STUDY OF

WORKING CAPITAL
MANAGEMENT
AT
CMI LIMITED

BY
SANDEEP KUMAR
09 MBA 52
CMS JMI
 Company profile
 CMI, the pioneer in the field of telecommunication,
data control, instrumentation and signalling cables.
 It is one of the major producer of special Signaling

cables for Railways, Telecom Industry and Space &

Research
 CMI has executed prestigious job of Railway

Signaling 27 stations in Iran and supplied all types of

special Signaling cables.
 OBJECTIVE OF THE
STUDY
The Objective of research has been analyzed are as
follows:
 To study the working capital management procedure
 Operating Cycle
 Ratio analysis
 METHODOLOGY
 Collection all the necessary data from the company
annual report 2008-09, 2007-08, 2006-07 and company
website.
 Tabulation of data.
 Graphical representation.
 Analysis.
CONCEPTS OF WORKING CAPITAL
 Working capital is the amount of capital
that a business has available to meet the
day- to-day cash requirements of its
operations, or more specially, for
financing the conversion of raw material
into finished goods, which the company
sells for payment.
CLASSIFICATION OF WORKING CAPITAL

WORKING CAPITAL

BASIS OF CONCEPT BASIS OF TIME

Gross Net Permanent Fluctuating

working working /fixed
capital capital
/variable
working working
capital
capital
 Analysis and findings
Gross working capital Rs in millions

2006-07 2,067.47 5000

4500

2007-08 2,499.47 4000

3500
3000
2008-09 4566.90
2500
4566.9
2000
1500
2499.43
1000 2067.47
500
0
2006-07 2007-08 2008-09
 Net working capital
2007 2008 2009
Particular
2644.6 2,499.43 4,566.90
Current Assets (A)
5
2046.37
Current Liabilities 1,990.26 2,827.35
(B)
Net Working Capital 585.38 509.17 1,739.55
(A-B)

Rs in millions
In 2009 it has increased
214.67% because of increase in 2000
inventory and increase in cash
1500
and bank balances.
585.38
1000 1739

500
509.17
0
2007 2008 2009
 OPERATING CYCLE
Operating cycle 2007 2008 2009

Raw Material Conversion 39.6 62.5 78.7

Period
Work In Progress conversion 12.9 13.8 24.2
Period
Finished Goods Conversion 38.1 29.8 53.8
Period
Debtors 37.8 43.4 53.2

Operating Cycle 128.4 149.5 209.2

 Current ratio
Particulars 2007 2008 2009
Current assets 2644.65 2,499.4 4,566.90
3
Current 2046.37 1,990.26 2,827.35
Liabilities
Current ratio 1.30 1.25 1.61

1.8

1.6

1.4

1.2

0.8 1.61
1.3 1.25
0.6

0.4

0.2

0
2007 2008 2009
 Quick ratio
Particulars 2007 2008 2009

Quick assets 1527.60 1,429.70 2,372.25

Current 2046.37 1,990.26 2,827.35

Liabilities
Quick ratio 0.74 0.71 0.84

0.9
0.85

The standard for quick ratio is 1:1. 0.8

0.75
The ratio of the company is less
0.7
than standards. It shows risk on
0.65
part of creditors to get the return. 0.6
2007 2008 2009
 Current assets turnover ratio:
Particulars 2007 2008 2009

4462.80 4,877.49 5,164.35

Sales
2644.65 249,9.43 4566.90
Current assets

Turnover ratio 1.68 1.95 1.13

2.5
2
Thus current assets are contributing 1.5
1.13 times to sales in 2009 as 1
compared to 1.95 in 2008 and 1.68 0.5
in 2007, which shows the firm 0
2007 2008 2009
adopts the policy of high current
assets
  
Working capital turnover ratio
Particulars 2007 2008 2009

Sales 4462.80 4,877.49 5,164.35

Net working capital 585.38 509.17 1,739.55
Working capital 7.62 9.57 2.96
turnover ratio

12
The above table shows that the 10
net working capital turnover ratio 8
of the unit is decreasing which 6
means no proper utilization of 4

funds by the company this year 2

than the previous year. 0

2007 2008 2009
Inventory to working capital ratio
Particulars 2007 2008 2009
2,194.64
Inventories 1,147.82 1,069.72
585.38 509.17 1,739.55
Working capital
Inventory to working 1.96 2.10 1.26
capital ratio

2.5
As the ratio is more 2
than 1:1, this implies 1.5
that there is 1

insufficient working 0.5

0
capital available to
2007 2008
finance inventories. 2009
 CONCLUSION

 CMI LIMITED has opted for a moderate overall working

capital policy. This suggests that it is risk averse. It wants
a reasonable profit with a reasonable amount of risk.

 On analyzing the operating cycle it has been found that

the operating cycle has decreased by approx. 13% as that
of previous year. In year 2008 it was 209 days while in
2007 it was 128 days. The operating cycle can be
reduced to a greater degree by trying to get a reduction in
the raw material conversion period.
 SUGGESTIONS

 The short term liquidity of the firm is not

satisfactory as it is clear from the quick ratio
which is 0.71 for 2007. The company should
take immediate steps towards its
improvement.

 The company should reduce its Reduction

in debtors cycle and finished good
Cycle.
References
 Financial Management by M.Y.Khan and P.K.
Jain
 CMI Limited Annual Report on 2008-09

2007-08, 2006-07,
 www.cmilimited.in
 www.workingcapital.com
Questions
???????
Thank You
