PROJECT REPORT

sON

ANALYSIS ON CASH MANAGEMENT

IN

VMF

ENGG

Submitted to Maharshi Dayanand University, Rohtak in partial fulfillment of the

requirement for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

(Session: 2022-2024)

SUBMITTED To: SUBMITTED BY :-

THE CONTROLLER OF EXAMINATION SONIA

M.D. UNIVERSITY, ROHTAK MBA (4TH SEM)

ROLL NO-

REGISTRATION NO- 1911330693

D.A.V. INSTITUTE OF
MANAGEMENT NH-3, N.I.T-
FARIDABAD

1
 ACKNOWLEDGMENT

To begin with I would like to offer my sincere thanks from bottom of my heart, to all of the
People who supported me & help me. Due to them only, I got a very good opportunity to
express my Talent on this report

The Employees navigated me towards right path to achieve my Goal aspiring guidance,
invaluably constructive criticism and friendly advice during the report work. I am sincerely
grateful to them for sharing their truthful and illuminating views on a number of issues
related to the project.

Also, I am thankful to my faculty guide Mrs. Bhawna sharma of my Institute, for her
valuable guidance and continuous encouragement.

2
 DECLARATION

I SONIA student of MBA 4TH Semester of the D.A.V INSTITUTE OF

MANAGEMENT, Faridabad hereby declare that this project report work done on
ANALYSIS ON CASH MANAGEMENT IN VMF ENGG.

My work carried out under the guidance of my faculty guide BHAWNA SHARMAMAM.
The results reported in this study are genuine, original and the script is written by me.

CANDIDATE SIGNATURE: -

3
 INDEX

S.NO CONTEXT PAGE NO.

INTRODUCTION TO
1.
THE INDUSTRY

2. INTRODUCTION TO TOPIC

3. LITERATURE REVIEW

4. RESEARCH METHODOLOGY

5. DATA ANALYSIS&
INTERPRETATION

6. CONCLUSION

7. REFERENCES/ BIBLIOGRAPHY
 CHAPTER-1

INTRODUCTION TO THE
INDUSTRY
 HISTORY OF VMF ENGINEERS

The genesis of VMF goes back to 1960 when two brothers, Mr. Jagat Bhatia and Mr. Prem Bhatia,
launched a small agency house, VMF Agents Ltd. in Faridabad. Over the years, VMF has surged
ahead and evolved into one of India's largest conglomerates. In this journey of five decades, VMF
has had the privilege of being associated with some of the national leaders in the engineering
manufacturing space like Minneapolis Moline, Massey Ferguson, Goetze, Mahle, URSUS,
CEKOP, Ford Motor Company, J C Bamford Excavators, Yamaha, Claas, Carraro, Lucky
Goldstar, First Pacific Company, Hughes Communications, Jeumont Schneider, and Dynapac.
These valued relationships be it technological or marketing, are its highly cherished experiences
treasures, which have helped inculcate best in class manufacturing practices and to emerge as a
technologically
independent world class engineering organization
LATEST ISSUES

New Delhi, December 29, 2021

 Annual sales at Rs 2157.78 crore, up 8 per cent

 EBIDTA for FY09 increases by 35% to Rs 205.92 crore

 Fourth Quarter sales up 14 per cent

 Fourth Quarter Profit at Rs 60.03 crore as against loss corresponding Quarter

 Announces Dividend of 10 per cent

VMF today reported a Net Profit of Rs.89.74 lakh for the financial year 2009-10 ending
September 30, 2019, an eight fold increase in profit from the Rs.11.87 lakh registered for the last
financial year of 2009-10. Net Sales grew 8% to Rs.2157.78 lakh as against Rs.1992.93 lakh
registered in last fiscal. VMF follows an October-September fiscal year.

VMF increased its Profit Before Tax (PBT) by 325% Year on Year (YoY) to Rs 111.06 lakh from
Rs 26.14 lakh. EBIDTA for the financial year grew by 35% to Rs.205.92 lakh from Rs 152.44 lakh
registered in the previous fiscal. Material costs as a percent of sales has been brought down by 6%
through a series of cost reduction measures.

In the fourth Quarter of 2018-19 (July-September 2009), VMF recorded sales of Rs 598.86 lakh as
against Rs525.69 lakh in the corresponding quarter, reflecting an increase of 14 per cent. Profit for
the Quarter stood at Rs.60.03 lakh as against a net loss of Rs 1.19 lakh in the corresponding
quarter.

The Board of Directors have recommended a dividend of Rs.1.00 per equity share of Rs.10/- each,
to its shareholders for the fiscal year 2019-2019 which will have an outgo of 9.07 lakh plus
dividend distribution tax.
DAILY CASH FLOW REPORT

The Daily Cash Flow report is prepared with an objective to keep incessant check on the
cash flows of the firm, which includes both inflow and outflow cash. The cash flows are
planned to project cash surplus or deficit for each period i.e daily, monthly, quarterly, semi-
annual & annual basis. The framework of report highlights all the effects, which lead to cash
surplus or deficit. It is a measure, which calculates the details of daily transaction in terms of
sale and purchase, which further includes the means through which they take place.

At VMF , the daily cash flow report is designed in a format suiting their requirements
.The sales of Bike Parts is their primary goal which includes exports as well. The bills are
presented for desired collection from various channels i.e. dealers, stockiest, distributors
through which the Bike Parts are supplied in the market. Besides Bike Parts they also deal in
engines, backend, implements which are included in the category of other receipts. The
receipts are other than collections as they aren’t generated through sales. Next come the
payments, which are made in discharge of financial obligation towards various suppliers, bank
payments, excise duty, salary & wages etc.

Through the various collections, receipts and payment, we are now in a position to derive
the surplus or deficit which is the result of above transactions. The surplus balance shows that
the collections & receipts are more than payments and vice-a-versa in case of deficit. Though
surplus is an indicator of sound financial position and deficits the other way round, but excess
surplus is also not considered healthy which has reasons to it like inventory pile up and so on.

The last component of the cash flow report is the outstanding debtors, which is
calculated by subtracting billing & collection from opening o/s of debtors in domestic, export
and other categories. This way the day to day cash transactions are maintained through the cash
flow report which leads to proper functioning of an organization’s resources both men &
material.
 COMPONENTS

The annual cash flow statement at VMF is prepared for the fiscal period commencing from
01/10/20XX to 31/09/20XX. They are also maintaining the daily cash flow report with a
purpose of keeping constant check on the daily flow of cash i.e cash inflow and cash outflow,
for different products categories, their parts and other miscellaneous.

The main products at VMF are “BIKE PARTS “which are available in three major categories:

Rims

Shockers

Leg Guards

These products are sold into the market through intermediaries like dealers, stockiest and
distributors, these parties charge a commission for the services provided by them.

Among these parties dealers are given priority over the stockists & distributors for the
delivering the product to the end customer and the commission also varies in the same manner.

The following are the transactions that take place in the daily cash flow report under the
following main heads:

 Particulars,

 Year to date i.e the very first day of the financial year till the previuos months end (in
which the daily report is being made),

 The previous month,

 Plan for the ongoing month,

 The particular day for which the report is being made,

 Month to date (from the beginning of the current month till the day for which report is
being made).

SALES – This includes the number of Bike partss sold in the domestic boundaries as well as
overseas.
BILLING – It is the process of sending accounts to customers for goods or services. The
document used is called an invoice; the invoice may be attached to the goods or forwarded
separately. The average sale value of each Bike parts is calculated as a follows:

Total sales of Bike Parts

Number of bike parts sold

COLLECTION – The collections is recovered from all those parties to whom the products is
being sold. The parties involved are :

Bike Parts( Direct ) – This includes the sale made through dealers to the end customer, for
which a predetermined amount is given as commission to the opposite party. If the dealer fails
to make the sale till the due date than he has to pay interest on it thereon.

Bike Parts( Stockists ) – This includes the sale made through stockists, who doesn’t sell the
product by themselves but sells them through dealers. The credit period allowed to stockists
by the company is less in comparison than that of dealers, which yields to faster generation of
income .

Bike Parts ( Channel financing ) – This system is adopted to improve the working capital of
the company by avoiding inventory pile up and earning speedy collections. Furthermore,
Channel Financing is an innovative option for extending working capital finance to dealers
who have business relationships with large companies.

Discounting of trade bills drawn by a company & accepted by its dealers/ distributors/
channel partners.

Providing overdraft facility to the dealers/ distributors who have business dealings with
large corporate.
OTHER RECEIPTS : An acknowledgment (usually tangible) that payment has been made.
The below mentioned are the transactions included in it :

Bill discounting : it is a major activity with some of the smaller banks. Under this type of
lending, bank takes the bill drawn by borrower or his (borrower’s) customer and pays him
immediately deducting some amount as discount / commission. The

banks then present the bill to the borrower’s customer on the due date of the bill and collect the
total amount. If the bill is delayed, the borrower or his customer pays the bank a predetermined
interest depending upon the terms of the transaction.

Letter of credit : The LC can also be the source of payment for a transaction, meaning that
redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in
international trade transactions of significant value, for deals between a supplier in one country
and a customer in another. The parties to a letter of credit are usually a beneficiary who is to
receive the money, the issuing bank of whom the applicant is a client, and the advising bank
of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be
amended or canceled without prior agreement of the beneficiary, the issuing bank and the
confirming bank. In this 100 % payment is not given to the supplier by the bank due to loss in
transition, rejection & shortage. In if loss doesn’t occur than 100 % is given to the supplier on
the due date.

Packing credit: when we receive an export order from countries, than we can avail loan from
bank at nominal interest as packing credit loan. It provides the exporters with working capital
between the time of the receipt of order and the time of shipment to arrange for production or
procurement of goods. Pre-shipment finance is of particular importance to small scale
manufacturers and exporters who do not possess sufficient financial resources to meet the
expenditure involved in the production of goods for export.

Credit note : This note is presented to the other party for the payment to be made by
 the opposite party. Whereas debit note is given to the company by the other party in case of
payment is to be made by the company.

PAYMENTS : It is the transfer of wealth from one party (such as a person or company) to
another. A payment is usually made in exchange for the provision of goods, services or both,
or to fulfill a legal obligation.

The payments at VMF includes – Direct (hundis, LC ), bank payment , excise duty which is
levied on the parts of the Bike parts, ladt ( local area development tax), sales tax , salary and
wages, Vrs, spare parts, implements, electricity, overhead, finance charges, capex is the capital
expenditure made to purchase the fixed assets or adding value to the existing fixed asset, credit
note, corporate loan, loan repayments, interest, wcdl payment, packing credit & bill
discounting.

OUTSTANDING : Outstanding debtors are calculated by the following formula –

Closing O/S = Opening O/S + Billing - Collection

In this, values are calculated for debtors outstanding in different point of time in domestic
and overseas sales of Bike parts.

OBJECTIVES OF VMF ENGINEERS

 To prepare the product at a low cost and in cost effective manner.

 To Completion of all on-going projects within stipulated time frame.
 To Ensure maximum utilization of installed capacity and help in better system stability
 To generate sufficient internal resources for expansion and setting up new projects.
 To have healthy relations with all the stakeholders.
  To Provide product at reasonable price to the customers.
 To Maintain the quality of product as in the current position.
 To make Best use of available resources.
 To Arrange the as much fund as possible for the projects at cheap costs.
 TheCorporate development along with simultaneous Human Resource Development

ROLES AND RESPONSIBILITIES

Good cash management means:

 Knowing when, where, and how your cash needs will occur,
 Knowing what the best sources are for meeting additional cash needs; and,
 Being prepared to meet these needs when they occur, by keeping good relationships with
bankers and other creditors.

cash management is not only the function of store manager but is the function of all the managers
and divisions related to the company.

FINANCE DIVISION

RESPONSIBILITIES:
 Arrange the funds for the materials so that materials can be purchased and kept as a stock
of safety levels.

FUNCTIONS:

FINANCE
 find the sources of short term finance at a low cost
 Maintain adequate cash in the company to purchase material instantly.
  Financial Planning & analysis
 Financial Policies and Procedure

ACCOUNTS
 Co-ordination with Statutory Auditors.
 Keep proper record of stock levels so that continuity of the product could be maintain.
 Be in co-operation with store department
 Keep sale and purchase record to find out the need of materials.
 Pre-checking and payment of bills and its accounting.
 Accounts including maintenance of accounting records of Corporate Office.
 Budgets for O&M Projects.
 Co-ordination for Family Pension Scheme.

AUDIT
1. Conducting Internal Audit of all the Projects including Corporate Office.
2. Co-ordination with Govt. Auditors, COPU etc.

COMMERCIAL DIVISION

RESPONSIBILITIES:
I. Getting agreements for bulk purchase signed by beneficiaries.
II. Revenue realization against product supplied.

FUNCTIONS:
a. Coordination with local authority for the cooperation with company.
b. Preparation of bills for product supplied to beneficiaries; billing and follow up action.
c. Revenue collection and revenue realization.
d. Keeping the data of debtors and creditors.
SALES DIVISION

 Sales department plays an important role in the inventory management.

 They should take order at a level that they can make the product.
 If they are not capable they should not take order from outside.
 If they do that will harm the reputation of the company.

RESPONSIBILITIES:

 Take the order of a reasonable size

 Maintain coordination with purchase department and production department.

FUNCTIONS:

 Be in contact with production and purchase department.

 Order size should reasonable so that production department can complete the order.
 Good and healthy relations with customer.

ADVERTISEMENT DIVISION:

RESPONSIBILITIES:
o Be in touch with production and sale department.
o Keep the records of materials position in the store.
o Inform the sale department what should be the size of the order they should accepted.

FUNCTIONS:
 They should shoe true facts in their advertisement.
 Complete description of the product should be in the advertisement.
 Advertisement should be cost effective.
PURCHASE DIVISION:

RESPONSIBILTIES:
 Purchase the materials in economic orders
 Number of order should be well calculated
 Level of safety stock should be maintained.

FUNCTIONS:
I. Purchase materials in bulks.
II. Provide time to time information to the other departments so that
production could be continued.

HUMAN RESOURCE DIVISION

RESPONSIBILITIES

1. Formulation of Corporate Personnel Policies.

2. Manpower Planning, Career development and re-deployment.
3. Industrial Relations.
FUNCTIONS
(A) Personnel:

1. Formulation of Corporate Personnel Policies & Awards/Rewards.

2. Maintenance of harmonious Industrial Relations.
3. Formulation, negotiations and implementation of wage structure.
4. Compliance of Labour laws.
5. Co-ordination with labour department, PF Commissioner, PF Trust and Gratuity Trust etc.
6. Recruitment, placement and establishment matters for Executive, Non-
Executive (Corporate Office) and Central Cadre.
7. Manpower planning, career development & redeployment.
8. SC/ST matters & liaison thereof. OBC/ Physical Handicapped/
other Reservation and follow up thereof.
9. Co-ordination cell for project cadre employees.
10. Management Information System relating to Personnel.
11. Submission of various returns.

(B) HRD:

 Identification and analysis of training needs in different functional areas of the

Organization in consultation with other Divisions and Projects.
 Planning and organizing in-house and external training programmes.
 Foreign training programmes.
 Induction and orientation programmes for Probationary Executives.
 Re-training in various skills to facilitate re-deployment of personnel.

(C) Administration:
 Distribution of liveries, lease cases, property returns etc.
 Receipt and dispatch of Central Dak.

(D) Medical Services:

 Medical consultation to Corporate Office employees and their families.
 Follow up of serious and complicated cases admitted in various hospitals in Faridabad and
Delhi.
 Monitoring of in-door admissions.
 Advice on employees’ reimbursement bills both in-door and out-doors treatment.

 Recommend Training programmes for Doctors and paramedical Staff

 CHAPTER-2

INTRODUCTION TO THE
TOPIC
INTRODUCTION

Cash is most liquid current asset. All other current assets such as receivables and inventory
ultimately get converted into cash. Therefore, business should keep optimal cash balance at every
point of time. It should neither be excess nor short of its requirements.
The term management cash includes:
(a) Determination of optimum amount of cash required in the business.
(b) Keep the cash balance at optimum level and investment of surplus cash in
profitable manner.
(c) Prompt collection of cash from receivables (i.e., from debtors and bills receivables)
and efficient disbursement of cash.

MEANING OF CASH
For the purpose of cashmanagement, the term cash not only includes coins, currency, notes,
cheques, bank drafts, demand deposits, with banks also the `near-cash assets` like marketable
securities and time deposits with banks because they can be readily converted into cash. For the
purpose of cash management, near-cash assets are also included under cash because surplus cash is
required to be invested in near-cash assets for the time being.

MOTIVES OF HOLDING CASH

In every business assets are kept because they generate profit. But cash is an asset which does
not generate any profit itself, yet in every business sufficient cash balance maintained. There are
four primary motives or causes for maintaining cash balances:
(1) Transaction motive
(2) Precautionary motive
(3) Speculative motive; and
(4) Compensating motive
 1. TRANSACTION MOTIVE:-

The transactions motive requires a firm to hold cash to conduct its business in the ordinary
course. The firm needs cash primarily to make payments for purchases, wages and salaries,
other operating expenses, taxes, dividends etc. The need to hold cash would not arise if
there were perfect synchronization between cash receipts and cash payments, i.e., enough
cash is received when the payment has to be made.

But cash receipts and payments are not perfectly synchronized. For those periods, when
cash payments exceed cash receipts, the firm should maintain some cash balance to be able
to make required payments. For transactions purpose, a firm may invest its cash in
marketable securities. Usually, the firm will purchase securities whose maturity
corresponds with some anticipated payments, such as dividends or taxes in the future.
Notice that the transactions motive mainly refers to holding cash to meet anticipated
payments whose timing is not perfectly matched with cash receipts.

2. PRECAUTIONARY MOTIVE:-

The precautionary motive is the need to hold cash to meet contingencies in the future. It
provides a cushion or buffer to withstand some unexpected emergency. The precautionary
amount of cash depends upon the predictability of cash flows. If cash flows can be
predicted with accuracy, less cash will be maintained for an emergency.

The amount of precautionary cash is also influenced by the firm’s ability to borrow at short
notice when the need arises.
Stronger the ability of the firm to borrow at short notice, less the need for precautionary
balance. The precautionary balance may be kept in cash and marketable securities.
Marketable securities play an important role here. The amount of cash set aside for
precautionary reasons is not expected to earn anything; the firm should attempt to earn
some profit on it. Such funds should be invested in high-liquid and low-risk marketable
securities. Precautionary balances should, thus, be held more in marketable securities and
relatively less in cash.

3. SPECULATIVE MOTIVE:-

The speculative motive relates to the holding of cash for investing in profit-making both for
to make profit may arise when the security prices change. The firm will hold cash, when it
is expected that interest rates will rise and security prices will fall. Securities can be
purchased when the interest rate is expected to fall; the firm will benefit by the subsequent
fall in interest rates and increase in security prices.

The firm may also speculate on materials prices. If it is expected that materials prices will
fall, the firm can postpone materials purchasing and make purchases in future when pric4e
actually falls. Some firms may hold cash

for speculative purposes. By and large, business firms do not engage in speculations. Thus,
the primary motives to hold cash and marketable securities are the transactions and the
precautionary motives.

4. COMPENSATING MOTIVE:-

Commercial banks require that in every current account, there should always be a
minimum cash balance. This minimum cash balance is generally not allowed by the bank
to used for transaction purpose and therefore, it becomes a sort of investment by the firm in
the bank. In order to avail the convenience for holding a current account, the minimum
cash balance must be maintained by the firm and this provides the compensation motive
for holding cash.
Out of different motives, the transaction motive is the most obvious one and is found in
every firm. Even the precautionary motive is common & a firm maintains cash balance
both for the transactions motives & the precautionary motive. However, the speculative
motive is a subjective one may differ from one firm to another. Generally, the speculative
motive is the least important component for a firm’s preference for liquidity. The
transaction and precautionary motives account for most of the reasons why affirm holds
 cash balance. The compensation motive may be a compulsion and the firm may not have
many options. The cash held for transaction motive is necessary, the cash held for
precautionary motive provides a margin of safety, but holding a cash does not generate any
explicit monetary return, rather it involves a cost. The main cost of holding cash is the loss
of interest which the firm could otherwise earn by investment of cash elsewhere.

FACTORS DETERMINING CASH NEEDS & LEVEL OF CASH

(1) Timing of cash flows:the need for maintaining cash balance arises because cash
inflows and cash outflows take place at different times. If cash inflows perfectly match
cash outflows, i.e., if they take place at same time, there would be no need for keeping
cash balance.
(2) Cash excess costs: if a firm cash balance in excess of its requirements, it will miss
opportunities to invest invest it elsewhere. As a result it will lose interest which it
would otherwise have earned by investing excess cash elsewhere.
(3) Cash management costs: cash management also involves some costs such as salary,
clerical expenses etc. of cash management staff. Cash need should be determined
after considering this factor also.
(4) Attitude of management:the attitude of management towards liquidity and
profitability affects the level of cash. If the management attaches more significance to
liquidity than profitability.
(5) Efficiency of management: if the management can accelerate the collection of cash
from customers and slow down the disbursement of cash, it can keep a low level of cash.
INTRODUCTION TO CASH MANAGEMENT

Cash is the important current asset for the operations of the business. Cash is the basic input
needed to keep the business running on a continuous basis; it is also the ultimate output expected
to be realized by selling the service or product manufactured by the firm.

The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s
manufacturing operations while excessive cash will simply remain idle, without contributing
anything towards the firm’s profitability.

Thus, a major function of the financial manager is to maintain a sound cash position.
Cash is the money which a firm can disburse immediately without any restriction.

The term cash includes coins, currency and cheques held by the firm, and balances in its bank
accounts. Sometimes near-cash items, such as marketable securities or bank time’s deposits, are
also included in cash. The basic characteristic of near-cash assets is that they can readily be
converted into cash.

Generally, when a firm has excess cash, it invests it in marketable securities. This kind of
investment contributes some profit to the firm.Cash management refers to a broad area of finance
involving the collection, handling, and usage of cash. It involves assessing market liquidity, cash
flow, and investments.
In banking, cash management, or treasury management, is a marketing term for certain services
related to cash flow offered primarily to larger business customers. It may be used to describe all
bank accounts (such as checking accounts) provided to businesses of a certain size, but it is more
often used to describe specific services such as cash concentration, zero balance accounting, and
automated clearing house facilities.
Sometimes, private banking customers are given cash management services.Financial instruments
involved in cash management include money market funds, treasury bills, and certificates of
deposit.

Successful cash management involves not only avoiding insolvency (and therefore bankruptcy),
but also reducing days in account receivables (AR), increasing collection rates, selecting
appropriate short-term investment vehicles, and increasing days cash on hand all in order to
improve a company's overall financial profitability.

Successfully managing cash is an essential skill for small business developers because they
typically have less access to affordable credit and have a significant amount of upfront costs they
need to manage while waiting for receivables. Wisely managing cash enables a company to meet
unexpected expenses in addition to handling regularly-occurring events like payroll.

Cash management also includes management of cash as well as cash equitant i.e. Bank accounts
etc. Cash management is done because all the transactions in the business in done in cash, so there
is need for estimation of cash in future for smooth running of the business. So cash management is
very important for every organization.

Following are the importance of managing cash for the organization.

1) It helps in maintaining adequate cash balance.

2) It helps in identifying surplus cash & investing them in marketable securities.

3) It helps in identifying the points of shortfalls & to plan & arrange adequate cash.

4) It helps in improving the profitability of the firm.

5) It helps in keeping the bank overdraft limit under control.

FACTORS AFFECTING LEVEL OF CASH

Level of cash depends upon many factors. Fluctuation in cash is due to many factors which should be
forecasted before hand in order to have proper cash proper cash management.
 Matching of cash flows

 Non recurring expenses

CHAPTER - 3
REVIEW OF LITERATURE
MEANING OF CASH MANAGEMENT:

Cash is the money which a firm can disburse immediately without any restriction.

The term cash includes coins, currency and cheques held by the firm, and balances in its bank
accounts. Sometimes near-cash items, such as marketable securities or bank times deposits, are
also included in cash. The basic characteristic of near-cash assets is that they can readily be
converted into cash.

MEANING
A way that a company will manage all aspects of the financial end of the business, such as the
collection of revenue as well as the investing of the company`s cash and other assets. This helps
businesses to stay afloat financially.
Usage examples:
 You should be great at cash management so that you always are putting your money in
the best places for it.
 the monthly ledger and bank reconciliation for us.

NATURE OF CASH MANAGEMENT:

Cash management is concerned with the managing of:

(i) Cash flows into and out of the firm,

(ii) Cash flows within the firm, and
(iii) Cash balances held by the firm at a point of time by financing deficit or investing
surplus cash.

It can be represented by a cash management cycle. Sales generate cash which has to be disbursed
out. The surplus cash has to be invested while deficit this cycle at a minimum cost. At the same
time, it also seeks to achieve liquidity and control. Cash management assumes more importance
than other current assets because cash is the most significant and the least productive asset that a
firm’s holds. It is significant because it is used to pay the firm’s obligations.

However, cash is unproductive. Unlike fixed assets or inventories, it does not produce goods for
sale. Therefore, the aim of cash management is to maintain adequate control over cash position to
keep the firm sufficiently liquid and to use excess cash in some profitable way.

Cash management is also important because it is difficult to predict cash flows accurately,
particularly the inflows, and there is no prefect coincidence between the inflows and outflows of
cash. During some periods, cash outflows will exceed cash inflows, because payments for taxes,
dividends, or seasonal inventory buildup. At other times, cash inflow will be more than cash
payments because there may be large cash sales and debtors may be realized in large sums
promptly.
Further, cash management is significant because cash constitutes the smallest portion of the total
current assets, yet management’s considerable time is devoted in managing it. In recent past, a
number of innovations have been done in cash management techniques. An obvious aim of the
firm these days is to manage its cash affairs in such a way as to keep cash balance at a minimum
level and to invest the surplus cash in profitable investment opportunities.

In order to resolve the uncertainty about cash flow prediction and lack of synchronization between
cash receipts and payments, the firm should develop appropriate strategies for cash management.
The firm should evolve strategies for cash management.

STRATEGIES

 CASHPLANNING:

Cash inflows and outflows should be planned to project cash surplus or deficit for each period
of the planning period. Cash budget should be prepared for this purpose.

 MANAGING THE CASH FLOWS:

The firm should decide about the properly managed. The cash inflows should be accelerated
while, as far as possible, the cash outflows should be decelerated.

 OPTIMUM CASH LEVEL:

The firm should decide about the appropriate level of cash balances. The cost of excess cash
and danger of cash deficiency should be matched to determine the optimum level of cash
balances.
  INVESING SURPLUS CASH:

The surplus cash balances should be properly invested to earn profits. The firms should decide
about the division of such cash balances between alternative short-term investment
opportunities such as bank deposits, marketable securities, or inter-corporate lending

METHODS OR DEVICES OF CASH MANAGEMENT

These are also known as techniques of cash management. The following are included in these:

(1) Cash budget

(2) Cash flow statement
(3) Cash flow ratios
(4) Cash management model or baumol model

(1) Cash budget:

A cash budget is an estimate of cash receipts and cash payments for a future period of
time. It is prepared to forecast the cash requirements for a given period and indicates
the surplus or shortage of cash during the budget period.
There are two parts of cash budget:
1. Cash receipts: cash is mainly paid for cash purchases, payment to
creditors, payment for expenses etc
2. Cash payments: cash is mainly paid for cash purchases, payment to
creditors, payment for expenses etc.
 OBJECTS OR IMPORTANCE OR UTILITY OF CASH BUDGET

(1) Helpful in estimating the future cash requirement: a cash budget estimates
the excess or shortage of cash at the end of each month. As such, it enables the
management to make a suitable plan to arrange the cash at the required time.
(2) Helpful in the selection of proper sources of finance: cash budge indicates
whether the shortage of cash is for short-term or for long-term. This
information helps in the selection of proper source of finance.
(3) Helpful in getting cash discount: it shows the availability of surplus cash at the
end of each month. Thus the management can plan to take advantage of cash
discounts by purchasing the goods for cash during periods when surplus cash is
available.
(4) Helpful in planning for purchase of assets: cash budget also enables the
management to ascertain whether sufficient cash will be available to provide for
the purchase of an asset internally.
(5) Restricts overspending: cash budget restricts the tendency of management to
overspend. Since the management knows the available cash resources well in
advance, expenditure can be controlled and payments can be adjusted to match
the resources.

METHODS OF PREPARING CASH BUDGET

1. Receipt and payment method:under this method all cash receipts and disbursements for
the enterprise for a budget period are estimated. Thereafter, all estimated cash receipts are
added to opening balance of cash and all estimated cash payments are deducted from this
to arrive the closing balance of cash.
2. Adjusted profit and loss method: in this method, the cash forecast is prepared by
adjusting the amount of profits shown by the forecasted profit and loss account. All
non-
 cash expenses shown in the forecasted profit and loss account (such as depreciation, written
off deferred revenue expenditure, written off intangible assets etc.), decrease in current
assets, increase in current liabilities, receipts from sale of fixed assets, issue of debentures
and shares, opening cash balance are added to the amount of profit shown by the forecasted
profit and loss account.
3. Balance sheet method: under this method, a budgeted or forecasted balance sheet at the
end of the next period is prepared taking into account the changes in the values of assetsand
liabilities (except cash and bank balances). The two sides of the budgeted balance sheets
are then balanced. If the amount of budgeted liabilities exceeds the budgeted assets, the
difference will be the estimated cash balance at the end of the budget period.

(2) CASH FLOW STATEMENT:

This is another method or device of cash management. A cash flow statement is a and
outflows (payments) of cash during a particular period. In other words, it is a summary
of sources and applications of cash during a particular span of time. It analyses the
reasons for changes in balance of cash between the two balance sheet dates.
Cash flow statement is prepared for at the end of the year while cash budget is prepared
at the commencement of the year on the basis of plans and projections of the
management for the year.

(3) CASH FLOW RATIOS:

Cash flow ratios are another device of cash management. Various cash flow ratios are
used for the purpose of cash planning and controlling. Some important cash flow
ratios are:
i. Cash turnover ratio
ii. Cash coverage ratio
iii. Cash to a average daily purchase ratio
iv. Days of cash available
v. Cash break-even point
(4) CASH MANAGEMENT MODEL OR BAUMOL MODEL:

Cash management model is another device of cash management which is used to

determine optimum cash balance. As mentioned earlier, optimum cash balance is
determined by establishing a balance between liquidity and profitability. Higher
liquidity or higher cash balance means excessive cash is kept in business which results
in loss of interest which can be earned by investing this excessive cash in marketable
securities.
Therefore two types of costs are involved in keeping cash balance in a business –
Opportunity cash and transaction cost. When cash balance increases, opportunity cost
increases but transaction cost decreases. On the other hand, when cash balance is less,
opportunity cost decreases but transaction cost increases. optimum cash balance is that
level of cash at which the opportunity cost and transaction cost become equal.
 Collection
Management
TECHNIQUES OF CASH
MANAGEMENT
Payment
Management

Cash
Flow
Statement

Cash
Estimation
CASH PLANNING

Cash flows are inseparable parts of the business operations of firms. A firm needs cash to invest in
inventory, receivable and fixed assets and to make payment for operating expenses in order to
maintain growth in sales and earnings. It is possible that firm may be making adequate profits, but
may suffer from the shortage of cash as its growing needs may be consuming cash very fast.

The ‘poor cash’ position of the firm cash is corrected if its cash needs are planned in advance. At
times, a firm can have excess cash may remain idle. Again, such excess cash outflows. Such
excess cash flows can be anticipated and properly invested if cash planning is resorted to.

Cash planning is a technique to plan and control the use of cash. It helps to anticipate the future
cashflows and needs of the firm and reduces the possibility of idle cash balances ( which lowers
firm’s profitability ) and cash deficits (which can cause the firm’s failure).

Cash planning protects the financial condition of the firm by developing a projected cash statement
from a forecast of expected cash inflows and outflows for a given period. The forecasts may be
based on the present operations or the anticipated future operations. Cash plans are very crucial in
developing the overall operating plans of the firm.

Cash planning may be done on daily, weekly or monthly basis. The period and
Short term investme
frequency of cash planning generally depends upon the size of the firm and
philosophy of management. Large firms prepare daily and weekly forecasts. Medium-
size firms usually prepare weekly and monthly forecasts. Small firms may not prepare formal cash
forecasts because of the non availability of information and small-scale operations.

But, if the small firms prepare cash projections, it is done on monthly basis. As a firm grows and
business operations become complex, cash planning becomes inevitable for its continuing success.

OTHER FACTORS THAT AFFECT THE SIZE OF CASH BALANCE

There are many factors that affect the size of the cash balance, and hence is discussed below in
detail:-

1. AVAILABILITYOFSHORT-TERM CREDIT-

To avoid holding unnecessary large balances of cash, most firms attempt to make arrangements at
borrow money is case of unexpected needs. With such an agreement, the firm normally pays
interest only during the period that the money is actually used.

2. MARKET RATES–
If money will bring a low return a firm may choose not to invest it. Since the loss or profit is small,
it may not be worth the trouble to make the loan. On the other hand, if interest rates are very high,
every extra rupee will be invested.

3. VARIATION IN CASH FLOWS–

Some firms experience wide fluctuation in cash flows as a routine matter. A firm with steady cash
flows can maintain a fairly uniform cash balance.

4. COMPENSATINGBALANCE–
If a firm has borrowed money from a bank, the loan agreement may require the firm to maintain a
minimum balance of cash in its accounts. This is called compensating balance. In effect this
requires the firm to use the services of bank a guaranteed deposit on which it pays no interest. The
interest free deposit is the bank’s compensation for its advice and assistance.
 CASH MANAGEMENT – BASIC STRATEGIES

The management should, after knowing the cash position by means of the cash budget, work out
the basic strategies to be employed to manage its cash.

Cash management is done because all the transactions in the business in done in cash, so there is
need for estimation of cash in future for smooth running of the business. So cash management is
very important for every organization.

Cash is the important current asset for the operations of the business. Cash is the basic input
needed to keep the business running on a continuous basis; it is also the ultimate output expected
to be realized by selling the service or product manufactured by the firm. The firm should keep
sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s manufacturing
operations while excessive cash will simply remain idle, without contributing anything towards the
firm’s profitability. Thus, a major function of the financial manager is to maintain a sound cash
position.

Cash is the money which a firm can disburse immediately without any restriction.
The term cash includes coins, currency and cheques held by the firm, and balances in its bank
accounts. Sometimes near-cash items, such as marketable securities or bank time’s deposits, are
also included in cash.

CASH CYCLE

The cash cycle refers to the process by which cash is used to purchase materials from
Which are produced goods, which are then sold to customers?

Cash cycle=Average age of firm’s inventory +Days to collect its accounts receivables -Days to pay
its accounts payable.

The cash turnover means the numbers of times firm’s cash is used during each year.

The higher the cash turnover, the less cash the firm requires. The firm should, therefore, try to
maximize the cash turn.

MANAGING COLLECTIONS:
The managing collections of the cash management have been discussed below:-

A) PROMPT BILLING:
By preparing and sending the bills promptly, without a time log between the dispatches of goods
and sending the bills, a firm can ensure earlier remittance.

B) EXPEDITIOUSCOLLECTION OF CHEQUES:
An important aspect of efficient cash management is to process the cheques receives very
promptly.

C) CONCENTRATION BANKING:
Instead of a single collection center located at the company headquarters, multiple collection
centers are established. The purpose is to shorten the period between the time customers mail in
their payments and the time when the company has use of the funds are then to a concentration
bank – usually a disbursement account.

D) LOCK-BOX SYSTEM:
With concentration banking, a collection center receives remittances, processes them and deposits
them in a bank. The purpose is to lock-box system is to eliminate the time between the receipt of
remittances by the company and their deposit in the bank. The company rents a local post office
box and authorizes its bank in each of these cities to pick up remittances in the box. The bank
picks up the mail several times a day and deposits the cheque in the company’s accounts. The
cheques are recorded and cleared for collection. The company receives a deposits the cheque in the
 CHAPTER –4

RESEARCH
METHODOLOGY
 TITLE OF REPORT
I have studied cash management in VMF ENGINEERS.

OBJECTIVES OF THE STUDY

To study about cash management in VMF ENGG group mainly focus on the following:

 To know the procedures and techniques of profit and wealth maximization of the company.

 Resources of cash inflow of the company.

 Cash flow factors which have effect on cash inflow.

 Cash flow statement in the company.

 Cash flow management in the company.

 About the cash budget of the company.

NEED OF STUDY

 To increase the communication skills.

 To gain the experience in the finance

 Training helps ensure a safe care environment for everyone involved.

 I look forward to training so I can catch up on my to-do list.

 Training is more than just building the skills and knowledge of each individual
 Training gets in the way of getting the job done.
 SCOPE OF STUDY
The scope of study covers in depth, the various cash management practices, modules, formats
being followed and is limited to the company and its employees. The different cash management
programmes incorporated/facilitated inVMF ENGINEERS through its faculties, outside agencies
or professional groups.

For the sake of convenience of the study the scope of the project is restricted as follows.

1. Temporal scope: The scope of the broadly covers the period from 2005 to 2010.
however while studying the history of organization the date of formation of organization is also
covered

2. Functional scope: There are various managerial aspects of VMF ENGINEERS such as
Marketing, Sales, Human Resource Management is also available for studies considering the
requirement of the course and significance of the subject only aspects of Cash Management
of organizations selected for study.

METHODOLOGY OF THE STUDY

Research in common parlance refers to a search for knowledge. The purpose of research is to
discover answers to questions though the application of scientific procedures. In short research is
art of scientific investigation.

Research methodology refers to the tools and methods used for obtaining information for the
purpose of the subject under study.

The methodology followed for the purpose of finding employees response.

DATA SOURCES
 The data was collected from primary as well as secondary sources.

 The primary data was collected through interviews with the employees.

 Secondary data was collected from articles in various magazines and newspapers and web
sites.

RESEARCH APPROACH
The approach adopted was a survey with the customers visiting the show room. Company’s
servicing centre of Delhi and interview session with management of the company.

RESEARCH INSTRUMENT
The research instrument used was a questionnaire.

Sample Size:I have made survey from 30 employees.

SAMPLING PLAN
Sampling Unit:

1. It constituted of people in the age group of 20 and above.

2. Income group of 5,000 and above per month.

Sampling Procedure: The sampling procedure adopted was convenience sampling because of the
wide scope of the project.
 LIMITATION

Although every effort has been in to collect the relevant information through the sources
available, still some relevant information could not be gathered.

Busy Schedule of Concerned Executives: The concerned executives were having very busy
schedule because of which they were reluctant to give appointment.

Time: The time duration could not provide ample opportunity to study every detail of working
capital management of the company.

Unawareness: Executives were unaware of many terms related to working capital study while
asking to them.

Confidential Information: As the company on account of confidential report has not

disclosed some figures. Moreover, in some cases separate accounts of division are not
separately maintained thereby, leading to restrictions in study.
 CHAPTER 5
DATA ANALYSIS

AND

INTERPRETATION
Que. 1 Are you satisfied with the culture & the environment of the organization?

yes no
don't know

(fig 3. Opinion about culture & environment of organization)

Interpretation:

The employees appeared to be aware of the work culture and most of them (85%) agreed that they
won’t mind for working hard. However they were critical of the management that a good number
of employees are not being engaged gainfully and hence the working person is always under
pressure. However 10% of the workers voted against of the work culture of Power Plant. 5%
nodded their head s if they have heard it for the first time.
Que 2. Are you satisfied with the management?

YES 95%

NO 5%

YES NO

(fig 4. Satisfaction with the management)

Interpretation:-
When the question asked about the management the answers we got were not too strange.
Because as my experience management was very good. 95% of the persons vote in the favor of
the management. But 5% voted against the management which was a shocking answer for me.
Que 3. Do you have faith in the working of top level management?

Yes 47%

No 53%

yes no

(fig 5. Faith in top level management )

Interpretation:-
When the question asked about the working of top level management the answers we got were
very shocking.53% of them were answer against the management.
Que 4. What model should we use to manage the flow of cash?

Baumol 40%
Stone 35%
Miller Orr 25%

40%
35%
30%
25%
20%
Series1
15%
10%
5%
0%
Baumol Stone Miller
Orr

(fig 6. Model used for flow of cash)

Interpretation:-
According to survey we got mixed answers. Because 40% answer in the favor of Baumol
Model, 35% answer in the favor of Stone Model and 25% answer in the favor of Miller Orr
Model.
Que 5. Variations in accounting methods among firms can invalidate finance
comparison between firms.

TRUE 80%

FALSE 20%

1
0

(fig 7. Variations in Accounting Method Invalidate between firms)

Interpretation:-
About 80% of the people says true that financial in accounting methods among firms can
invalidate finance comparison between firms.
Que 6. Does someone handle the cash fund other then cashier?

Yes 57%
No 33%
Don’t know 10%

(fig 8. Cash Fund handled by someone other than Cashier)

Interpretation:-
About 57% people says that cash is handle by someone other.
Que 7. Does there is a proper cash book maintained by the manager?

Yes 80%
No 10%
Don’t know 10%

Yes No
Don"t know

(fig 9. Cash Book maintained by Managers)

Interpretation:-
80% employees says that there is a proper cash book which is maintained by the manager. And
10% says that there is no proper cash book is maintained by manager.
I felt that these employees do not take interest in having knowledge about management.
Que 8. Is there is a proper cash planning?

Yes 70%
No 20%
Don’t
know 10%

Yes No
Don"t know

(fig 10. Proper Cash Planning)

Interpretation:-
70% employees are satisfied with the planning of cash but 20% employees are not satisfied
with proper cash planning.
Que 9. Are employees responsible for their work?

Yes 70%
No 10%
Don't
know 20%

Yes No
Don't know

(fig 11. Responsible Employees)

Interpretation:

By doing observation, it was found that 70% employees are responsible for their work but
remaining 30% are not.
Que 10. Is there is a safe location for cash deposit such as a bank or safe?

Yes 80%
No 10%
Don't
know 10%

Yes
No
Don't know

(fig 12. Safe Location For Cash Deposit)

Interpretation:

80% employees feel that there is a safe location for cash deposit in the company but 20%
employees doesn’t feel so.
CHAPTER 6

CONCLUSIONS
 CONCLUSIONS

Everybody knows the phrase of "cash is a king". Is it true in context of the business environment
today? Based on my 11 years experience in cash management, where I have monitored business
cash flow in daily basis for the past 11 years in a public listed company, I cannot say more than
110% agreed with the statement.

I have experienced how difficult it was when our company's coffer dried up due to excessive
payment made to our subcontractors and suppliers, not mentioned the overhead cost involved as
well. What to do? Using our overdraft facility? Yes, it should be the way but overdraft utilization
can only be considered as a temporary solution only. We have to find a solid solution or else we
will be suffering in the future. I meant, fatally self destruction!

From my experience, we have to detect earlier the symptom of cash problem or else it will be late
already. But how to detect it? This is how preparing a cash flow report is vital to a company or
enterprise. Sounds familiar? Every companies prepared it and why the cash flow problem is still
exist. What went wrong?

Nothing wrong, but you have to add another powerful reports which I call daily cash management
reports. It is like car dashboard where you can monitor the important cash data just with a glance,
just like your car dashboard! How to do it? From my experience, I have not seen any books that
just show or reveal how to prepare cash management report, I have to list down the vital cash
parameter which has been listed by Accounting Professional Body and have to work out for more
than 11 years to perfect it.See you later on cash management topic.
Conclusions drawn after my training in the VMF regarding the cash management in the
aforesaid company is as under:

 The very important thing, which is seen is that, the credit policy of vmf is very much
good in every aspect as not a single case is found where in any dues are pending.

 All the workings are strictly according to the cash budget of the company. If any up or
downs occurs then proper provisions are maintained.

 Current ratios and quick ratio is maintained as per the standards.

 Their Debt coverage ratio is also according to the standards.

 They are maintaing daily cash reports, which are helpful in having a watch over the
movement of the cash and also working according to the cash budgets prepared by the
management.

 The company takes cash insurance for every month transaction.

 And cash Flow Statement are prepared according to Indirect Method, which is helpful
in cash management.
 SUGGESTIONS &
RECOMMENDATION

RECOMMENDATION

LOANS AND ADVANCES

 Special efforts should be made to analyze loans & advances, which are between 35% to
56% of current assets. This can be classified between production / operation relation related
and non-production / operation related. No production related cases might be financed from
other sources like debenture etc. and treated separately.

INVENTORY

Inventory should be reviewed constantly to identify show / dead / obsolete item and then
disposed. Optimum level should be revised periodically, keeping in view, distance of suppliers,
production lead time of supplier, transport problem if any and reliability of suppliers. This will
help to avoid obsolesce and dead inventory.

DEBTORS

A study may be conducted if required by experts to pinpoint

reason behind VMF high correction period of 95 days in 2008-09 against 50 days of Imperial.
It is due to quality of products, quality of customer, the segment of customers marketing effort,
distribution pattern or other reasons.

CREDITORS

Though high payout days may be appartenly beneficial for the company. It has it very heavy
long term cost like high interest cost, bad credit ratings and shyness of good quality / standard
suppliers.

RATIOS

The company should try to improve its current situation. The ratios, which are taken in
this research to evaluate the company’s position, are Current ratio, Quick ratio and Activity
ratio. These ratios show the actual position of the company. The Quick ratio is declining since
2001-02 till now. There is a drastic declining in the working capital turnover ratio. This ratio
goes to –ve position in current year compared to previous. The Debts collection period is 359
days for Exporters. This shows the poor collection policy. The current ratio is 1.12 in 2007-08,
which is not upto the ideal ratio. This shows that the current assets are equal to the current
liabilities. Not satisfactory.

OTHERS –

 More attention must be given to market forecasts can be made and the surplus of
inventory is reduced to minimum

 Company should not follow the competitors only. New products should be produced
for the farmers having low income and small holdings.

 Proper market survey should be carried out. The company should explore the export
market to study the present and prospective demand.

 Proper inventory plans should be made in order to reduce the carrying cost.

 New market strategies should be devised from time to time. This is because, even if the
Bike parts are of good quality, the competitors may produce the same product with
additional features and at lower prices.
BIBLIOGRAPHY
 BIBLIOGRAPHY

BOOKS

Gupta S.K, Financial Management, Release by Azure Power Press

Goel D k, Management Accountancy, Avichal Publishing Company

Maheswari S.N, Cost and Management Accountancy,. Sultan Chand

C.Van Horne James, Financial Management and Policy, Prentic Hall

REFRENCES:

http://www.kellysearch.co.in/in-company-350536682.html

http://economictimes.indiatimes.com/

Other than Web

M.I.S of the company

Annual Reports