 648,897,203 13.27
Working capital turnover ratio
2009-2010 2010-11 2011-2012
Interpretation: A higher ratio will indicate number of times working capital is turned into
net sales. For the given period working capital turnover ratio is highest in the year 2009-10
due to increase in the sales., Ratio is less in period 2010-2011. This has happened because of
increase in the net sales is not proportionate with increase in the working capital. So company
needs to pay attention to increase the sales.
Current Ratio :-
Current ratio is measure of firms, short term solvency. This ratio is also known solvency
ratio. It indicates the availability of current assets in Rs. for every one rupee of current
liability. A ratio of more than one means that the firm has more current assets than current
claims against them.
[35]

Current assets
Current ratio =
Current liabilities
TABLE NO. -4.5 Current Ratio
Year Current Assets Current Liabilities Current Ratio

2009-10 1,915,603,055 1,666,149,250 1.14
2010-11 1,813,667,010 1,311,493,663 1.38
2011-12 2,794,767,590 2,145,870,387 1.30
[36]

Current Ratio
2009-2010 2010-11 2011-12
Interpretation: - A current ratio 1.38 indicates solvent position, for period 2009-10 high
amount of current assets are maintained compare to firms current liabilities, which has resulted
in very high current ratio. Here inventory constitute major proportion of current assets., It shows
that large inventory remains idle and also company is having huge amount of debtors, so
company needs to reduce both inventories and debtors in order to have sound ratio.
CASH MANAGEMENT
The company does follow scientific methods of cash management techniques like the
preparation of budget. They prepare budget for ach item on periodical basis. The cash
positions are adjusted by drawing against book debt for their banks. The company directs
their dealers, remit their collections directly to their bank and they withdraw as when need
arises.
[37]

Current assets
Cash management ratio =
Current liabilities
TABLE NO. – 4.6 Size of cash compare to current assets
Year Current Assets Current Liabilities Current Ratio

2009-10 190,028,711 1,915,603,055 0.099
2010-11 194,067,577 1,813,667,010 0.107
[38]

2011-12 323,755,903 2,794,767,590 0.116
Size of cash compare to current assets
2009-10 2010-11 2011-12
Interpretation: - Ratio goes on increasing from the period 2009-10 to 2011-12, The ratio is
highest in the year 2011-12 i.e. 0.116 as compare to their previous year. It indicates the
satisfactory cash current ratio.
[39]

TABLE NO. – 4.7 Cash Profit Ratio
Year Cash Current Liabilities Cash to Current

2009-10 207,765,918 5,219,780,000 3.98
2010-11 400,348,266 5,230,820,000 7.65
2011-12 420,587,625 6,341,540,000 6.63
Cash X 100
Cash profit ratio=
Current liabilities
Cash Profit =Net Profit + Depreciation
Cash Profit Ratio
[40]
2010-11
Downloaded by Rushikesh Ja gt ap (ru sh ikeshj9303@gmail.com)
2009-10 2 0 11 -1 2
The ratio evaluates efficiency of operations in terms of cash generation and is not affected by
method of depreciation charged.
Interpretation: Higher cash profit ratio is better from firm’s point of view. Firm has small
amount of cash profit ratio compared to net sales volume. This indicates mismanagement in
some areas. The ratio is satisfactory in year 2011-12. In the year 2010-11 the ratio is high i.e.
7.65 Firm needs to take effort in the remove mismanagement and increase cash profit ratio.
Payables Management :
The company follows the policy of purchasing raw material on credit basis. They follow
policy of making its payment at the right time as and when it's become due. The credit period
falls between 30 to 45 days. They obtain funds through commercial paper and commercial
bank loan.
1) Creditors- Turnover Ratio :
[41]

This ratio is also known as creditor's velocity or account payable ratio. It indicates credit
period allowed to firm by its creditors. The high turnover ratio indicates that payment to
creditors is prompt but it also indicates firm is not taking full advantage of credit facility
given by its creditors.
Purchases
Creditors Turnover Ratio =
Creditors
TABLE NO.- 4.8 Creditors Turnover Ratio (in Rs.)
[42]

Year purchase Creditors Cash to Current
2009-10 93,852,555 16,325,317 5.748
2010-11 65,359,162 99,302,950 0.658
2011-12 37,361,207 25,737,871 1.451
Credit turnover ratio
2009-2010 2010-11 2011-2012
Generally credit purchase amount is used to calculate this ratio, but because of non-availability
assumed all purchase as credit purchase.
Interpretation: In the year 2009-10 the creditor's turnover ratio was so high. It indicates firm
paid to creditors very promptly & did not use credit facility efficiently. From the year 2010-2011
to 2011-2012 the creditor's turnover ratio is satisfactory.
MANAGEMENT OF INVENTORY
The engineering store of lumax Industries Ltd. holds the inventory of general store items breeder
seed foundation seed and bio-products etc. All the items received at the store are checked against
[43]

suppliers' document for quantity. Department representative ensure that items are intact, and he
inspects the stock items randomly on periodic basis. Details are recorded in stock inspection
register.
• Size of Inventory :
The size of inventory depends on many factors, like scarcity of raw material, market
conditions, change in prices of inventory items etc. A company should maintain adequate
stock of materials for a continuous supply of material to factory. Stock of finished seeds has
to be held because production and sales are instantaneous. Thus it is better to have high
inventory to total assets ratio.
1) Inventory to Total Assets Ratio :

The ratio shows proportion of inventory in total assets.
Inventory
Inventory to total assets ratio =
Total assets
TABLE NO. 4.9 Inventories to Total Assets Turnover

Ratio
[44]

Year Inventory Total Assets Inventory To
Total Assets
2009-10 763,125,970 392,607,639 1.944
2010-11 538,849,241 295,130,463 1.826
2011-12 821,597,701 355,971,067 2.308
Inventory to total asset ratio
2009-2010 2010-11 2011-2012
Interpretation : - The ratio for above three years indicates that, large proportion of total assets is
blocked in inventory in year 2011-12 which is harmful from firm's perspective.
2) Inventory Turnover Ratio :
The ratio establishes relationship between cost of goods sold during given period and average
inventory held in that period. Inventory turnover ratio indicates efficiency of firm in producing
and selling its products.
[45]

Sales - Gross profit
Inventory turnover ratio =
Average Inventory
Usually a high inventory turnover ratio indicates efficient management of inventory because
more frequently the goods are sold, the lesser money required to finance inventory. A law ration
indicates inefficient management of inventory.
TABLE NO. 4.10 Inventory Turnover Ratios
Year Net Sales Gross Profit Inventory Inventory

Turner Ratio
2009-10 5,233,320.000 279,120,000 763,125,970 6.492
[46]

2010-11 6,341,540.00 517,560.000 538,849,241 10.808
2011-12 8,609,250.000 517,410,000 821,597,701 9.845
Inventory turnover ratio
2009-2010 2010-11 2011-2012
Interpretation : - If inventory turnover ratio has decreased from past, it means sales is
dropping. Over the year's sales has continuously increased, but in the year 2009-10 the ratio is
law because of less gross profit. For years ratio is satisfactory.
3) Inventory Conversion Period :
The reciprocal of inventory turnover ratio gives inventory holding in percentage, when number
of days in year divided by turnover ratios, we obtain the days of inventory holding.
[47]

365
Inventory conversion period =
Inventory turnover ratio
TABLE NO. 4.11 Inventory Conversion Period
Year No of Days in Inventory Turnover Inventory

Year Ratio Conversion Period
In days
[48]

2009-10 365 6.492 56
2010-11 365 10.808 34
2011-12 365 9.845 37
Inventory conversion period
2009-2010 2010-11 2011-2012
Interpretation: - :
Lower inventory conversion period is always better, which implies inventory holding time is law.
Inventory conversion period is very high in 2009-10 i.e. 56.22 respectively indicates that long
period taken to convert inventory to cash.
[49]

3) Debtors Turnover Ratio :
This ratio shows credit policy followed by firm for its customers. Higher this ratio, lower is
the collection period, on the other hand lower ratio indicates higher collection period.
COGS
Debtors Turnover ratio =
Average Debtors
(Generally credit sales amount is used in calculating this ratio, but because of non-availability
we have assumed all sales as credit sales)
This ratio should not exceed the ratio decided by credit policy of the firm.
[50]

TABLE NO. – 4.12 Debtors Turnover Ratio(in Rs.)
Year Net Sales Debtors Debtors Turnover

Ratio
2009-10 5,233,320,000 624,176,511 8,384
2010-11 6,341,540,000 780,498,201 8,124
2011-12 8,609,250.000 1,318,610,623 6,529
Debtors Turnover Ratio
2009-2010 2010-11 2011-2012
Interpretation : The higher this ratio, lower is the collection period. On the other hand, a lower ratio
indicates, a higher collection period. The ratio is highest in year 2009-2010 & 2010-2011 indicates
lower collection period in these two years.
5) Average Collection Period :
[51]

The average collection period represents the time taken for collection from debtors. Generally,
the shorter collection period, better is the quality of debtors.
365
Average collection period =
Debtor’s turnover ratio
TABLE NO. -4.13 Average Collection Period
[52]

Year No of Days In Debtors Turnover Average
Year Ratio Collection Period
2009-10 365 8.384 43.53
2010-11 365 8.124 44.92
2011-12 365 6.529 55.90
Average Collection Period
2009-2010 2010-11 2011-2012
Interpretation : - Generally firm allows credit period of 60 days to its customers, but every year
collection period is less than 60, which implies that quality of debtors is good.
[53]

B. DATA ANALYSIS
INTERPRETATION AND ANALYSIS ON THE BASIS OF FINANCIAL
STATEMENT :
LIQUIDITY ANALYSIS :
Liquidity refers to the ability of firm to meet its current obligations as and when they become
due. The short term obligations are met by releasing cash from current or circulating assets.
The liquidity of the firm can be measured by different ratios.
1) Absolute Liquid Ratio :
The absolute liquidity is represented by cash and near cash items. In the computation of this
ratio, only absolute liquid assets are compared with the liquid liabilities. The absolute liquid
assets are cash, bank and marketable securities.
Cash & Bank balance
Absolute Liquid ratio =
Current liabilities
[54]

TABLE NO. – 4.14 Absolute Liquid Ratios
Year Cash and Bank Current Liabilities Absolute Liquid

Balance Ratio
2009-10 190,028,711 1,666,149,250 0.114
2010-11 194,067,577 1,311,493,663 0148
2011-12 323,755,903 2,145,870,387 0.151
Absolute Liquid Rations :
2009-2010 2010-11 2011-2012
Interpretation - In the year 2009-10 the position of liquidity is law due to fewer amounts of cash
balances it indicates that firm carries small amount of cash, which is insufficient to meet its current
obligations. In the other years the liquid ratio is satisfactory.
[55]

➢ PROFITABILITY ANALYSIS
Profitability is measured by comparing profit with some other parameters like sales, capital
employed, total assets etc, The profitability ratio measures the overall performance and
effectiveness of the firm.
1) Gross Profit Ratio :
The gross profit ratio shows relationship between gross profit and net sales. The gross profit
ratio shows the effectiveness production and manufacturing department. A high gross profit
ratio means a high margin for covering other expenses like administrative selling and
distribution etc. The firm should compare its gross profit ratio with industry average to find
out where it stands.
Gross profit X 100
Gross profit ratio =
Net Sales
TABLE NO. – 4.15 Gross Profit Ratios
[56]

Year Gross Profit Net ales Gross Profit
Ratio
2009-10 279,120,000 5,233,320.00 5.333
2010-11 517,560,000 6,341,540,000 8.16
2011-12 571,410,000 8,609,250,000 6.637
Gross Profit Ratios
2009-2010 2010-11 2011-2012
Interpretation : Higher the ratios better it is over the years, there has been consistency observed in
gross profit ratio. Almost every year company has managed to earn good percentage of gross profit,
which will be beneficial to cover other expenses like administration, selling, distribution etc.
2) Return on Capital Employed
The ratio reveals the relationship between net profit and capital employed. It reflects the
overall efficiency with which capital is used. It also reflects the earning capacity of capital
employed in business. It is the important tool of measuring performance.
[57]

Net profit X 100
Return on capital Employed =
Capital Employed
➢ Turnover Ratio
1) Current Assets Turnover Ratio :
[58]

Assets are used to manufacture the product and generate the sales. Therefore, a firm should
manage its assets efficiently to maximize the sales. The relationship between sales and
current assets is current asset turnover ratio.
Net sales
Current Assets Turnover ratio =
Current Assets
[59]

TABLE NO. – 4.16 Current Assets Turnover Ratio(in Rs)
Year Net Sales Current Assets Current Assets

Turnover Ratio
2009-10 5,233,320,000 1,915,603,055 2.73
2010-11 6,341,540.00 1,813,667,010 3.49
2011-12 8,609,250.00 2,794,767,590 3.08
Current Assets Turnover Ratio
2009-2010 2010-11 2011-2012
Interpretation : Higher Current assets turnover ratio is always better. The ratio is maximum in the
year 2010-11 i.e. 3.49 indicating the efficient use of current assets as compare to other years is
generating the sales.
[60]

5. FINDINGS
[61]

FINDINGS
1. Working capital position of the firm has increased from the period 2010 to 2012. It must be
result of increase in current assets and decrease of current liability.
2In the year 2010-11 the company has high current ratio. Need to reduce the inventory and
debtors
3 Working capital turnover ratio is satisfactory in year 2010-11 & 2011-12, because ratio is
highest in these two years.
4 Firm has maintained small amount of cash profit (ratio), compare to net sales volume.
5 In the year 2009-10 the creditor's turnover ratio was so high. It indicates firm paid to
creditors very promptly & did not use credit facility efficiently.
6 In the year 2011-12 large proportion of total assets is blocked in inventory, which may have
bad impact on profitability.
7 In the year 2009-10 & 2011-2012 inventory turnover ratio is low, indicates that management
of inventory is not satisfactory in these two year.
8 Inventory holding period was very high in the year 2009-10 .due to size of inventory is high
9 Average collection period was good in all the years; it indicates good quality of debtors.
10 Absolute liquid ratios are below the standard in year 2010-11 and it is average in the year
2009-10 & 2011-12.
11 Every year company has managed to earn good percentage of gross profit& it is increasing
every year. It ranges from 5.33 to 6.63 percent.
12 As compare to gross profit ratio Net profit ratio of the firm is very low in all years, which
indicates inefficient management in areas like selling, distribution and administration.
13 The year 2009-10 shows very low return on the capital employed i.e. 175.09 due to net loss
in this year.
[62]

6. CONCLUSION
[63]

CONCLUSION
From the study it can be concluded that, working capital requirement of the firm can be
estimated for every year and it is also possible to estimate the same for future period.
Similarly performance of working capital management can be evaluated by using different
tools. The study can help to measure performance in profitability and liquidity of the firm.
Findings of the study indicate that over the years company has shown increasing of net sales
and net profit. But the increase in both net sales and net profit is not satisfactory.
Moreover growth in net profit is not proportionate with growth in net sales. Management has
failed to keep appropriate cash and inventory, most of the time they have kept either more or
insufficient cash or inventory with them, which has resulted in low profitability. Marketing
and selling departments have achieved insufficient sales.
So in order to achieve substantial increment in profitability, the company should pay

attention towards attributes of management like cash, inventory, liquidity, administration,
selling etc.
[64]

7. SUGGESTIONS
[65]

SUGGESTIONS
• Management should pay more attention towards the management of current assets. Company
holds very high amount of current assets as compare to current liabilities. This severely
affects the profitability of the company.
• Inventory holding period in few years was very high. It implies that management should try
to eliminate inventory holding period & increase inventory turnover ratio.
• For few years proportion of inventory as compare to current assets is very high This high
amount should be reduced to fair amount.
• Though sales position & gross profit ratio of the firm is good. It has managed to earn very
small percentage of net profit. It clearly indicates firm should pay attention in managing
selling, distribution & administration department.
• The company should concentrate on cash management, because ratio has shown irregular or
non-specific trend in cash holding.
• The firm should efficiently use credit facility given by creditors, in order to have good
creditor's turnover ratio.
• To increase the inventory turnover ratio and working capital turnover ratio efficiency of
production and selling department should be increased.
• Cash profit ratio of the company is not satisfactory, cash profit of company is depend on net
profit so in order to have good cash profit ratio firm should manage to have good net profit.
[66]

8. LIMITATIONS
[67]

LIMITATIONS
➢ The project conducted was only based on the financial database available during the duration
of project.
➢ The duration of project work is not sufficient 10 understand the complete mechanism of
working capital in the firm.
➢ As the project is based on the data recorded by the company we face the limitations of
extracting the particular data our access is limited for the sake of confidential information of
the company.
[68]

9. BIBLIOGRAPHY
[69]

BIBLOGRAPHY
1) Khan & Jain, "Financial Management", P.K. published by Tata MC Graw Hill Co.
Ltd. Delhi, 4th Edition.
2) R.P. Rustogi "Financial Management" Dalbotia Publication' 3rd Edition.
• Report
Annual Report FORBES MARSHALL LTD. Pimpri, Pune
• WEBSITES
www.google.com.
[70]

Project Report On Working Capital Manage

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Project Report on Working Capital Manage

Masters in Business Administration (Shri Dharmasthala Manjunatheshwara Institute for

Studocu is not sponsored or endorsed by any college or university

In Forbes Marshall Ltd.

Under The Guidance Of

In partial fulfillment of the requirement for the degree of

Master in Business administration (M.B.A.)

Through All India Shri. Shivaji Memorial Society’s Institute

of Management (MBA) Pune - 411001

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Name – Bhupendra A. Thorat

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I am highly oblique and thankful to Mr. Parimal Lokhande, Finance Manager

I am very thankful to Director as well as my project guide Dr. Sanjay V.

Date: Bhupendra A. Thorat

Place: M.B.A. (Finance)

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Chapter CONTENTS Page No.

1 Introduction To The Study 6-13

2 Company Profile 14-21

4 Objective and Scope Of The Study 22-23

5 Research Methodology 25-28

7 Data collection & Data Analysis 29-59

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4.1 Current Asset 30

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1) Gross working capital:

2) Net working capital:

➢ Objective of working capital:

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2. Size of the Business:

4. Terms of Purchase and Sale:

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6. Large Stock of Raw Material

10. Dividend Policy:

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11. Cash Requirement:

12. Operating Efficiency:

Another important determinant of working capital is the operating efficiency of a

➢ Working Capital Cycle:

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Working capital consists of the following 6 steps:

1) Conversion of cash into raw material.

➢ Source Of Working Capital:

a. Loan from financing institution.

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(A) Current Assets:

ii) Debtors .....

iii) Marketable Securities .....

iv) Inventory .....

v) Short term loan .....

vi) Prepaid expenses .....

vii) Account receivable .....

viii) Any other .....

Total Current Assets .....

Less: (B) Current Liabilities:

ii) Outstanding expenses .....

iii) Account Payable .....

iv) Bank overdraft .....