PROJECT REPORT

ON

“WORKING CAPITAL”
IN
JAY BHARAT EXHAUST SYSTEMS LTD.
(Submitted in the partial fulfillment of the requirement for the
two years Master’s Degree (M.B.A.))

TO
UTTRE PREDESH TECHNICAL UNIVERSITY,
LUCKNOW
Session (2006-07)
Under guidance of: -
Mr. Ruchir Gupta
Manager- Finance

Submitted by: -
PRAGATI SINGH
M.B.A.

TEERTHANKAR MAHAVEER INSTITUTE OF

MANAGEMENT & TECHNOLOGY
MORADABAD
 ACKNOWLEDGEMENT

It is universally known truth that there is someone behind the success of ones career. That
is the reason that I am neither claiming credit of preparation of this in training report, it is
the guidance from audition luminaries of the field, which prove to be rewarded.

First of all I wish to express my sincere and heart full thanks to my teachers who helped
me for guidance for doing training, and I am highly obliged to my all teachers who
helped me a lot for the arrangement of my training.

I would like to thanks all the family members of JAY BHARAT EXHAUST
SYSTEMS LTD., FARIDABAD.

For their support and guidance they have provided to me, which has proved vital for my
training. I would like to thanks Mr. H.C. Popli (Unit Head), Mr. Ruchir Gupta (Manager),
Mr. Pawan Gupta (Assistant Manager), Mr. Jagdish Mor (Assistant Manager), Mr.
Heardya Nand Misra (Executive), Mr. Ravinder Pal Singh (Executive) for reading this
report, providing guidance based on their practical experience in the industry for the
betterment of this project.
Preface
Guide Certificate
Company Profile
Product Profile
Objective of the Study
Introduction
Working Capital Requirement
Classification of Working Capital
Working Capital Turnover Ratio
Operating Cycle & Working Capital Needs
Working Capital Financing
 Data Analysis & Interpretation
Limitations
Conclusion
Bibliography
 PREFACE
The need for working capital to run the day-to-day business activities is to be
emphasized, “we will hardly find a business firm which does require any amount of
working capital”. It is concerned with the problems that arise in attempting to manage the
current assets, the current liabilities and the interrelationship that exist between them.
The goal of working capital management is to manage firm’s current assets and
liabilities in such a way that a satisfactory level of working capital is maintained “this is
important because if the cannot maintain a satisfactory level of working capital, it is
likely to become insolvent and may even be forced into bankruptcy”. The current assets
should be large enough to cover its current liabilities in order to ensure a reasonable
margin of safety. The interaction and balance of current assets and current liabilities is
therefore the main theme of theory of working capital.
For the convineance of study the whole current assets and current liabilities are further
divided into cash management, receivables management, inventory management however
the emphasis in the study is on the financing of working capital requirement which is
mainly through banks, starting right from assessment of projection of working capital
requirements, preparation of CMA form up till sanctioning of limits by bank.
 INTRODUCTION

JBM Group

JBM Group begins its engineering activities in 1983 with the establishment of Gurera
Gas Cylinders Limited and entered the auto component industry in 1985 with the
inception of Isuki Auto India.

Jay Bharat Maruti Limited, a joint venture between JBM Group and Maruti Udyog
Limited, was set up in 1987 to manufacture sheet metal components and welded
subassemblies for various Maruti Suzuki models.

The first decade has been one of consolidation and diversification. And has seen JBM
emerging as a quality leader. With the establishment of JBM Tools Ltd., a Joint venture
with Tata’s and a number of other units spread across the country, today JBM is a front
ranking entity in auto components. JBM has the resources, expertise and infrastructure to
manufacture a range of products such as sheet metal stampings, press tooling, jigs and
fixtures, and safety restraint systems.

Driven by a commitment to customer satisfaction and international standards of quality,

JBM has not only won customer confidence but also industry recognition through several
awards and accolades.

With modern in-house manufacturing facilities and twenty-eight plants country wide,
JBM supplies components on JIT (Just in Time) basis to leading auto manufacturers,
meeting quality and quantity requirements. JBM is an established source for the
components sector, white goods industry, and defense. Since the early days, JBM has
drawn on the technology strengths of leaders from the world over. Coupled with a strong
commitment to customer focus, product quality, delivery schedules, and being cost-
competitive, JBM stands poised to meet new challenges

Complex automobile exhaust systems are another area where JBM has demonstrated
exceptional competence. Today, JBM is an excellent source for two and four wheeler
exhaust systems in the country and a major OE supplier. The manufacturing of exhaust
systems incorporating new design and development needs elaborate facilities. At JBM,
these facilities include curling, seaming, flanging, and seam welding machines, CNC pipe
bending machines, double coiling with multi spot welding. Welding SPMs, baffle
assembly stations, shot blasting and electrostatic painting equipment
Locations
 Jay Bharat Maruti Ltd.
 Neel Metal Product Ltd.
 JBM Auto Ltd.
 Jay Bharat Exhaust Systems Ltd.
 Neel Industries Pvt. Ltd.
 Jaico Steel Fasteners Ltd.
 Thai Summit Neel Auto Pvt. Ltd.
 Thyseenkrupp JBM Pvt. Ltd.
 JBM Fanalca Environment Management Pvt. Ltd.
 JBM Industries Ltd.
 Arcelor Neel Tailored Blank Pvt.Ltd.

CUSTOMERS: -

 JCB INDIA LTD., BALABGARH

 JCB INDIA LTD., PUNE
 HINDUSTAN MOTOR LTD., HUGALI
 ASSOCIATE LIGHT LAMP PVT. LTD., NOIDA
 JAY BHARAT MARUTI-I, GURGAON
 JOHN DEERE EQUIPMENT PVT. LTD
 HONDA MOTOR AND SCOOTER PVT. LTD.
 NEEL METAL PRODUCT LTD.-I, GURGAON
 NEEL METAL PRODUCT LTD.-VIII, HARIDAWAR

COUNTRYWIDE PLANTS OF JBM GROUP

• DELHI: -

1. JBM Corporate Office

• GURGAON: -

1. Jay Bharat Maruti Ltd. Plant -1

2. Jay Bharat Maruti Ltd.(Plant-II)
3. Jay Bharat Maruti Ltd. (Plant-III)
4. Neel Metal Products Ltd.
5. Thai Summit Neel Auto Pvt. Ltd.

• NOIDA: -

1. JBM Auto Ltd, Plant-II

• FARIDABAD: -

1. JBM Auto Ltd. Plant-1

2. JBM Auto Ltd. (SPV Division)
3. Jay Bharat Exhaust System Limited.
4. JBM Industries Ltd.
5. ANS Steel Tubes Ltd.
6. Jaico Steel Fasteners Pvt. Ltd.

• UTTARAKHAND: -
1. Neel Metal Products Ltd.
2. Neel Metal Products Ltd.
3. Thai Summit Neel Auto Pvt. Ltd.
4. Thai Summit Neel Auto Pvt. Ltd.

• UTTAR PARDESH: -

1. Gurera Industries Ltd.

• MAHARASHTRA: -

1. Thai Summit Neel Auto Pvt. Ltd.

2. JBM Auto Ltd.
3. JBM Marketing Office.

• TAMIL NADU: -

1. Thyssenkrupp JBM Pvt. Ltd.

2. Neel Industries Pvt. Ltd.
3. Thai Summit Neel Auto Pvt. Ltd.

• PANDICHERRY: -

1. Neel Industries Pvt. Ltd.

• CHENNAI : -

1. Neel Industries Private Limited.

2. Thyssen Krupp JBM private limited.
 RIDING INTO THE FUTURE

After the first decade of credible growth and achievements, JBM is looking forward to
the new millennium. International auto manufacturers are now in India. The automobile
industry changing fast. New collaborations and new care are here, heralding another
exciting era.
And JBM is posed to accelerate future in the near future. The diversification in to safety
systems, chassis and suspension systems marks the beginning in this direction.

As a significant player in the automotive industry, JBM is determined to move with the
times. Taking on new challenges achieving new milestones.

Weld shop, comprising of contemporary equipment and highly versatile machines from
the heart of JBM's fabrication operations, these gigantic weld shops utilize an array of
modern welding gadgets like stationary spot welding, MIG/TIG welding, submerged are
welding and SPM's.
JBM's highly developed skills in welding operations contribute significantly to superior
quality and reliability of the end product, which is the hallmark of JBM.
 JAY BHARAT EXHAUST SYSTEM LTD.

Jay Bharat Exhaust System Ltd. (JBES) is promoted by the JBM group. The JBM group
is associated with mfg of Sheet Metal Components, Exhaust System, Welded Assemblies
and other automobile parts and supply to various OEMS.the JBM group has been dealing
with Canara Bank since 1986.
JBES is original located as HSIDC Industrial complex, sector-59 Faridabad and now
shifted to Plot No.262, Sector-24, Faridabad and is operational since September, 1998.

LOCATION: -

Plot No.: 268, Sector – 24,

Faridabad: 121005
Phone :0129- 4068373
0129- 4068374
Fax: 0129- 4068372
E-mail: jbes@jbes.co.in
Website: www.jbmindia.com
 PRODUCT PROFILE

In the JBES plant mainly has two shops:

1) Welding Shop
2) Press Shop

1) Welding Shop

Welding forms the major bulk of the operations carried out in the plant. The plant has the
facilities for the MIG welding, TIG welding, PROJECTION welding and SPOT welding.

2) Press Shop

In the press shop the operations like FORMING, PIECERING, PUNCHING etc are
done .The plant has HYDRAULLIC PNEUMETIC and MECHANICAL PRESSES.

Beside these operations and equipments the plant has CNC and PIPE BENDING
machine, FLARING machines, CURLING and SEAMING machines also. Some of
product manufacture in the plant is: -

Product Range
A list of the products that are made in the plant is displayed on the adjoining page the
list shows that the plant makes a huge number of products.
 Silencer Assembly
 Front Fork
 Muffler Assembly
 Pipe Sub-Chamber
 Texture Base
 END Plate Muffler
 Insulator Muffler Heat
 Front Pipe Assembly
 Stem Steering
 Reinf Door Hinge
 Pipe Complete Exhaust

Production Volume
Production of JBES of different-different motor equipments is 72432 units per day. Total
Turnover of JBES is sixty crores annualy nearby.
 PRODUCTS
A list of the products that are made in the plant is displayed on the adjoining page the
list shows that the plant makes a huge number of products.

PIPE SUB-CHAMBER LINE

Pipe sub chamber assembly used in the silencer of Maruti cars is manufactured. The
various processes involved include MIG, TIG welding, squeezing, facing, grinding
and leak testing.

HMSI FRONT FORK

Front Forks used in the Activa and Eterno scooters of HMSI are made.
The input material for this is the pipe, which has undergone bending, forming, and
pushing, piercing and then sizing on the HMSI pipe bending section. As this pipe passes
through this line a number of parts are welded into it with the help of the MIG welding
machine the front fork used in the Activa and Eterno.
 HMSI HOLDER

Holder assembly used in the shop absorbs of ACTIVA and ETERNO Is made the
major process carried out in this process is MIG welding and BAFFLING the main
steps provided are

MARUTI BAFFLE LINE

Baffle is the name given to the part that forms the inner structure of silencer of car.
There are two baffle s in the plant one for Maruti Wagon r and other for Alto and
Maruti 800 .In both the only difference is of the component being assembled besides
this the process performed are same.
 PROCESS OF HINDUSTAN MOTER’S PRODUCT
Hindustan Motor is one of the major customer of JBES.JBES prepares silencer for
Hindustan Motor. The process of Hindustan Motor’s silencer is as follows: -

1.ROLLER (SRM-001): - For preparing silencer the process needs steel sheet, which
has .66 thicknesses and 481905 lengths. Then manufacturing process become start. This
machine used for give the roll shape to the steel sheet.

2.SPOT WELDING (SSW-001): - After rolling, the steel sheet is ready for welding
with the help of this machine. It welds the sheet and converts it into a roller pipe.

3.CURLING (CSM-002): -After the welding, the curling will be start. It is use for curl
the edge of the roll.

4.PRESSING (PMP-001): - Now the roller needs to the pressing so that the emplate,
which is the inner part of the silencer and prepared in advance, fixed in the roller.

5.SIZING (FM-001):-For give the exact size to the roller ,FM-001 is used. With the help
of this the size and shape is to be perfect for the emplate of the silencer.

6.BOP COMPONENT:-With the help of PMP-001 emplate sets in the roller.

7.FINAL CURLING:- Thus the both edge of the roller are jointly curled. The final
gives the smooth ness to the silencer.

8.PAINT:-In the last the product needs to the paint. It is the last step of the process.

Thus the process of HINDUSTAN MOTER’SILENCER is over.

VARIOUS MACHINES AVAILABLE

1) MIG WELDING MACHINES - 60 Nos.
2) TIG WELDING MACHINES - 03 Nos.
3) PIPE BENDING MACHINE - 03 Nos.
4) HYDRAULLIC PRESS MACHINE - 04 Nos.
5) MECHANICAL PRESSES MACHINE -03 Nos.
6) SHEARING MACHINE -01 No.
7) PIPE FLARING MACHINE -02 Nos.
8) SHEET ROLLING MACHINE -01 No.
9) PROJECTION WELDING MACHINE -09 Nos.
 OBJECTIVE

 My Project Report mainly focuses on “Working Capital”.

 My Project study also focuses on the main point that the basic objective of the
company.
 To ensure smooth & efficient working of a department.
 To promote individuals and collective, morals a sense of responsibilities,
regarding best utilization of resources.
 To develop the different sources of finance.
 To know the financial position of the company.
 Stability & growth.
 Development & Promotion of funds in the organization.
 To focus on Importance of financial analysis. It helps to achieve goals of
organization.

 To understand the effectiveness of financial activity of Jay Bharat Exhaust

Systems Limited.

 To Compare the Assets and Liabilities of the company.

 To know the profitability position of Jay Bharat Exhaust System Ltd.

 To know about the trend of profits and sales of the company.

 SIGNIFICANCE OF STUDY
Finance is the life of any business. No business can run properly unless it maintains its
cash. Blood is essential for human being alive. In case of business finance take the
position of blood. Hence this Project becomes vital for organization-paying attention to
financial management. Ratio Analysis however is important because of following
reasons: -
 To help a company to fulfill it future financial needs.
 To increase the productivity.
 To improve organization climate.
 To effect the financial growth.

Besides the objectives the scope of the project includes: -

 To managing the financial activity.
 To help the Finance Department to evaluate shortcomings in the financial
programs.
 To help the Finance Department to effective utilization of the funds.
 To help the Finance Department to understand where the scope of improvement in
the future is.
 To help the Finance Department to evaluate the financial activity of the
organization
 To help in inventory control.
 To help the Finance Department to evaluate the comparative study.
 To help in know the financial position of the company.
 To help the Finance Department in forecasting.
 FINANCIAL MANAGEMENT

Finance is the life of any business. No business can run properly unless it maintains its
cash. Blood is essential for human being alive. In case of business finance take the
position of blood. Now the question arises what is finance. Simply finance is known as
cash and monetary terms but finance means more of it. Finance means measure the
financial requirement and allocate cash in different heads for proper working of each
department.
The word management refers to manage-men-t. It means manage the men tactfully.
Here the word men mean all those person who are working in the organization.
“Financial management is that managerial activity which is concerned with the
planning and controlling of the firm’s financial resources”

According to Howard & Upton “ Financial Management is the application of

planning and controlling function to the finance function”.

Thus financial management means manage the financial activity of the company. There
are different approaches regarding financial management.

Traditional Approach
Under this approach financial management refers to rising of funds through various
sources according to current need of the company. This approach is mainly concentrate
on rising of fund. Through different sector in this approach the main thing is raising of
capital.

Transactional Approach
Under this approach financial management refers to inflow and outflow of cash in
operating activity. Operating activity means purchase and sale of material.

Modern Approach
Modern approach is rising of funds through different sources and utilizes them
effectively. Capital budgeting and cost of capital must be kept in mind while raising the
funds. Capital budgeting means the investment in capital goods in such a way so that we
can get back our invested money easily and quickly. Cost of capital means what is the
cost of raising capital. The return demanded by preference shareholders, the interest rates
demanded by debenture holders, dividend requirement of equity capital holders is
considered as cost of capital.
Utilization of funds means effective utilization of funds in inflow-outflow; allocate
the cash to different department in such a way so that business can run successfully. Thus
financial management means rising of funds through different sources and utilizes them
effectively.
 SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Preparation of Financial Statements

The Financial statements have been prepared under the historical cost convention, in
accordance with applicable Accounting Standards and provisions of the companies
Act, 1956 as adopted consistently by the Company.

2. Recognition of Income/Expenditure
All incomes & expenditures having a material bearing on the financial statement are
accounted for on an accrual basis and provision is made fore all known losses and
liabilities.

3. Fixed Assets
Fixed assets are stated at cost, net of Modvat/Cenvat/Vat, less accumulated
depreciation. Cost of fixed assets comprises purchase price, duties, levies borrowing
cost, net charges on forward exchange contracts and exchange rate variations and any
directly attributable cost of bringing the assets to its working condition for the
intended use.
Machinery spares that can be used only in connection with an item of fixed asset and
their use is expected to be irregular are capitalized. Replacement of such spares is
charged to revenue.
Intangible assets acquired on or after 1st April 2003 satisfying the qualifying
conditions prescribed under Accounting Standard 26- Intangible assets, issued by
Institute of Chartered Accountants of India are capitalized.

4. Capital Work in Progress

Advance paid towards acquisition of fixed assets and the cost of assets not ready to
put to use before the year end, are disclosed under capital work in progress.

5. Impairment of Assets
Carrying amount of cash generating units/assets is reviewed for impairments,
Impairment, if any, is recognized where the carrying amount exceeds the recoverable
amount being the higher of net realizable price and value in use.

6. Inventories
Inventories are valued at lower of cost and net realizable value. The cost of raw
material is determined by using First-In-First Out (FIFO) method. However, scrap is
valued at Net realizable value. Cost of finished goods and work in progress includes
cost of conversion and other cost incurred in brining the inventories to their present
location and condition.

7. Sales
Sales are recognized on dispatch of goods from the factory and are net of discounts
but exclude sales tax.

8. Depreciation
Depreciation on fixed assets is provided on written down value basis at the rate and in
the manner prescribed in schedule XIV to the Companies Act, 1956. Depreciation is
charged on pro-rata basis for assets purchased/sold during the year. Individual assets
costing Rs. 5000 or less is depreciated in full in the year of purchase. Depreciation on
incremental cost arising on account of translation of foreign currency liabilities for
acquisition of fixed assets is provided as aforesaid over the residual life of the
respective assets. Costs of intangible assets are amortized over five years.

9. Foreign Exchange Transactions

Transactions denominated in foreign currencies are normally recorded at the
exchange rate prevailing at the time of transaction. Monetary items denominated in
foreign currencies outstanding at the year-end are translated at exchange rate
applicable as on that date. Non-monetary items denominated in foreign currency are
valued at the exchange rate prevailing on the date of transaction. Any income or
expenses on account of exchange difference either on settlement r on translation is
recognized in the profit and loss account except in cases where these relate to the
acquisition of fixed assets.

10. Borrowing Cost

Borrowing Cost that is attributable to the acquisition or construction of qualifying
Assets is capitalized as part of the cost of such assets. A qualifying asset is one that
necessarily takes substantial period of time to get ready fore intended use. All other
borrowing costs are charged to revenue.

11. Claims
Claims receivable are accounted for on the certainty of receipt & claims payable are
accounted at the time of acceptance.

12. Excise Duty

Excise duty is accounted on the basis of both payments made in respect of goods
cleared as also provision made for goods lying in bonded warehouse.
Cenvat claimed on Capital goods is credited to capital Assets/capital work in
process. Cenvat claimed on purchase of raw and other materials are deducted from
cost of such material
13. Retirements Benefits
Contribution to Provident fund are made to the Employees Provident fund schemes
administered through Provident fund Commissioner and company’s contributions is
charged to revenue. The Gratuity is funded through payment to Life Insurance
Corporation of India. Company’s contribution paid/payable to said fund is charged to
Profit & Loss Account. Provision is made for the value of unutilized leave due to
employees as at the year on the basis of actuarial valuation.

14. Miscellaneous Expenditure

Preliminary Expenses are amortized over a period of ten years.

15. Dividend
Provision is made in the financial statements of dividend proposed for approval at the
subsequent Annual General meeting.

16. Income Tax

Provision for current Income Tax is made after taking credit for allowances and
exemptions. In case of matters under appeal, due to disallowance or otherwise, the
same is considered for provision when company accepts the said liabilities.
In accordance with Accounting Standard 22- Accounting for Taxes on Income, issued
by the Institute of Chartered Accountants of India, the deferred tax for timing
differences between the book and tax profits for the year is accounted for using the
tax rates and the tax laws that have been enacted or subsequently enacted as of the
date of balance sheet.
Deferred tax assets arising from temporary timing differences are recognized to the
extent there is virtual certainty that the sufficient future taxable income will be
available against which such deferred tax assets can be realized and are reviewed at
each balance sheet date to reassure the realization.
 WORKING CAPITAL MANAGEMENT
Introduction

Every business needs funds for two purposes for its establishment and to carry out day-
to-day operations. Long term funds are required to create production facilities through
purchase of fixed assets such as plant and machinery, land building, furniture etc.
investment in these assets represent that part of firm’s capital, which is blocked on a
permanent or fixed basis is called fixed capital.
Funds are also needed for short-term purposes of raw materials, payment of wages
and other day-to-day expenses etc. these funds are known as working capital.

. MEANING OF WORKING CAPITAL

Working capital refers to that part of firm’s capital, which is required for financing short
term or current assets such as cash, marketable securities, debtors and inventories.

DEFINITIONS OF WORKING CAPITAL

In the words of Shubin, “working capital is the amount of funds necessary to cover
the cost of operating the enterprise.”
According to Genestenberg “ Circulating capital means current assets of a
company that are changed in ordinary course of business from one form to another
as for example, from cash to inventories, inventories to receivables, receivables into
cash”.
 NATURE OF WORKING CAPITAL
Working Capital management is concerned with the problems that arise in attempting
to manage the current assets, the current liabilities and the inter-relationship that exists
between them. The term current assets refer to these assets which in the ordinary course
of business can be, or will be, Converted into cash within one year without undergoing
the diminution in value and without disrupting the operating of the firm, whereas the
current liabilities are those liabilities which are intended, at there inception, to be paid in
the ordinary course of business, within a year out of current assets or earning of the
concern. Thus the goal of working capital management is to manage the firm’s assets and
liabilities in such a way that a satisfactory level of working capital is maintained. The
interaction between current assets and liabilities in such a way that optimum level of
current assets, the trade off between profitability and risk which is associated with the
level of current liabilities and assets, better financing mix strategies and other short term
goals are attained.
There are two concepts of working capital: Gross and Net
1. The term gross working capital, also referred to as working capital, means the total
current assets.
2. The term net working can be defined in two ways.
Difference between current assets and current liabilities.
The task of the financial manager in managing working Capital efficiency is to ensure
efficiency liquidity in the operations of the enterprise. The basic three measures of a
firm’s overall liquidity are: Current ratios, Acid test ratio, Net Working Capital. For the
purpose of working capital management

Therefore, NWC Can be said to measure the liquidity of the firm. In other words,
the goal of working capital management is to manage the current assets and
liabilities in such a way that an acceptable level of NWC is maintained.
 IMPORTANCE OF ADEQUATE WORKING CAPITAL

Working Capital is very essential to maintained the smooth running of the business. It
is lifeblood and nerve center of a business. No business can run successfully with out
adequate amounts of working capital.
1. Adequate working capital helps in maintaining solvency of the business by providing
uninterrupted flow of production.
2. It also enables a concern to avail each discount on the purchases and hence it reduces
casts.
3. Sufficient working capital enables a business to make prompt payments and helps in
creating and maintaining goodwill.
4. A concern having adequate working capital enables and high solvency can average
loans from banks and others on easy and favorable terms.
5. Adequate working capital ensures regular supply of raw materials.
6. A concern can also pay quick and regular dividends to its investors, as there may not
be much pressure to plough back profits because of adequacy of working capital.
7. Sufficiency of working capital creates an environment of security, confidence, and
high morale and creates overall efficiency of a business.

Adequacy of working capital also enables a firm to make regular payments of

salaries, wages and other day-to-day commitments, which raises the morale of its
employees, increase their efficiency reduces wastages and costs and enhances
production and profits.
 WORKING CAPITAL REQUIREMENT
“WORKING CAPITAL IS THE LIFE BLOOD AND CONTROLLING NERVE
CENTRE OF A BUSINESS.” No business can be successfully run without an adequate
amount of working capital. To avoid the shortage of working capital at once, an estimate
of working capital requirements is not an easy task and a large number of factors have to
be considered before starting this exercise. The following factors have to be considered
for this: -

1. The length of sales cycles during which inventory is to be kept waiting for sales.
2. The average period of credit allowed to customers.
3. The amount of cash required paying day-to-day expenses.
4. The average amount of cash required making advance payments, if any.
5. The average credit period expected to be allowed by suppliers.
6. Time lag in payment in wages and in other expenses.

From the total amount blocked in current assets estimated on the basis of first for items
given above, the total current liabilities i.e. the last two items is deducted. In order to
provide for contingencies, some extra amount calculated as a fixed percentage of WC
may be added as safety margin.

NEED OF WORKING CAPITAL

The need for the working capital (gross) or current assets cannot be over emphasized.
Given the objectives of financial decision making to maximize the shareholder’s wealth,
it is necessary to generate sufficient profits. The extent to which profits can be earned
will naturally depend, among other things. Open the magnitude of sales. A successful
sales program is necessary for earning profits by any business enterprise. There is a need
of working capital in firm of current assets to deal with the problem arising out of the
lack of immediate realization of cash against goods sold. Thus sufficient working capital
is necessary to sustain sales activity. Technically, this is referred to as the operating or
cash cycle.
 CONCEPT OF WORKING CAPITAL
There are two concepts of working capital:

1. Gross working capital: In the broad sense, the term working capital refers to the
gross working capital and represents the amount of funds invested in current assets. Thus,
gross working capital is the capital invested in the total current assets of the enterprise.
Current assets are those assets, which in the ordinary course of business can be converted
in to cash with in a short period of normally one accounting year. Constitutes of current
assets are:
Current Assets

SR. No. Constitute of current Assets

1. Cash in hand
2. Cash at bank
3. Bills receivables
4. Sundry Debtors (less pro. For bad debts)
5. Short term loans and advances
6. Inventories of stocks:
(a) Raw materials
(b) Work in process
(c) Stores and spares
(d) Finished goods
7. Temporary investments of surplus funds
8. Prepaid expenses
9. Accrued incomes
.

2. Net working capital: In a narrow sense, the term working capital refers to the net
working capital. Net working capital is the excess of current assets over current
liabilities. So,

Net working capital = current assets –current liabilities

Net working capital may be positive or negative. When the current assets exceed the
current liabilities the working capital is positive and the negative working capital results
when the current liabilities are more than current assets. Current liabilities are those
liabilities, which are intended to be paid in the ordinary course of business with in a short
period of normally one accounting year out of the current assets or the incomes of the
business. Constitutes of current liabilities:

Current Liabilities

SR. NO. Constitutes of current liabilities

1. Bills payable
2. Sundry creditors or accounts payable
3. Accrued or outstanding expenses
4. Short term loans, advances and deposits
5. Dividend payable
6. Bank overdraft
7. Provision for taxation
 CLASIFICATION OF WORKING CAPITAL

KINDS OF WORKING CAPITAL

ON THE BASIS OF ON THE BASIS OF TIME

CONCEPT

PERMANENT OR TEMPORARY
GROSS NET WORKING FIXED WORKING OR VARIABLE
WORKING CAPITAL CAPITAL WORKING
CAPITAL (MINIMUM CAPITAL
AMOUNT ALWAYS
REQUIRED)

SEASONAL W.C. SPECIAL W.C.

(SEASONAL (SPECIAL DEMANDS
DEMAND) LIKE
RESEARCH)
.

On the basis of concept:

On the basis of concept working capital may be divided into two parts i.e.
A) Gross working capital: Gross working capital is the capital invested in total current
assets of the enterprise.
B) Net working capital: Net working capital is the excess of current assets over current
liabilities, so,
Net working capital = current assets –current liabilities

On the basis of time, it may be classified as:

A) Permanent or fixed working capital: It is the minimum amount, which is

required to ensure effective utilization of fixed facilities and for maintaining the
circulation of current assets. There is always a minimum level of current assets, which is
continuously required by the enterprise to carry out its normal business operations. For
Example: every firm has to maintain a minimum level of raw materials, work in process,
finished goods and cash balance. This minimum level of current assets is called
permanent or fixed working capital as this part of capital is permanently blocked in
current assets. As a business grows, the requirements of permanent working capital also
increase due to the increase in current assets. It can be further divided into two parts:
Regular working capital: It is that part of the working capital which is required to
ensure the circulation of current assets from cash to inventories, from inventories to
receivables and from receivables to cash and so on.
Reserve working capital: It is the excess amount over the requirement for regular
working capital, which may be provided for contingencies that may arise at unstated
periods such as strikes, rise in prices, depression.
B) Temporary or variable working capital: It is the amount of working capital,
which is required to meet the seasonal demands and some special exigencies. Variable
working capital can be further divided into two:
Seasonal working capital: It is that part of the working capital, which is required to
meet the seasonal needs of the enterprise.
Special working capital: It is that part of the working capital which is required to meet
special exigencies such as launching of extensive marketing campaigns for conducting
research

Importance or advantages of adequate working capital

1. Solvency of business
2. Goodwill
3. Easy loans
4. Cash discounts
5. Regular supply of raw material
6. Regular payment of salaries, wages and other day-to-day
commitments.
7. Exploitation of favorable market conditions
8. Ability to face crisis
9. Quick and regular return on investment
10. High morale.
 Sources of Working Capital

1) Long- term sources: -

a) Issue of shares
b) Issue of debentures
c) Long –term loans
d) Retained earning
e) Sale of any old asset
2) Short –Term Sources: -
a) Internal sources: -
i) Provision for tax
ii) Depreciation funds
iii) Outstanding expanses
b) External sources: -
i) Normal trade credit
ii) Bills payable
iii) Overdraft
iv) Public deposit
v) Advance from customers
 WORKING CAPITAL TURNOVER RATIO

Working capital of a concern is directly related to sales. Working capital turnover

ratio indicates the velocity of the utilization of net working capital.

Cost of good sold

Working Capital Turnover Ratio =
Formula: Working Capital

Net Working Capital = Current Assets – Current Liabilities

Working Capital Turnover Ratio

YEARS
PARTICULARS
2005 2006
Cost of good sold 439409450 430629886

Working Capital 29932327 22344803

Ratio (In Times) 14.6 19.2

Graphical Representation
 Working Capital Turnover Ratio

25
20
15 Working
10
5 Capital
0 Turnover
2005 2006 Ratio

Years

INTERPRETATION
This ratio measures efficiency with which the working capital is being used by a
firm. A higher ratio indicates efficient utilization of working capital and a low ratio
indicates otherwise. Working capital increase in 2006 as compare to last year. It shows
the efficiency of the company to doing day-to-day activities.
 OPERATING CYCLE &WORKING CAPITAL NEEDS

As for as the requirement of working capital is concern we can say that this amount
is completely depends upon the nature of business as well as the size of business.
Here we discuss only about two types of firms:
1) Trading firms
2) Manufacturing firms

FINISHED WORK IN
SALE
G P
O R
CREDIT WAGES, SALARIES
& OTHER
EXPENCES RAW
MATERIAL

CASH
COMISSION
SUPPLIER
TIME

“OPERATING SELLING”
OPERATING CYCLE PERIOD : The operating cycle of any firm is consist of the time
required for the completion of the phonological order of some or all of the following:
1) Procurement of raw material
2) Conversion of raw material into work in progress
3) Conversion of work in progress into finished goods
4) Sale of finished goods (cash / credit)
5) Conversion of receivable (credit into cash)

LENGTH: The length of any operating cycle depends on the duration of any firm to
complete its processing as all appoints mentioned above. There are two operating cycles,
which we have to calculate:
1) Total operating cycle period
2) Net operating cycle

INVENTORY CONVERSION PERIOD: It is the time which any firms takes to

convert the raw material to sales of finished goods in manufacturing firms. The ICP is
consist raw material conversion period, work in progress conversion period and finished
goods conversion period.

RECEIVABLE CONVERSION PERIOD: When any company sold the goods in

market the sale can be made by cash or credit .In case of cash the company gets the return
immediately on the other hand if it is an credit sale means the company has to recover the
amount of cash after a time gap and how much time the firms takes to convert the credit
or receivables into cash are known as receivable conversion period.
The total of ICP& RCP is also known as total operating cycle period
(TOCP). Finished goods but in case of trading unit the company needs the less amount of
working capital only for purchasing the goods and to maintain the credit policy.

NET OPERATING CYCLE = TOCP – DEFFEREL PERIOD

FACTORS AFFECTING THE REQUIREMENT OF WORKING CAPITAL

1) Size of business: This is very clear that if there is any big concern means it need
maximum of working capital to run the business smoothly but the requirement of
working capital will be reduced if we will reduced the size of business as we do not have
the sufficient long operating cycle to invest the higher rate of working capital.

2) Nature of business: Here we will discuss on the major part of firms -

i) The manufacturing unit
ii) The trading unit
Means we can easily understand that in case of manufacturing unit the firm required
maximum working capital to complete its operating cycle.

3) Seasonal operation: The seasonal operation also effect the requirement of working
capital because the sale can be increased or decreased if they is any concern which is
manufacturing the seasonal goods.
Example: If any manufacturing unit which is producing garments requires less amount
of working capital during the summer season but on the other hand in the winters they
require more working capital to produce the woolen clothes.

4) Credit policy: This policy normally takes an important place to impact on the
requirement of working capital means any company having a good credit policy for a
shorter period may required the less working capital on the other hand the lenient credit
policy may generate the risk of doubtful debts. In this case the company requires more
working capital during this period this takes place to convert the credit into cash.

5) Marketable competition: As per the present synerio of the market we can find the
toughest competition between every two company which are dealing with the same time
of product to reduce the competitiveness and to win the gain the company gives or
provides the some special offers to the buyer and to the seller and these offers are not
related with the operating cycle of the company so the company needs exist amount of
working capital to manage the amount of these offers.

6) Growth and expansion: As for as the growth and expansion is concerned it is very
clear it will increase the size of business we require some extra money for this purpose.
In the same condition if any company going to launch a new product they again r4equired
exist amount of working capital to complete the operating cycle of that particular product.
The increment in the size is known as growth and the establishment in the new sector or
segment is called expansion.

7) Shortage of raw material: The requirement of working capital is also depends on the
aviability of the raw material in the market. At the time of shortage of raw material the
price may also be high due to higher demand and less aviability in this case the firm has
to purchase the raw material on higher price and required some extra amount for the
increment of cost. It means the company has to invest more money for purchasing.
8) Dividend policy: This factor is important because it is directly impact on the financial
position of the firm because the higher dividend rate makes the company enable to get a
strong position in the market. So to fulfill the requirement of the dividend the company
may use the retained earning or profit or they have to generate the funds for dividend
from other sources. So this will impact on the operating cycle as well as this will degrees
the cash balance of the company, which the company is used to fulfill requirement of
temporary working capital.

9) Depreciation policy: Depreciation policy also is treated as a source of working capital

because we can use the depreciation funds for the timing of fulfill the requirement of
temporary working capital. If the company is not maintaining the depreciation policy in
this case the company has to generate the funds from the long term sources or any other
source which can be increase the liability of the firm.

Financing of temporary, variable or short term working capital

1. Indigenous:
2. Trade credit
3. Installment credit
4. Advances
5. Factoring or account receivables credit
6. Accrued expenses
7. Deferred incomes
8. Commercial paper
9. Working capital finance by commercial banks:
a) Loans
b) Cash credits
c) Overdrafts
d) Purchasing and financing of bills.
How to finance fixed assets or working capital
There are three approaches for this: _

(1) Matching Approach:- The firm can adopt a financial plan which matches the
expected life of assets with the expected life of the source of funds raised to finance
assets. Thus, a ten-year loan may be raised to finance a plant with an expected life of ten
years. The justification for the exact matching is that, since the purpose of financing is to
Pay for assets, the source of financing and the assets should be relinquished
simultaneously.
When the firm follows matching approach (also known as hedging approach), long term
financing will be needed to finance fixed assets and permanent current assets and short
term financing to finance temporary current assets. It is shown in the diagram: -

Short Term
Financing
Temporary W.C. Permanent
W.C.

Requirement
Of
W.C. Long term
In (Rs.) Financing

Fixed Assets

Time
(2) Conservative Approach:-A firm in practice may adopt a conservative approach
in financing its current and fixed assets. The financing policy of the firm is said to be
conservative when it depends more on long-term funds for financing needs. Under this
policy, the firm finances its permanent assets and also a part of temporary current assets
with long term financing. In the periods when the firm has no need for temporary current
assets, the idle
long-term funds can be invested in the tradable securities to conserve liquidity. This is
shown in the following figure.

Temporary W.C.

Short
Term
Requirement Sources Permanent W.C.
Of
Working
Capital
Financing Long
In (Rs.) Term
Sources

Time
(3) Trade of Approach:-

Under this approach the firm finances a part of its permanent current assets with
short term financing. It means under this approach rely more on short term financing.
Short term financing may be preferred over long term financing for two reasons: -
(1) The cost advantage.
(2) Flexibility.
But short term financing is more risky than long term financing.
Thus, there is conflict between long term and short term financing. Short term
financing is less expensive than long term financing but at the same time, short term
financing involves greater risk than
long term financing. The choice between long term and short term financing involves a
trade off between risk and return

Temporary W.C. Short Term

Financing

Requirement
Of Long Term
W.C. Financing
In (Rs.)

Time
Concept of Gross Working Capital
Let us Analyze the gross working capital
Current Assets 2006 2005
Stock 28473718 22997780
The above figure Sundry Debtor 55201783 42984756
indicates that the
gross working
capital Cash & bank bal. 1581472 1308947

Current Liabilities Advances 11505934 2909951

(Rs.) Total 96762907 70201434

Liabilities 2006 2005

Sundry Creditors 53045214 31345274
Working Capital Borrowings 22662556 7650634
Interest accrued but not due 1204 95109
Other Liabilities 4090523 3907879
Provisions 3198402 3600998
Vehicle Loan 174428 419847
Int. free sales tax loan 3908333 900000
Total 87080660 47919741

Net Working Capital

Let us Analyze the net Working Capital (Rs)
 Year 2006 2005
Current Assets (A) 96762907 70201434
Current Liabilities (B) 87080660 47919741
Net Working Capital (A-B) 9682247 22281693

WORKING CAPITAL FINANCING

The financing of working capital are done by from different sources of financial
distribution here we will discuss about the short term sources of finance which are
directly related to business or the finance policy of Indian commercial bank. Every
financial managers has to analyses the situation and create the funds accordingly. Every
firms the action which is easily available and normally do not increase the long term
liabilities of the company from the above we can explain the financing for working
capital into two parts: -
1) Direct sources of financing working capital
2) Role of commercial bank in financing of working capital
1) Direct sources of financing working capital: here the direct source means
any option for credit which is related to the business and do not impact on the liabilities
of the business for long term that’s why these are treated as trade liabilities and current
liabilities.
There are two direct sources in relation of any business: -

a) Trade credit: Trade credit means any credit, which is directly related to the goods or
the services, which is use, by the firm.
Example: a supplier of raw material can provide you the raw material today and you may
request for the payment of these goods after sometime. The gap between the purchasing
and the payment can be treated as trade credit. In trade credit normally there is no factor
of interest and this is very easily available and helps the firm to maintain its operating
cycle.
There are two types of trade credit normally used in India, which are as
follows:

i) Open account: in open account the credit facility provided by the seller on the basis of
mutual understanding with the buyer. In this process there is not legal obligation to sign
or to promise for the repayment of the credit amount. That’s why the credit limit in open
account depends upon the goodwill and healthy relationship between the buyer and seller.

ii) Bills payable: bills payable normally related with the negotiable instrument as
described in Negotiable Instrument Act .It is the kind of promissory note. In bills
payable the buyer or the seller provides some terms and conditions from the payment. In
this case the buyer has to sign on the bill and has to repay the amount to the seller on the
date of maturity.
b) Accrued expanses: In routine life of business we can find the different expanses of
these types of expenses. Normally the accrued expenses are those expanses for which we
have available the service or goods from the persons or supplier and has to pay the
amount for the service after a fixed period.
Example: The salaries of the employees.
In case of salaries the employees works for the firm for a fixed period say one
month and after the completion of this period the firm will pay this amount to the
employees.
Other example: Post paid connection etc.
2) Role of commercial banks in working capital financing: In India most of
the commercial banks provide the credit facilities to the firm to meet the working capital
requirement. The commercial banks are important source of short term financing. The
commercial banks provides credit to the extend limit and is known as “Credit Limits”.
The bank can finance the working capital by the following ways:
i) Cash credit / Overdraft
ii) Loans
iii) Letter of credit
iv) Purchasing and discounting of bills
CASH CREDIT / OVERDRAFT: This is basic facility of credit provided by the
commercial banks of India. In overdraft facilities the current account holder can
withdraw the moreover and axis of available balance in its current account. The bank will
fix the limit for this credit one time at starting and the account holder can use the credit
till its limit. The advantage of overdraft or cash credit is the firm has to pay only the
interest to the bank for the period for which we cash over drawn.

PURCHASING AND DISCOUNTING OF BILLS: Now days most of the firms wants
to increase the sale so that they do a liner credit. In this process the buyer or the seller
makes an advance bills and promise to pay the amount as mentioned in bill account to the
maturity of the order. In this case the seller firm may required some amount to complete
this order, so the contact to there bank and ask for the required money on the basis of the
available bill which they have to handover to the bank as guarantee of security. If the
bank provide the total amount after deducting the charges, commissions, fees etc. is
known as “purchasing of bills”. In other hand if the bank provides some percentage (%)
of the total amount of the bill then the banks has to wait till its maturity date to get the
payment from the buyer and when the bank collects the payment from the buyer and
deduct the amount which has been already paid to seller fir and deduct other expenses.
Which has been born by the bank for collection of the payment and the remaining amount
deposited in the seller’s current account and this process is known as “discounting of
bills”.

Acronyms
1. JBM - Jay Bharat Maruti Limited
2. JBES - Jay Bharat Exhaust Systems Limited
3. CNC -
4. SPM -
5. NWC - Net working capital
6. GWC - Gross working capital
7. PWC - Permanent Working Capital
8. TWC - Temporary Working Capital
9. LTS - Long -Term Sources of Finance
10. STS - Short -Term Sources of Finance
11. CMA - Credit Monitoring Arrangement, (under this data
The Reserve bank of India reviews the sanction of
term loans and working capital limits.)
12. CRISIL - Credit Rating and Information Services of India
Limited
13. C C (Hyp) - Cash Credit (hypothecation)
14. Cp - Commercial paper

15. ICP - Inventory Conversion Period

16. RCP - Receivable Conversion Period

17. TOCP - Total Operating Cycle Period
18. NOC - Net Operating Cycle
19. MIS - Management Information System
 Limitations

Following Limitations faced by me during the Study of the Project as: -

1. Time Limitations
2. Unavailability Of Proper Material
3. Lack Of Guidance
4. Organizational Restrictions
An Explanation of the Above: -

Time Limitation

The time was a limitation during completion of the report. The time was not enough to
cover all the points about the topic. Also it was a tough job to understand all the
recruitment and selection in this short period. It brings the eagerness in completion of the
report. The time raise as a big difficulty in the preparation of the report. This time
limitation enables to better understanding the policies of the company.

Unavailability Of Proper Material

The lack of proper material was also a limitation when developing the report. There was
not adequate availability of material in developing the report. Some of the material
available was not available. The material available was not sufficient.

Lack Of Guidance

There was lack of guidance at some of the stages. The supervisors sometimes were not
able to give proper guidance because of his own job responsibilities and lack of time. So
it was a little lack of guidance.
Organizational Restrictions

There were restrictions on the supervisor and on the respondents to very much clear all
the policy and process. No organization discloses all the recruitment and selection policy
to the outsides. Nobody in the organization is authorized to disclose all the policies it is
because of some certain principles made by the top management of the organization.
SUGESSTIONS
 After undergone training for a limited period in this organization, I found during my
training some suggestions but these suggestions merely my own opinion. I hope these
suggestions will help at least to some extent if implemented. Following are the
suggestions that are based on my observations of the different departments of the
company:

1. Company is having huge loans which results in the financial expenses, so proper
strategies and techniques of budgeting should be used which results in the proper
utilization of borrowed money.
2. Company should use Management Information System (MIS) as it provides very
effective information, which ultimately helps in decision-making. This results in the
proper future projections effectively.
3. Net Profits is going low. Effective efforts should be taken for this the company must
reduce indirect expenses and to control unnecessary costs.
4. Company should install modernized equipments and machines in the production
plants and new techniques should also be used to produce.
5. Improve co-operation and co-ordination among the departments.
6. Proper market survey should be conducted to know consumers/dealers buying
behavior.
7. JBES is leading company in the Indian manufacturing industry. It has the maximum
market share in domestic market. But as far as international market is concerned, it
exports only 5% of the total production, which is needed to increase.
8. The company needs to improve a lot in advertisements. Advertisements are the best
way to enhance the sales and ultimately the revenues. But the company is not able to
advertise its products properly, due to which the customer is unaware of any brand
that comes from JBES. It is a common saying that “out of sight is out of mind”.
Therefore the company must make attempts to use proper advertising media so as to
set their brands in the minds of the consumers. It should be more consumers oriented
rather than being customer oriented.
CONCLUSION
Finance is the basic pillar on which the structure of industrial undertaking is based. This
pillar should be properly placed. A good working environment and attractive incentives
for the achievement of targets has obviously created ideal conditions in Jay Bharat
Exhaust Systems Ltd. for the both management and workers. Not a single day of
production has been lost this shows efficiency in management. Moreover, solvency
position or long-term liquidity of the company was satisfactory.

To conclude, any reduction in operation cost as a result of effective and efficient

management of finance would improve the profitability, liquidity and solvency of the
organization.
BIBLIOGRAPHY
I. M. Pandey - Financial Management Vikas-2003

Prassana chandra - Financial management Tata McGraw Hill

2006

Philip Cotler - Marketing Management PHI-2003

Annual reports - Jay Bharat Exhaust Systems Ltd.

Company website - www.jbm.com

Websites - www.google.com