Kalpa-Taru Power

Transimmition Limited
1

T O P I C O N W O R K IN G C A P I T A L
P R EP A R ED BY -
G A U R A N G. P . R A VA L
SMU - 12

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 Content
2

Research Methodology
Introduction of working capital
Types of working capital
Objective of study
WORKING CAPITAL ANALYSIS OF KPTL
Limitation

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 Research Methodology
3

Scope of the study :-

 Planning of working capital management
 Working capital finance
 
Methods of Data collection :-
 Primary data:

Basic information collected from the local sources

as well as from the company staff like managers,
accountants and officers. Moreover information gathered
through practically preparing the data for working capital

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 Contd….
4

Secondary data:
1 From the B/S of the company
2 From CMA proposal report
3 From internet
4 From books

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 Introduction of working capital
5

 
Working capital refers to the cash a business requires
for day-to-day operations, or, more specifically, for
financing the conversion of raw materials into finished
goods, which the company sells for payment. Among the
most important items of working capital are levels of
inventory, accounts receivable, and accounts payable.
Working capital is commonly defined as the difference
between current assets and current liabilities

 There are two concepts of working capital

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 Contd………
6

1} Gross
 The term gross working capital, also referred to as
working capital, means the total current assets.
2}Net
 The term net working capital can be defined in two
ways:
A difference between current assets and current liabilities
B Alternate definition of NWC is that portion of current
assets which is financed with long-term funds

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 Types of working capital
7

1. Permanent working capital:

It refers to that minimum amount of investment

in all current assets which is required at all times
to carry out minimum level of business activities.
2. Temporary working capital:

The amount of such working capital keeps on

fluctuating from time to time on the basis of
business activities.

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 Contd……
8

• Initial working capital

The capital, which is required at the time of the
commencement of business, is called initial
working capital. These are the promotionexpenses
incurred at the earliest stage of formation of
the enterprise which include the incorporation fees.
Attorney's fees, office expenses and other
preliminary expenses

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 Contd…….
9

. Regular working capital

This type of working capital remains always in the
enterprise for the successful operation. It supplies
the funds necessary to meet the current working
expenses i.e. for purchasing raw material and
supplies, payment of wages, salaries and other
sundry expenses

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 Contd...
10

 Fluctuating working capital

This capital is needed to meet the seasonal
requirements of the business. It is used to raise
the volume of production by improvement or
extension of machinery. It may be secured from any
financial institution which can, of course, be met
with short term capital. It is also called
variable working capital

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 Objective of study
11

 To study the nature of working capital, concepts and

definition of working capital.
 To examine the effectiveness of working capital
management practices of the firm.
 To find out how adequacy or otherwise of working capital
affects commercial operations of the company.
 To prescribe remedial measures to encounter the
problems faced by the firm.
 To study the working capital financing or means of
financing of the company.
 
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 WORKING CAPITAL ANALYSIS OF KPTL
12

There are two methods are used for working capital.

1)Gross operating cycle.
2)Ratio analysis
the conversion of resources into inventories, into
cash. The cycle of a manufacturing company involves
three phases:
Conversion of cash into inventory;
Conversion of inventory into receivables;
Conversion of receivables into cash.

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 Inventory conversion period
13

Raw material storage period:

RMCP = Avg. inventory of Raw material * 365
……………………………………………..
Raw material consumed
 
= 15598.6 * 365 ( Rs. In Lacs)
= 86208.49

= 66 days

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Work-in-progress inventory conversion period
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WIPCP = Avg. inventory of WIP * 365

--------------------------
Cost of production

= 1096.23 * 365
= 124820.01
= 3 days

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 Finished goods conversion period
15

FGCP = Avg. inventory of finished goods * 365

---------------------------------------
Cost of goods sold
= 3264.25 * 365
= 125594.11
= 9 days

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 DEBTORS CONVERSION PERIOD

16

DCP = Avg. debtors * 365

----------------
Credit sales
 
= 59386.70 * 365 (Rs. In Lacs)
= 188183.54

= 115 days

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 CREDITORS DEFERRAL PERIOD
17

CDP = Avg. creditors * 365

------------------
Credit purchase
= 19791.4 * 365
= 59488.1
= 121 days

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 WORKING CAPITAL CYCLE
18

Net operating cycle = Gross operating cycle –

Creditors deferral period
= (RMCP + WIPCP + FGCP + DCP) – CDP
= (182 – 111) days
= 72 days

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 CURRENT LIABILITIES(rs in lacs)
19

Current liabilities 2005-2006 2006-2007 2007-2008

1. Sundry Creditors 13619.83 16132.46 23450.34

2. Advances from
customers 9324.94 18006.19 14923.75

3. Other Liabilities 4239.92 8003.36 10034.09

4. Payables under
Letter of credit 6462.40 3292.25 2836.63

5. Interest accrued
But not due 44.50 60.59 50.84

6. Unclaimed dividend ---- 10.07 13.91

7. Total Liabilities 33691.62 45494.87 51309.58

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 CURRENT ASSETS(rs in lacs)
20
CURRENT ASSETS 2005-2006 2006-2007 2007-2008
8. Cash & Bank
1664.88 9365.23 8917.15
balances

9. Inventories 13870.25 15826.99 15370.21

10. Accrued value of

Work done 8118.64 17474.23 28567.92

11. Sundry debtors 29734.83 53705.10 65068.30

12. Loans & Advances 6698.45 12104.68 15117.60

13. Total Current Assets 60087.07 108476.25 133041.21

14. Net Working Capital

(16-10) 26395.45 62981.38 81731.63

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 Ratio analysis
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Ratio(Times) 1.78 2.38 2.59

 

3
2.5
2
RATIOS 1.5
1 z

Current ratio
0.5
0
2005-06 2006-07 2007-08
YEARS

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 Quick Ratio= Quick Assets/Current Liabilities
22

  2005-06 2006-07 2007-08

Quick Assets
46216.82 92649.26 117671
 
Current Liabilities 33691.62 45494.87 51309.58
Ratio(Times)
1.37 2.04 2.29
 

2.5

1.5
RATIO S
1

0.5

0
2005-06 20 06-07 2007-08
YEAR S

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Working capital turnover ratio= Net Sales/Net working capital

23

  2005-06 2006-07 2007-08

Net Sales
87123.02 156696.35 176820.34
 
Net working capital 26395.45 62981.38 81731.63
Ratio(Times)
1.25 2.49 2.16
 

2.5

1.5
RATIOS
1

0.5

0
2005-06 2006 -07 200 7-08
YEAR S

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 Inventory turnover ratio = Net Sales/Inventory
24

  2005-06 2006-07 2007-08

Net Sales
87123.02 156696.35 176820.34
 
Inventory 13870.25 15826.99 15370.21
Ratio(Times)
6.28 9.90 11.50
 

12

10
8
RA TIOS 6
4
2

0
20 05- 06 2 006- 07 200 7-0 8
YEARS

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 Debtors turnover ratio = Net Sales/Debtors
25

  2004-05 2005-06 2006-07

Net Sales
87123.02 156696.35 176820.34
 
Debtors 29734.83 53705.10 65068.30
Ratio(Times)
2.93 2.92 2.72
 

2.95
2.9
2.85
2.8
RATIOS
2.75
2.7
2.65
2.6
2004-05 2005-06 2006-07
YEARS

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Current asset turnover ratio = Net Sales/current assets

26

  2005-06 2006-07 2007-08

Net Sales
87123.02 156696.35 176820.34
 
Current assets 60087.07 108476.25 133041.21
Ratio(Times)
1.45 1.44 1.33
 

1.46
1.44
1.42
1.4
1.38
RATIOS 1.36
1.34
1.32
1.3
1.28
1.26
2005-06 2006-07 2007-08
YEARS

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 Suggestions and Conclusion
27

Credit period for debtors should be one month and from

creditors it should be two months so that the float of
comfort is one month
To identify and locate the idle assets of the firm and
dispose off the same at competitive price in order to meet
the present working capital needs of the company.
To make commercial, financial and economic feasibility
-studies and cash flow analysis before going for any new
project. If net present value of future cash flows is
positive, then the management should go for the project

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 THANK YOU

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