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A PROJECT REPORT ON INDUSTRIAL TRAINING AT SHITLA ROAD EQUIPMENTS (WORKING CAPITAL) SUBMITTED TO: HEMCHANDRACHARYA NORTH GUJARAT UNIVERSITY,

PATAN GUIDED BY: Mr. ROHAN PATEL PREPARED BY: PATEL HARESH TY BBA EXAM NO:

MERCHANT COLLEGE OF MANAGEMENT STUDIES & RESEARCH (BBA), VISNAGAR

YEAR : 2012-2013

PREFACE

In this modern world the growing importance of management and various aspects of communication lead us to serve the world best of our knowledge. In the competitive economy the quality and the performance of the management determines the success of an organization. However the art and practices of management is quite different environment. Thus by visiting SHITLA ROAD EQUIPMENTS I got chance to learn the various aspect of the world outside the books that is so wide and expected.

I have tried my level best to insert correct & complete information in this report. True learning is born out of experience and observation. I found a great link between the theatrical and the practical knowledge that is helpful to build a concrete base for the future vocational life.

ACKNOWLEDGEMENT
I first of all want to thank to the College for giving us such an opportunity for expanding our knowledge. I would like to express my sincere thank to SHITLA ROAD EQUIPMENT. Dediyasan,mehsana for providing me an opportunity to training their organization and other have contributed in their own special way for helping to the success of this effort. I would like to express my thanks to the management of SHITLA ROAD EQUIPMENT for giving me the opportunity of make a study of practical training in their organization.

At first I wish to express my sincere gratitude to the promoter of the company is SHANTIAL N. PATEL & PRABHUDAS P. PATEL .who has given me such a good opportunity to do the training in their industry. I was really good experience. I am also thankful to MR. PRADIP BAROT for grating me permission. I also thankful to all staff for their co-operative behavior.

I would like to convey my sincere thanks & express my gratitude to our respected principal MR.CHINTAN PATNI for giving me the opportunity to learn the practical business environment for a period of 28 days.

I also would like to thank to our SIR . Mr ROHAN PATEL for helping me and also giving guidance in preparing the project report. My sincere thanks to all those who have helped me directly or indirectly in the preparation the report

Index
Preface Acknowledgement Executive summary No 1 1.1 1.2 1.3 1.4 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 3 3.1 3.2 3.3 4 4.1 Particulars GENERAL INFORMATION History and development Company profile Board of directors Organization structure WORKING CAPITAL Introduction Financial planning Concept of working capital Types of working capital Determinants of working capital Financing working capital Sources of working capital Operating cycle Inventory conversion period CASH MANAGEMENT Introduction Motive for holding cash Monitoring collection and receivable CREDIT MANAGEMENT Introduction Page no

4.2 4.3 5 5.1 5.2 5.3 5.4 5.5 6 7 8

Credit policy variable Credit granting decision MANAGEMENT OF RECEIVABLES Introduction Types of inventory Concept of economic order quantity ABC methods of inventory control Ratio related working capital CONCLUSION BIBLIOGRAPHY ANNEXURE

[1.1] HISTORY & DEVELOPMENT OF UNIT:


Incepted in the year 1999, we Shitla Road Equipment are counted as one of the recognized names engaged in manufacturing, supplying and exporting of a precision engineered range of road construction equipments. Our range includes asphalt drum mix plant, asphalt mobile drum mix plant, wet mix macadam plants, (capacity up to 200 tph), paver finisher (Mech.), asphalt cum wet mix paver finisher with telescopic screed, bitumen pressure distributor, Bitumen Sprayer, chips spreader, mechanical and Hydraulic broomer, Bitumen (Asphalt) storage tank and pollution unit Our road construction equipment has gained a wide acclamation for its quality standards, high performance, sturdiness and longer functional life. Under the expert guidance of our mentor Mr. Arvind Suthar, we have been able to carve a niche in the industrial market. His rich acumen, meticulous approach and vast experience in this domain have enabled us to constantly reach towards the heights of success. Our strong infrastructure equipped with all the latest technologies has helped us in providing our clients with best quality range of mobile asphalt drum mix plant, asphalt drum mix plant, automatic stationery asphalt drum mix plant, drum mix asphalt plant, wet mix macadam plant, automatic stationery wet mix macadam plant, asphalt paver finisher, asphalt paver finisher, wet mix paver finisher with telescopic screed, Mechanical Broom, asphalt batch mix plant, mobile asphalt batch mix plant, bitumen sprayer, bitumen pressure distributor and pollution unit, concrete batching plant, mobile concrete batching plant at the most competitive prices. Our diligent professionals are extremely competent to comprehend client requirement and work in close coordination to deliver the same. We also hold expertise in offering after sales services for our range of road construction equipment like mobile asphalt drum mix plant, asphalt drum mix plant, automatic stationery asphalt drum mix plant, drum mix asphalt plant, wet mix macadam plant, automatic stationary wet mix macadam plant, asphalt paver finisher, asphalt paver finisher, wet mix paver finisher with telescopic screed, Mechanical Broom, asphalt batch mix plant, mobile asphalt batch mix plant, bitumen sprayer, bitumen pressure distributor and pollution unit, concrete batching plant, mobile concrete batching plant as per the client specifications and requirements. Ever since our inception, our company has followed a scrupulous approach in necessary innovations, commitment, fair business practices and vision to face challenges.

[1.3] COMPANY AT GLANCE:


Name of the unit: SHITLA ROAD EQUIPMENTS Address:

Plot No: 359, G.I.D.C.,Phase-II, Dediyasan, MEHSANA -2. e-mail:shitlaplant@yahoo.com Business type:

Supplier Manufacturer Exporter Year of establishment: 1999 Legal status of firms: Proprietorship firm Location type Industrial

[1.4] ORGANISATION STRUCTURE:


When two or more persons work together towards a common goal, authority and among them so that their efforts may become effective. This is the task of organizing. It is known as designing of an organizational structure.

BOARD OF DIRECTORS

CHAIRMAN

MANAGING DIRECTOR

GENERAL MANAGER

ASSISTANT GENERAL MANAGER

PRODUCTION DEPARTMENT SENIOR MANAGER

MARKETING DEPARTMENT SENIOR MANAGER

PERSONNEL DEPARTMENT SENIOR MANAGER

FINANCE DEPARTMENT

MANAGER

PRODUCTION MANAGER

MARKETING MANAGER

PERSONNEL MANAGER

FINANCES MANAGER

OFFICERS MANAGER SUPERVISOR

MARKETING EXECUTIVE

ASSISTANT MANAGER

ACCOUNTING

OFFICERS

[1.5] LOCATION CHART:

2 .1 INTRODUTIOIN
Business capital is broadly divided in to two groups; fixed capital working capital. Fixed capital refers to the funds invested in such fixed or permanent assets as land, building, machine etc. while working capital refers to funds locked up in materials, working in progress, finished goods. Receivables and cash etc. since these assets are known as current assets, in very simple term working capital may be defined as capital invested in current assets Working capital management is concerned with the problems that arise in attempting to manage the current assets, current liabilities and the interrelationship that exists between them.

The term current assets refers to those assets which are the ordinary course of business that can be turned in to cash within one year without distribution the firms operation and consists of cash, inventory receivables and marketable securities.

The term current liabilities are those which are intended at their inception to be paid in ordinary course of business, within a year out of CA or earning of the form and consist of account payables bank OD and out standing expenses. The working capital management is thus concerned with maintaining a tread off between profitability and risk associated with in a firms level of CA and CL. The basic goal of working capital is to manage the forms CA and CL so as to achieve a satisfactory level of working capital. It is necessary because the firm is not able to maintain this level it is likely to become insolvent and may even be forced into bankruptcy.

2.2 FINANCIAL PLANNING

The firm needs to the mange its resource effectively and efficiently to the achieve its objectives. The planning of resources in the an effective manner is the possible only when management works out of the futures courses of the action is in advance and task decision in a professional manner, utilizing the personal and group efforts and cocoordinator and rational manager. Finance planning is would estimate the recourse required the carry out operation and determine how far the firm it self can generate these resource internally and how far they will have to obtained externally. As SHITLA ROAD EQUIPMENTS it is concerned with it is financial planning accounting to need & requirement of the firm. It is the follow banking rules and regulation for the consideration of the new project.

For the working capital it use the bank limit up to 10% for the export purpose but today reduced in the export ratio. The firm is the overall financially very sound. It has never faced any financial problems during its located.

2.3 CONCEPT OF WORKING CAPITAL


There are two concept of working capital. i. ii. Gross working capital Networking capital

1) Gross Working Capital: Gross working capital simply called as working capital, refers to the firms investment in current Assets. Current Assets which can be converted into cash within an accounting year and include cash short-term security, debtors, bills receivables and stock investment.

In this company, gross working capital is Rs. 3, 75, 55,000 in current year 2011-12 in previous year gross working capital is Rs.2, 45, 36,260

2) Net working Capital: Net working capital refers to the difference between current assets and current liabilities net working capital can be positive or negative, A positive net working capital will arise when current assets exceeds current liabilities. A negative net working capital occurs when current liabilities are in excess of current Assets.

2.4 TYPES OF WORKING CAPITAL


Basically two types of working capital are needed in business: {1} Permanent working capital {2} Variable working capital

Working capital

Permanent

Variable

Initial w.c

Regular w.c

Seasonal w.c.

Special w.c

{1} PERMANENT WORKING CAPITAL: -

It is the type of W.C., which is permanently locked up in current assets

some

cash is required to maintain stocks of raw materials & finished good at their normal level & far paying wages & salaries regularly. Permanent Working capital is of kinds. INITIAL WORKING CAPITAL: -

In the initial period of its operation, a company must have enough money to pay certain expenses before the business yields cash receipt. In the initial year, bank may not grant loans or overdrafts, sales may have to be made on credit & it may be necessary to make payment to the creditors immediately. Hence, the turns will have to be supplied by owners themselves in the initial year. REGULAR WORKING CAPITAL: -

It is the W.C. required to continue the regular. It is required to maintain regular stocks of raw materials & W.I.P. & of the finished gods, which must be maintained permanently at a definite level. Regular working capital is the excess of current assets over current liabilities. It ensures smooth operations of the business . {2} VARIABLE WORKING CAPITAL: It is that part of W.C., which is required to meet the seasonal, needs as well as special needs of the business. It is therefore, subdivided into two parts: -

SEASONAL WORKING CAPITAL: Some business enterprise requires additional W.C. during a particular season. For example, the plastic have to purchase in a particular requirement by providing additional for a temporary. SPECIAL WORKING CAPITAL: In all enterprise, some an foreseen events do occur when extra funds are needed to tied over such situation some of these events are: Sudden increase in demand for the final product downward movement of prices and sales during depression necessitating extra working funds considerable rise in prices of raw material so more funds will be needed to maintain their stock at the normal level and strikes or natural calamities which also force the management to provide for additional funds.

2.5 DETERMINANTS OF WORKING CAPITAL


There are number of factors which determine the amount of working capital requirement in business.

i.

NATURE & VOLUME OF BUSINESS:There natural of business is an important factor in deciding the amount of working

capital for example the amount of working capital is generally more in trading concerns & in service units as compared to the manufacturing units. The retail trading units have also to invest large funds in working capital. In some manufacturing units, also the working capital holds a significant place. On the other hand, public utilities require less working capital. Other manufacturing units need mare working capital as compared to public utilities.

ii.

LENGTH OF MANUFACTURING CYCLE:The longer the period a manufacturing cycle takes the larger is the amount of

working capital required, because the fund get locked op in production process for a longer period. It is in view of this that when alternative method of production are available, the method with the shortest manufacturing cycle should be choice is made care is taken to see that the manufacturing cycle is taken to see that the manufacturing cycle is completed within a specified period Any delay in production to increase the requirement of working capital.

iii.

BUSINESS FLUCTUATIONS:Business fluctuations are of two types: seasonal fluctuation which arises out of

seasonal change in demand for the product and cyclical fluctuations, which occur due to, up and down of economic activities in the country as a whole. If demand for the product is seasonal, production will have to be increased during the season & it will have to be reduced during the off-season corresponclingly, there will be fluctuations in the requirement of working capital. The cyclical fluctuations are made up of period of prosperity and depression. The sales & prices increase during prosperity necessitating more working capital in the form of inventories and book- debts.

iv.

PRODUCTION POLICY:If the policy of constant production is adopted. There are two possible effects.

Policies help in reducing working capital requirement to the lowest level. But it demands for the product is seasonal; this policy raises the level of inventory during offseason and thereby increases the working capital requirement. v. CREDIT POLICY:In the present-day circumstances, almost all units have to sell good on credit. The nature of credit policy is an important consideration in deciding the amount of working capital requirement the larger the volume of credit sales. The collection of payment takes, the greater will be the requirement of working capital. vi. AVAILABILITY OF CREDIT:The amount of credit that a firm can obtain as also the length of the credit period significantly attests the working capital requirement. The greater the prospects of getting credit the smaller will be its requirement of working capital because it can purchase it can easily purchase raw materials and other requirement on credit.

vii.

GROWTH AND EXPASION:The working capital requirement increase as companies sales increase it is

difficult to precisely determine the relationship between volume of sales and working capital requirement A growing firm may need to invest funds in FA in order to sustain its growing production and sales. Other thing being more working capital then others Advance planning of working capital for growing concern.

viii.

PROFIT AND ITS DISTRIBUTION:The level of profit also determines the level working capital requirement. The

availability of internal funds for working capital requirement is determined not merely by profit margin but also on the manner of appropriations for taxation. Dividends, reserves & depreciation.

ix.

PRICE LEVEL CHANES:The increasing shift in the make function manager more difficult. He should

anticipate the effect of price level changes on working capital of the firm. Generally rising price level will require a firm to maintain higher amount of working capital. However, companies, which can immediately revise their product prices with rising price level, will not face any problem. x. PRICE LEVEL CHANGES:The operating efficiency of the firm relates to the optimum utilization of resources at the rate of minimum cost. The firm will be effectively contributing to its working capital. If it is efficiency in controlling operating cost. Better utilization of resources improves profitability and thus helps in releasing the pressure on working capital.

2.6 FINANCING WORKING CAPITAL


The other important question in respect of working capital is how to raise it. It rises from short-term source or partly from long-term sources.

Sources term which working capital can be raised:An important decision relating to working capital management is the source from which working capital is to be raised generally it is believed that funds for acquiring fixed assets for raised from long term source and short term source should be utilized for working capital. It is classified into permanent working capital and variable working capital therefore for raising permanent working capital; long-term sources should also be utilized. Thus, both the type of source may be utilized for financing both assets and current assets. There are different approaches for determining the proportion in which short term and long-term source should be used to finance fixed assets and current assets.

1. Matching Approach or Heading approach 2. Conservative approach 3. Aggressive Approach

I explain the this three approaches in the detail as under,

{1} MATCHING APPROACH: The maturity of the source of funds is matched with the life of the assets finds for acquiring an assets having on estimated life of 5 year should be raised by 5-year loan from the bank. It good is expected to be sold within 30 days. Then a bill payable obtains finance for 30 days. Under this approach, funds for acquiring fixed assets should be acquired with long-term funds like long-term loan or issue of debentures or equity shares. In traditional language, it can be said that fixed assets & permanent current assets should be financed by long term funds should be used. The following figures make it clear.

VARIABLE CURRENT ASSETS


TERM LOAN

PERMANENT CURRENT ASSETS

FIXED ASSETS

LONG TERM LOAN

TIME PERIOD

LOAN The figure shows that for financing fixed assets and permanent current assets, longterm funds are used. While for variable current assets, short-term funds are utilized as and when necessary short barrowing would be paid off with surplus cash for expansion and development, when permanent financing is needed, it should be acquired from long term only.

{2}.CONSERVATIVE APPROACH:This approach depends upon long-term funds largely. It suggests that in addition to fixed assets & permanent current assets, even a part of variable current assets should be financed from long-term sources. The short-term sources are used only to meet the invested in marketable securities. The following figure makes its clear.

VARIABLE CURRENT ASSETS

LONG PERMANENT CURRENT ASSETS FIXED ASSETS TERM LOAN

TIME PERIOD

The figure shows the conservative approach indicating that for financing fixed assets, permanent current assets and for a part of variable current assets, funds are raised from long-term sources only for meeting peak period demand, short-term funds are raised. The element of risk is the minimum in this policy, because the maturity of long-term liability can be made for its repayment. However, the policy is expensive and reduces profitability.

{3}. AGGRESSIVE APPROACH:This policy depends more on short-term funds. More short-term funds are used particularly for variable current assets and a part of even permanent current assets; the funds are raised from short-term sources. The following shows this approach. VARIABLE CURRENT ASSETS

Short-term Funds

PERMANENT CURRENT ASSETS FIXED ASSETS TIME PERIOD

LONG TERM FUNDS

The aggressive approach reduces the long-term funds and so it is less expensive, more profitable but has more element of risk.

2.7 SOURCES OF WORKING CAPITAL

SHARES AND DEBENTURES:The funds for working capital can be obtained through the issue of shares to meet the initial requirement or to expand business or to make up the sudden and unexpected decline in working capital. The fund for W.C. can also be obtained through the issue of debentures. The retain profit can also be used as working capital. This company used equity shares for raising funds equity shares of 18, 000. Rs 6, 51,

RETAINED PROFIT:A part of the sales revenue is used up to meet cost of production. Only the net sales process in available for this purpose of profit & loss account. Working capital can be obtained also by providing for deprecation. Because to the extent, depreciation is provided, profit is retained with the company and it can be used as working capital.

COMMERCIAL BANKS:Commercial Banks are important sources of working capital for the business. They provide current finance and short-term fund to the business enterprise. Majority of the Indian enterprises rely on commercial bank to meet their capital needs. The SHITLA ROAD EQUIPMENTS borrowing funds from the Mehsana Urban Co-operative Bank Limited or working capital. This bank provides the cash credit facility.

TRADE CREDITORS:Trade creditors provide working capital to the industries indirectly. The suppliers provide raw materials or equipment immediately in cash. They make payments after a

definite period, which may be one month or two month or more. So that extent the pressure of W.C. requirement is lessened, thus to the extent trade credit is available; the requirements of W.C. in industrial unit are reduced. The relation between two parties plays on important role because the period of credit on this relationship.

PUBLIC DEPOSITS:Public deposits are important sources of W.C. for the business. Under this system, people deposit their saving with the business unit for duration of six months to maximum of three years. The rate of interest to paid on these deposits various from 10 to 15 percent per year. This system was popular in the textile industry of Mumbai and Ahmedabad as in the tea plantation of Assam & Bengal in the 19 th century. In the last two year however, this

System has spread to almost all industries in India and most of the companies rely on public deposits to meet the long term and short term capital requirement and easy methods of lower than that one-bank loan.

INDIGENOUS BANKERS:Indigenous Bankers provide very short-term finance to the business units. Most of their loans are for the period of a week or a month. If they have enough resources, they may provide cash credit for a period of one year also. Personal relationship between the money tenders and barrowers play a decisive role in this system of financing.

2.8 OPRATING CYCLE:


Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories into cash. The operating cycle of a firm begins with the acquisition of raw material and ends with the collection of receivable. It may be divided into 4 stages.

1. Raw material and storage stage. 2. Work in process stage. 3. Finished good inventory stage. 4. Debtors collection stage. These stages after cash hows which most of the time are neither synchronized (because cash outflows usually occurs before cash inflows.) nor certain (because and collection which generates cash inflows are not

Forested accurately.) The firm is therefore required to invest in current asset for a smooth and uninterrupted functioning and to material and pay expenses. Cash is also held to meet any future exigencies. Stocks of raw material and work in process are kept to ensure smooth production. Stocks of finished goods to meet the demand of customers on continuous basis and some times sudden demand. Book debt i.e. ALC receivables are created because good are sold for credit for marketing and competitive reasons.

The length of operating cycle is the total of

I. ICP- Inventory Conversion Period II. BDCP-Book Debts Conversion Period The ICP is the total time required for producing and selling the product and consists:1. RMCP= RM Conversion Period 2. WCP = WIP Conversion Period 3. FGCP = FG Conversion Period

The BCDP (receivable conversion period) is the time required to collect out standing amount from customers. The total of ICP & BDCP is also known as GOC gross op. cycle. The firm may acquire resources on credit

& temporary postpone payment payables which the firm can defer are spontaneous sources of capital to finance investment in C.A. thus the payable deferral period (PDP) is the length of time firm is able to defer payments various resources purchases.

The difference between GOC & PDP is net operating cycle. NOC is also known as cash conversion cycle.

2.9 INVENTORY CONVERSION PERIOD


CALCULATION OF RAW MATERIAL CONVERSION PEIROD (RMCP): Particular R/M inventory R/M consumption 2009-10 2010-11 2011-12 Amount in lacks Amount in lacks Amount in lacks 90.82 35.06 28.98 554.64 390.83 417.39

RMCP = R/M inventory X 360 days R/M consumption

2009-10 =

90.82 X 360 days 554.64

= 59 days 2010-11 = 35.06 X 360 days 390.83

= 33 days 2011-12 = 28.98 X 360 days 417.39

= 25 days

CALCULATION OF WORK IN PROGRESS CONVERSION PERIOD(WIPCP) : Particular WIP inventory Cost of production 2009-10 2010-11 2011-12 Amount in lacks Amount in lacks Amount in lacks 15.32 4.25 7.32 777.75 524.73 555.76

WIPCP =

WIP inventory X 360 days Cost of production

2009-10 =

15.32 X 360 days 777.75

= 7 days 2010-11 = 4.25 X 360 days 524.73

= 3 days 2011-12 = 7.32 X 360 days 555.76

= 5 days

CALCULATION OF FINISHED GOODS CONVERSION PERIOD(F.G.CP) : Particular F.G inventory Cost of goods sold 2009-10 2010-11 2011-12 Amount in lacks Amount in lacks Amount in lacks 44.43 42.24 37.33 1179.83 539.64 514.90

FGCP =

F.G inventory X 360 days Cost of goods sold

2009-10 =

44.43 X 360 days 1179.83

= 14 days 2010-11 = 42.24 X 360 days 539.64

= 28 days 2011-12 = 37.33 X 360 days 514.90

= 26 days

INVENTORY CONVERSION PERIOD

ICP = R/MCP +WIPCP + FGCP

2009-10 = 80 days

2010-11 = 64 days

2011-12 = 56 days

CALCULATION OF BOOK DEBT CONVERSION PERIOD(BDCP) : Particular Debtors Sales 2009-10 2010-11 2011-12 Amount in lacks Amount in lacks Amount in lacks 559.15 454.63 645.69 1084.04 544.73 1171.31

BDCP =

Debtors Sales

X 360 days

2009-10 =

559 X 360 days 1084.04

= 185 days 2010-11 = 454.63 X 360 days 544.73

= 300 days 2011-12 = 645.69 X 360 days 1171.31

= 198 days

CALCULATION OF PAYBLEL DEFFERED CONVERSION PERIOD(PDCP) : Particular Creditors Purchase 2009-10 2010-11 2011-12 Amount in lacks Amount in lacks Amount in lacks 101.66 88.94 79.35 466.89 415.56 406.82

PDCP =

Creditors Purchase

X 360 days

2009-10 =

101.66 X 360 days 466.89

= 78 days 2010-11 = 88.94 X 360 days 415.56

= 77 days 2011-12 = 79.35 X 360 days 406.82

= 70 days

CALCULATION OF GROSS OPERATING CYCLE (GOC)

GOC= ICP + BDCP

2009-10 = 80 + 185 = 265 days 2010-11 = 64 + 300 = 364 days 2011-12 = 56 + 198 = 254 days The Gross operating cycle of SHITLA ROAD EQUIPMENTS 265 days in 2009-10, 364 days in 2010-11 and 254 days in 2011-12.
CALCULATION OF NET OPERATING CYCLE (NOC)

NOC = GOC - PDCP


2009-10 = 265 - 78 = 187 days 2010-11 = 364 - 77 = 287 days 2011-12 = 254 - 70 = 184 days The Net Operating Cycle of SHITLA ROAD EQUIPMENTS 187 Days in 200910 and 287 Days in 2010-11 and 184 Days in 2011-12

3.1 INTRODUCTION
Cash the most liquid assets, if of vital important to the daily operation of business firms while the proportion of corporate assets held in the form of cash. It is very most important of life blood for the financial institution, often between 2% to 4% it efficient management is crucial to the solvency of a business because in very important sense ash in the local point fond flow in business. In view of its important it is generally referred to as the lifeblood as a business enterprise. Cash is the most important current asset for a business operation. It is the energy that drives business activities and also the ultimate output expected by the owners. The firm should keep sufficient cash at all times. Excessive cash will not contribute to the firms profits and shortage of cash will disrupt its manufacturing operations.

3 .2 MOTIVE FOR HOLDING CASH

Transaction Motive: Firm need cash to meet their transaction need the collection of cash is not

perfectly synchronized with the disbursement of cash, Hence some cash balance is required are buffer.

Precautionary Motive: There may be some uncertainty magnitude and timing of cash inflows from

services, sales of assets and issuance of squinty likewise there may be uncertainty about cash outflow an account a of purchase and other obligation.

Speculative Motive: Firm would like to top profit making opportunity arising from fluctuation in

commodity price. Squinty price interest rate and foreign exchange rate. A cash firm is better prepared to exploit such bargains, hence firm which have such speculative learning may carry additional liquidity however for mast firms their reserve borrowing capacity and marketable securities would suffice to meet their speculative need.

3.3 MONITORING COLLECTION & RECEIVABLE


The SHITLA ROAD EQUIPMENTS. enhances the efficiency of cash management the following step is taking.

Prompt billing: It is of common knowledge that there is a time lag between the writing of cheque

& billing and collection of money providing draft, mail, transfer, ABC bills etc. facilities to customers.

Expedition collection & cheque: An efficient important aspect of ash management is to part the cheque received

very promptly. In addition to quick handing of cheque. The SHITLA ROAD EQUIPMENTS. receiving remittance from different pasts of district or village might decentralist. Its collections and out down the delay in the conversion cheque into cash.

Control of payable: By a proper control of payable the Shitla road equipments. Conserve its cash

resource they involve the following thing. - Payment and their disbursement are centralized. - Payment is made only as when they fall due. Arrangement of cash with the Shitla road equipments. to set due dates of their bills to match with me banks period of pack receipts.

4.1 INTRODUCTION
In the present competitive world, credit sales are essential, unless the goods sold are in short supply. When goods are sold on credit, the price of the goods becomes receivable, better known as Trade Debtors or Debtors or Receivable or Accounts Receivables. These receivables are assets of the business but they involve high risk of bad debts and opportunity cost as well. Hence, the management should take utmost care in their maintenance.

Firms sell goods on credit to increase the volume of sales. In the present era of intense competition, business firms, to improve their sales, offer to their customers relaxed conditions of payment. When goods are sold on credit, finished goods get converted into receivables. The receivables arising out of trade credit have three features.

{1} it involves an element of risk. {2} it is based on economic value. {3} it has an element of futurity.

4.2 CREDIT POLICY VARIABLE


The important decision of SHITLA ROAD EQUIPMENTS. credit policy is.

Cash discount: The SHITLA ROAD EQUIPMENTS. has not any kind of policy to provide

cash discount, as it is a banking firm. They have the direct guidelines to follow established by SHITLA ROAD EQUIPMENTS.

Collection effect: The collection program of the .SHITLA ROAD EQUIPMENTS the aimed at

timely collection of receivable is consisting of the following. Monitory they state of receivable. Dispatch of letter to customer whose due is approaching. Telegraphic and telephonic advice to customers around the due date. Threat of legal action to overdue accounts. Legal action against overdue account.

4.3 CREDIT GRANTING DECISION


Once the credit worthiness of a customer has been assessed the next question is should the credit be offered. The SHITLA ROAD EQUIPMENTS. follows the following pattern of granting credit to the customer. Credit

Refuse Credit

Offer Credit

Customer Pay Profit

Customer Default Loss

It is obvious from the above figure that is the expected profit of the course of action often credit is positive. It is described to extend credit otherwise not.

Also the following are the standard, with they have decided to make into consideration for grating credit.

Reference provide by the prospective customers is consulted and necessary into consideration for grating credit. Credit policies needs take articulated into explicit term and revise periodically in the light of internal and external charge.

5.1 INTRODUCTION
Inventories are the most significant part of current assets of most of the firms in India. Since they constitute an important element of total current assets held by a firm, the need to manage inventories efficiently and effectively for ensuring optimal investment in inventory cannot be ignored. Any lapse on the part of management of a firm in managing inventories may cause the failure of the firm. The major objectives of inventory management are:

Maximum satisfaction to customer. Minimum investment in inventory. Achieving low cost plat operation.
A normal person interprets the concept of inventory as raw material. In reality this interpretation is incorrect. The word inventory includes all types of and all forms of materials. It is an integrated term. It includes stock of Raw material, Work-in-progress, Finished goods, Semi finished goods, Spare parts, Loose tools and Misc.stores etc.

5.2 TYPES OF INVENTORY


{1} Raw materials

Any commodity or essential part of production material or the unavoidable part or the purchased material which has undergone the process of production goods is known as raw material. A cotton textile industry which possesses all process of production, here cotton is called raw material.

{2} Semi- finished goods

A raw material that has passed through certain process in production and some processes are yet to pass through, and then such goods are known as semi \- finished goods. The cotton thread in cotton textile industry can be called as semi-finished goods.

{3} Work-in-progress

In the production of a product, material that runs through the process and still, remains in the process is known as work in process.

{4} Finished goods

A material that is ready as per the objective of the unit and is subject to sale is known as finished goods. On these goods no other process of production is left to be done.

{5}Tool s Instruments

For the continuity of the machine the use of clutch, screw-driver, drill machine etc. are known as tool or instruments. Such materials do not become the part of the produced goods but they are helpful for production.

{6} Defective goods

When the goods produced are not up to the standard of the quality, then they are referred to as defective goods. With the help of quality control which goods are defective can be determined.

{7} By product

During the basic process of production any additional material is created, then it is known as by product e.g. in a dairy industry while making butter, the thick cur dish water realized is said by product.

5.3 CONCEPT OF ECONOMIC ORDER QUANTITY


EOQ is a technique of inventory control, which emphasizes the most important aspect of inventory control, which is placing the order. If orders are placed for a relatively small quantity frequently, the number of orders and cost of ordering increases. There are two factors to be considered in these techniques viz.

{1} Inventory carrying cost It refers to the cost of maintaining inventory of goods. It included opportunity cost of interest income, storage cost, and insurance premium, loss due to deterioration and obsolescence etc.

{2} Ordering cost It included clerical expenses, cost involved in sending reminders to suppliers, inspection of quality of goods, fright, labour charges etc.

5.4 ABC METHOD OF INVENTORY CONTROL

INTRODUCTION:
In an industrial unit, various types of inventories are used. It is experienced that all items included in inventory are not of equal importance. Some material is used more in quantity and some less. It is a wrong belief that there is not much need to keep attention on the materials which is used less. In fact instead to quantity of the materials, its cost should be considered. In ABC system of inventory management the quantity and cost of materials both are considered.

MEANING OF ABC CLASSIFICATION: 1. CATEGORY A:


It includes those items which are very important and of high value but forms only a small proportion of total quantity of inventories. They constitute hardly 10% of the total number of items incuded in inventory but represents as much as 70% of the value of stores. Strict control over receipts, storage and issue should be exercised

over such items. Its requirements must be estimated in advance and its purchases must be planned so that it is available as and when needed.

2. CATEGORY B:
It includes inventories which are not as important as those in A group, but are important enough for its proper records to be maintained. They constitute 20 to 25% of the total number of items and represent about the same proportion in the total value of inventory as well. Maximum and minimum levels must be fixed for such items and they must be issued against proper material requisition only.

3. CATEGORY C:
It includes inventories which are not important from view point of maintaining control over their receipts and consumption. They constitute 65 to 70% of the total number of items, but they represent only 5 to 10% of the total value. If such items are strictly controlled, the total cost of controlling would exceed the savings effected by it.

5.5 RATIO RELATED TO WORKING CAPITAL


1. Net profit ratio 2. Debtors turnover ratio 3. Ave collection period 4. Stock turnover ratio 5. Current ratio

NET PROFIT RATIO:-

Net profit ratio = Profit after taxes / Net sales * 100 Particular Net profit (Rs.) Net sales (Rs.) Ratio ( per cent ) 2009-10
6093850 270972400 2.25%

2010-11
(2185177) 455243090 (0.48%)

2011-12
15308628 897276174 1.71%

2.50% 2.00% 1.50% 2.25% 1.00% 0.50% 0.00% 2009-10 2010-11 2011-12 1.71%

0.48%

Here we can observe that company has 2.25% NET profit, in year 2009-10. In year 201011 companys net profit ratio is (0.48%) it was decrease net profit ratio of the company. It was increase by 1.71% in year 2011-12 it was increase in profit ratio compare to previous year. Which can be good for the company so that company can fulfill his requirement also they can use for distribution of dividends and also for future projects.

DEBTOR TURNOVER RATIO (DTR):-

Debtor turnover ratio=Credit sales / average debtors Particular sales (Rs.) average debtors (Rs.) Ratio ( times ) 2009-10
310660396 90010454 3.45 times

2010-11
505473069 103351481 4.89 times

2011-12
951830486 220917163 4.31 times

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

4.89 3.45

4.31

2009-10

2010-11

2011-12

Here we can observe that debtors turnover is times. In year 2009-10 debtors ratio is 3.45 times and it was increase in year 2010-11 is 4.89 times. In year 2011-12 decrease in ratio is 4.31 times.

AVERAGE COLLECTION PERIOD (ACP):-

Average collection period = 365 days/ Debtor turnover ratio Particular No. Days in a year Avg. collection period (days) Debtor turnover ratio
2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 1.2

2009-10 365 188 1.94

2010-11 365 304 1.20

2011-12 365 203 1.80

1.94
1.8

Interpretation:The average collection period of the firm has increased from 188 days in the year 2009-10 to 203 days in the year 2011-12.It indicates company has increased strictness of credit on the debtors. So the working capital has efficient utilized by the company.

STOCK TURNOVER RATIO:Stock turnover ratio = sales / average stock

The sales and closing stock of inventory and resulted ratio are as under.

Particular Sales(Rs.) Average Stock(Rs.) Ratio (Times)

2009-10
270972400

2010-11
455243090

2011-12
897276174

24191181 11.20

34832743 13.07

24938155 35.98

40 35 30 25 20 15 10 5 0 2009-10 2010-11 2011-12 11.2 13.07 35.98

Interpretation:The stock turnover ratio of the company has been increased from 11.20 in the year 2009-10 to 35.91 in the year 2011-12. This ratio is to be considered satisfactory.

CURRENT RATIO :
The current ratio is a measure of the firms short -term solvency. It indicates the availability of the current assets in rupees for every one rupee of current liability. A ratio of greater than one means that on an average the firms in the industry are having more current assets them. As a conventional rule a current ratio 2:1 or more is considered as satisfactory. Current ratio if given by the formula:
CURRENT RATIO = 2009-2010 = 196317460 99489259 = 1.97:1 2010-2011 = 234786354 94325388 = 2.49:1 2011-2012 = 363607499 195660540 CURRENT ASSETS CURRENT LIABILITIES

= 1.86:1

YEARS 2009 2010 2010 2011 2011 2012

RATIO 1.97 2.49 1.86

2.5 2 1.5 1 0.5 0 2009-10 2010-11 2011-12 1.97

2.46 1.86

Idol ratio of any company should be 2:1 but here the ratio is 1.97:1 in year2009-10.In year 2010-11 it is 2.49:1.In year 2011-12 it is 1.86:1.In year 2008-09 current ratio increase by 0.53 as compared to year 2009-10.in year 2011-12 it is decrease by 0.63 as compared to year 2010-11 . This indicates favorable relationship between current assets and current liabilities.

FINDING AND SUGGESTION:FINDING


They believe in recruitment for attitude and train for skill.

Benefits association and growing in volumes and intensively of relationship

with client.

We saw in visit that company cannot utilized its maximum capacity because no

continuity product internal feature like size, shape, etc if they managed it then they do more effectively.

SUGGESTION
Company should make some concentrate efforts towards advertisement to create

brand awareness of the company. Due to increase in competition in tubes and metal industry.

Company should be provided a sales agent for getting potential customers

information.

The company also goes other industrial estates of out state and improves its

capacity of production because of new plant establishment cost is high but it will managed by higher sales volume and higher profitability.

CONCLUSION
To contribute and improve the existing system of Inventory Management, various areas of Inventory Management were studied, analyzed evaluated taking in to consideration the scientific approach. The areas of study were Purchase procedure, economic order quantities, ABC classification, Lead time analysis, Inventory turnover ratios etc. It was found that in the recent past the inventory management of the unit has worsened. There seems to be a particular poor performance of finished goods inventory. The finished goods to sales period in months has increased to a high of 1.32 months from 0.61 month in the previous year. Also if we comparer the same with past 2 years data we can see that FG to sales ratio (months) has never been so high. This is an abnormal poor management and as a result the FG turnover ratio has declined from impressive 19.65 times to just 9.11 times. The poor management of Finished goods inventory in the last year has also affected the performance of total inventory as a whole. The total inventory turnover ratio has declined from 8.22 to 5.36 and inventory holding period has increased from 44.40 days to 68.10 days.

The company is yet to take initiative in the direction of implementing modern inventory concepts like Zero inventory Systems or Just in Time, Lean inventory systems and vendor Relationship. There is one more area to concentrate on, that is , the surplus and Non-moving items. We can see that the provision for surplus and non-moving items has increase from Rs.1122.92 lakhs in year 2009-2010 to Rs.1033.02 lakhs in 2010-2011.It indicates that proper system should be implemented in order to identify non moving items as well as surplus goods and these should be removed as early as possible. The company is advised to use FSN analysis t reduce surplus and non-moving stock.

Further I can also conclude that for a company engaged in the business of castor derivatives manufacturing, the only way to maximize profits is by increasing its operational efficiency. In order to remain in competition and survive, the firm must try to increase its efficiency. Of course this includes increasing the efficiency of inventory management. In order to achieve this company should try to co ordinate efforts of all the concerned departments. Viz. Production, Sales, Purchase, Stores, Finance, Export etc.

BIBLIOGRAPHY
I have referred following books for the preparation of this project report on HIMALAYA EQUIPMENTS, MEHSANA.

Books. Prasanna Chandra. Financial Management, Rudder Datt and K.P.M. Sundharam, Indian Economy R. Narayanaswamy, Financial Accounting, With the help of Himalaya Equipments Companies necessary information book.

Web site
www.himalayaequip.com

PROFIT & LOSS A/C FOR THE YEAR ON 31ST MARCH


PARTICULER INCOME: SALS LESS:EXCISE DUTY 951830486 54554312 897276174 OTHER INCOME INCREASE / DECREASE IN CLOSING STOCK TOTAL EXPENDITURE: PURCHASE GOODS RAW MATERIAL CONSUMED MANUFACTURING, ADMIN. & OTHER EXP. SELLING EXP. FINANCIAL CHARGES DEPRECIATION TOTAL PROFIT BEFORE TAX INCOME TAX PROVISION ADJUSTMENT OF INCOME 17436025 5507127 876713553 23679872 5800000 218397 18154613 3537656 455046291 4019450 460000 10898472 1815501 314409740 7256850 1030000 4940729 1294892 190778082 7197696 2260000 & DISTRIBUTION 17443321 11595611 8091223 662683984 135539723 349085863 83074170 258360865 29716134 161308873 12431378 OF TRADING 28463922 23987527 2023158 2710987 900393425 459065742 321666590 197975778 3117251 27082773 505473069 50229979 455243090 3822652 (22793537) 310660396 39687996 270972400 3822242 46871948 224434384 31162253 193272131 6214060 (1510413) 2011-12 2010-11 2009-10 2008 09

TAX OF EARLIER YEARS FRINGE BENEFIT TAX ADJUSTMENT OF BENIFIT (2139) 400000 133000 50000 -

TAX OF EARLIER YEARS DEFERRED ADJUSTMENT 8371243 6204627 1163000 2310000 TAX 2354985 5344627 -

PROFIT FOR THE YEAR PROFIT/LOSS FORWED FROM P.Y TOTAL BROUGHT

15308628 (2185177)

(2185177) -

6093850 -

4887696 -

13123451

(2185177)

6093850

4887696

BALANCE SHEET AS ON 31ST MARCH.


PARTICULAR (I) SOURCES OF FUNDS: PARTNERSCAPITAL ACCOUNTS FIXED CAPITAL CURRENT CAPITAL 34500000 34500000 RESERVES & SURPLUS TOTAL (A) LOAN FUNDS: SECURED LOANS UNSECURED LOANS DEFERREDPAYMENT CREDIT DEFERREDTAX LIABILITIES 7699345 203275893 TOTAL (II)APPLICATIONOF FUNDS: (A) FIXED ASSETS: GROSS BLOCK LESS: DEPRECIATION NET BLOCK S.CAPITAL W.I.P (B) CURRENT ASSETS, 101069565 17127180 83942385 82687977 11696495 70991482 61735839 8158640 53577199 4443205 27824134 6714824 21409310 251899345 5344627 182637625 213637625 122373022 154848606 49659967 64391273 145851170 49095000 630111 127923443 48063197 1306358 82406819 39966203 32673410 16986557 14123451 48623451 30000000 30000000 1000000 31000000 10000000 21475584 31475584 1000000 32475584 13731306 13731306 1000000 14731306 2011-12 2010-11 2009-10 2008-09

LOANS & ADVANCES: INVENTORIES SUNDRY DEBTORS 126234948 220917163 117121997 103351481 91386956 90010454 17321124 38901280

CASH & BANK BALANCES LOAN & ADVANCES TOTAL LESS:CURRENT ITIES& PROVISION NET CURRENT ASSETS PROFIT&LOSSACCOUNT TOTAL LIABIL

475958 13979431 363607499 195660540

2025951 12286925 234786354 94325388

2249399 12670651 196317460 99489259

6406755 3637734 66266893 22984930

167946959 251899345

140460967 2185177 213637625

96828202 154848606

43281963 64391273