A Project Report

On

Working Capital Management

Of

JK TYRE & INDUSTRIES LTD

!"NMORE TYRE #L"NT Di$t MOREN" %M #&

In partial '(lfillment of t)e Degree Ma$ter of !($ine$$ "+mini$tration %'inan,e& %-../0-.1.&

Re*(irement of t)e

PUNJAB TECHNICAL UNIVERSITY, Jalandhar

Submitted by: Submitted to:

Neetu Bhadoria

Mr. Kuldeep Malik

H.O.D. (Department Of Management)

The City College, G alior

DECL"R"TION
! do hereby de"lare that the #ro$e"t entitled 2Working Capital Management3 i% an authenti" or& de'eloped by me at () Tyre and !ndu%trie% *td. under the guidan"e of Mr. #+,-../ G0#T, %ubmitted in partial fulfillment of the re1uirement% for the a ard of the degree of Ma%ter of 2u%ine%% ,dmini%tration by the #un$ab Te"hni"al 0ni'er%ity, (alandhar (#un$ab), from the *o"al Centre The City College, G alior ! al%o de"lare that, any or all "ontent% in"orporated in thi% #ro$e"t ha'e not been %ubmitted in any form for the a ard of any degree or diploma of any other in%titution or uni'er%ity.

Date+4 #la,e4 G alior %Neet( !)a+oria&

"CKNOWLED5EMENT
!t i% a great %en%e of %ati%fa"tion and a matter of pri'ilege to me to INDUSTRIES LTD !"NMORE TYRE #L"NT or& at JK TYRE "ND

i%h to e3pre%% my heartie%t than&% to

than&% Mr. Om&ar Singh Chief Manager

or& approa"h and target oriented

(H+D), (.). Tyre% 2anmore for pro'iding me the opportunity to undergo training in the
e%teemed organi4ation. 0nder %u"h a ni"e en'ironment, %y%temati" ta%& management of thi% di'i%ion pro'ided me ith mu"h de%ired training e3perien"e needed for future.

My %pe"ial than&% to

Mr. #ra'een

Gupta

Sr. manager (56,), (.). Tyre%

2anmore ho a""epted me a% a trainee in hi% group and helping in the pro$e"t% ith ord% of
en"ouragement and ha% %ho n full "onfiden"e in my abilitie%. ! ill be failing in my obligation if to not than&% my family for their %upport and en"ouragement.

%Neet( !)a+oria&

#RE'"CE
,% an integral of the "our%e "urri"ulum, all M2, %tudent% are re1uired to undergo %ummer training in an indu%try or organi4ation. The main ob$e"ti'e% are to %upplement Student7% theoreti"al &no ledge ith an e3po%ure to the or&ing en'ironment of an organi4ation. ! ha'e "ho%en to a"ti'itie% of the "ompany. !t ha% been my be%t effort to pre%ent thi% report in the %y%temati" manner to ma&e dry material "ome ali'e. or& ith () T8+. ,/D !/D0ST+!.S *TD., 2anmore (Di%t. Morena, M#) hi"h pro'ided me ith an in%ight of elfare

on the pro$e"t 2Working Capital Management9

NEETU !6"DORI"

Content%

Company #rofile

JK T7re .'er %in"e it% in"eption it ha% been () Tyre:% belief in the 'alue of te"hnologi"al %uperiority that ha% made it gro by leap% and bound%. Thi% di'i%ion produ"e% and %ell% tyre% and tube% under the brand name ;() Tyre; for Tru"&, 2u%e%, #a%%enger Car%, (eep%, *ight Commer"ial -ehi"le%, Multi 0tility -ehi"le% and Tra"tor%.

The "ompany pioneered Steel +adial Te"hnology in !ndia in <=>> and "ontinue% to be the indu%try leader in the +adial %egment in !ndia. () Tyre i% the only Tyre Manufa"turer in the "ountry to produ"e high performan"e :T: 6 :H: ?rated %teel radial tyre%.

() Tyre ha% "on%"iou%ly follo ed a poli"y of "ontinuou%ly moderni4ing and e3panding it% tyre manufa"utring fa"ilitie% to retain it% edge in the mar&et pla"e. Our "u%tomer ba%e "o'er% 'irtually the entire Original .1uipment Manufa"turer% (O.M%) in !ndia together ith +epla"ement Mar&et for four heeler 'ehi"le%, Defen"e and State Tran%port 0nit%. 2e%ide% !ndia, e ha'e a orld ide "u%tomer ba%e in o'er @A "ountrie% a"ro%% all B "ontinent%. To &eep pa"e ith the mar&et demand a% ell a% te"hnologi"al leader%hip in !ndian mar&et, (.).

!ndu%trie% a"1uired -i&rant Tyre% *imited, My%ore in <==>. (.). !ndu%trie% and -i&rant Tyre% *imited are the only tyre "ompanie% in !ndia to ha'e re"ei'ed all three !SO =CC<, DS =CCC and !SO <@CC< "ertifi"ate%. Thi% indeed i% a true refle"tion of our "ommitment to %y%tem oriented approa"h. The "ompany ha% a te"hni"al "ollaboration ith ME% Continental ,G, Germany, hi"h i% among the top fi'e tyre manufa"turer% in the orld to &eep pa"e ith late%t te"hnologi"al de'elopment%. To %tay at the forefront of te"hnologi"al ad'an"ement% a %tate of art +e%ear"h 6 De'elopment Centre, H,S.T+!, a% %et up, hi"h remain% the ner'e "entre for pro'iding "utting edge te"hnology. !n a %hort %pan of time it ha% emerged a% the <>th large%t tyre manufa"turer in the orld an a"hie'ement in it%elf. Fith three plant% lo"ated in +a$a%than, Madhya #rade%h and )arnata&a, () Tyre i% the large%t manufa"turer of tru"& and bu% tyre% in !ndia. The tru"& and bu% tyre% produ"ed a""ount for nearly >@G of the total tyre bu%ine%% in !ndia, thu% gi'ing () Tyre an undi%puted po%ition. ,dditionally, () Tyre i% the only manufa"turer of tru"&E bu% %teel radial tyre%, and the %e"ond large%t manufa"turer of @? heeler tyre% in the "ountry. ,l%o, () Tyre i% the large%t e3ported tyre brand from !ndia. !t a% a arded the C,#.H!*:% Highe%t .3port , ard for <==>?=> by 5!.O. !t en$oy% preferred premium brand %tatu% in Tru"& 2ia% mar&et in 0S, and a"ro%% many mar&et% in ,fri"a, Middle .a%t and South .a%t ,%ia.

Hi%tory of () Tyre% CORE 8"LUES4 () Organi4ation ha% been a forerunner in the e"onomi" and %o"ial ad'an"ement of !ndia. !t al ay% aimed at "reating $ob opportunitie% for a multitude of "ountrymen and to pro'ide high 1uality produ"t%. !t ha% %tri'en to ma&e !ndia %elf reliant by pioneering the produ"tion of a number of indu%trial and "on%umer produ"t%, by adopting the late%t te"hnology a% ell a% de'eloping it% o n &no ?ho . !t ha% al%o underta&en indu%trial 'enture% in %e'eral other "ountrie%. () Organi4ation i% an a%%o"iation of indu%trial and "ommer"ial "ompanie% and "haritable tru%t%. !t% member "ompanie%, employing nearly AC,CCC per%on% are engaged in the manufa"ture of a 'ariety of produ"t% and in di'er%e field% of "ommer"e. Tru%t% are de'oted to promoting indu%trial, te"hni"al and medi"al re%ear"h, edu"ation, religiou% 'alue% and pro'iding better li'ing and re"reational fa"ilitie%. Fith the %pirit of %o"ial "on%"iou%ne%% uppermo%t in mind, (.). Organi4ation i% "ommitted to the "au%e of human ad'an"ement.

<=II

5ir%t in !ndia to manufa"ture Cali"o #rint%? (uggilal )amlapat Cotton Spinning and Fea'ing Mill% Co. *td., )anpur. 5ir%t in !ndia to manufa"ture %teel 2ailing Hoop% for $ute and "otton and to ma&e the "ountry %elf %uffi"ient by meeting the entire demand?(.). !ron 6 Steel Co. *td., )anpur. 5ir%t in !ndia to produ"e ,luminium 'irgin Metal from !ndian 2au3ite?,luminium Corporation of !ndia *td., (ay&aynagar.

<=@C

<=@@

<=@=

5ir%t in !ndia to manufa"ture .ngineering file%? (.). .ngineer% J5ile%, 2ombay.

<=A=

5ir%t in !ndia to %et up a "ontinuou% pro"e%% +ayon #lant.

<=BC

5ir%t to manufa"ture a Hydrauli"ally Operated Cane Cru%hing Mill for )hand%ari Sugar #lant and "ompleted <CC ton plant?(.). !ron 6 Steel Co. *td., )anpur.

<=B<

5ir%t in orld to %et up a plant for produ"tion of Hydro%ulphite of %oda by Sodium ,malgam #ro"e%%? (.). Chemi"al% *td., 2ombay.

<=BA

5ir%t to produ"e Sodium Sulpho3ylate 5ormaldehyde (+angolite C of 5ormo%ul) in !ndia ? (.). Chemi"al% *td., 2ombay

<=BK

5ir%t to manufa"ture T- Set% in !ndia? (.). .le"troni"%, )anpur. 5ir%t to manufa"ture Metalli" Cop% for Syntheti" 5ilament yarn indu%trie% in !ndia? Synte3 tube or&%, )anpur.

<=B=

5ir%t to manufa"ture ,"ryli" 5ibre%? (.). Syntheti"% *td. )ota 5ir%t to de'elop differentially Dyeable /ylon? (.). Syntheti"% *td., )ota

<=>I

5ir%t in !ndia to li"en%e Syntheti" 5ibre Te"hnology to third party a% ell a% the fir%t to manufa"ture Syntheti" 5ibre Ma"hinery 5ibrete"h .ngineer% 6 Manufa"turer%, Dadri.

<=>B

5ir%t in !ndia to produ"e %teel belted +adial Tyre% for pa%%enger "ar%, tru"&% and bu%e%? (.). Tyre #lant, )an&roli.

<=KC

5ir%t in orld to ma&e Steel 2elted +adial Tyre% for three heeler%? (.). Tyre #lant, )an&roli.

<=K@

5ir%t in !ndia to produ"e hite "ement through dry pro"e%%? (.). Fhite "ement. Gotan.

<=KA

5ir%t in !ndia to produ"e Cathoni" Dyeable #olye%ter 5ibre? (.). Syntheti"% *td., )ota. 5ir%t in !ndia to produ"e /ylon Tyre Cord ba%ed on Spin Dra Te"hnology? (.). Syntheti"% *td., )ota.

<=K=

5ir%t in !ndia to produ"e magneti" tape% ith "obalt te"hnology (.). magneti"%, Sura$pur.

<==<

2anmore Tyre #lant (2T#) %et?up ith a "apa"ity of A.> la"% tyre% p.a.

<==L

+ 6 D "enter %et?up at H,ST.+!.

<==@

!ndia:% fir%t T?+ated tyre laun"hed 2anmore Tyre #lant (2T#) "ro%%ed <CC T#D.

<==A

Mer"ede% 2en4 *aun"hed on () %teel radial% 5ir%t tyre manufa"turer in the orld to get !SO =CC<

<==B

!ndia:% fir%t dual "onta"t high tra"tion %teel radial? a1ua%oni" laun"hed. !ntrodu"ed %teel heel%.

<==>

, arded the /ational .3port , ard for =B?=>. -i&rant Tyre% (-T*) a"1uired. !ndia:% fir%t H rated tyre laun"hed. Only Tyre manufa"turer to get :.: Mar& "ertifi"ation. H,S.T+! be"ame the fir%t re%ear"h in%titute in ,%ia to get !SO =CCL.

<==K

5ir%t tyre manufa"turer in the orld to get DS =CCC. , arded C,#.H!*:% highe%t e3port a ard for <==>?=K.

<===

Synergy ith -T* in pro"urement, mar&eting and produ"tion fle3ibility. Completion of %tate of the art moderni%ation of tru"& radial%. () Tyre% ran&ed <Bth large%t Tyre Company in the orld. !S, ? <@CCC a""redition for en'ironment 6 %afety.

LCCC

() introdu"ed /ational Go?)arting Champion%hip%.

LCC<

+e"ie'ed C,#.H!* a ard. (.). !ndu%trie% re"ie'ed 5OC0S *,C e3port a ard for the year <===?LCCC. Commendation Certifi"ate of C!! .3im. !!nd /ational Go?)arting Champion%hip% held.

JK T7re9$ No 1 market po$ition !n hat i% being "on%idered a% a landmar& de"i%ion in the highly "ompetiti'e !ndian tyre indu%try, the

,d'erti%ing Standard% Coun"il of !ndia (,SC!) ha% upheld () !ndu%trie% *td:% "laim of being !ndia:% /o < tyre manufa"turer in the four? heeler tyre %egment, reaffirming ():% leader%hip po%ition in the mar&et. .3pre%%ing hi% happine%% o'er ,SC!:% $udgement, () Tyre mar&eting dire"tor T ) 2aner$ee %ay%: ::Thi% i% a fabulou% e3ample of hy all of u% need to ha'e faith in bodie% li&e ,SC!. Fe belie'e that the pro"e%% of %elf? or&ing for both "ompanie% and agen"ie%. Fe al%o hope that thi% ould regulation in !ndian ad'erti%ing i%

en"ourage 'ariou% player% to bring %uperior te"hnology and "on%umer %er'i"e %tandard% and "laim leader%hip in a more healthier and "ompetiti'e manner.:: The "a%e in a% %tarted hen fe "ompetitor% filed a "omplaint ith ,SC! again%t () Tyre:% print ad'erti%ement,

hi"h () Tyre announ"ed it% numero uno po%ition in the four? heeler tyre %egment, 1uoting produ"tion

figure% "ompiled by ,utomoti'e Tyre Manufa"turer ,%%o"iation and other authenti" indu%try %our"e%. 2ut the "ompetitor% "ontradi"ted the "laim, %tating the fa"t that mar&et figure% from a "ompany:% annual report %hould be u%ed a% authenti" data to "laim one:% leader%hip, not the produ"tion figure%. 2ut ,SC! "on%idered the "a%e at the Con%umer Complaint% Coun"il on LI May LCCL and upheld () Tyre:% "ontention that produ"tion figure%, a% "ompiled by authenti" indu%try %our"e% and u%ed by () Tyre to "laim it% leader%hip, i% a 'alid and appli"able "ompari%on platform. Hen"e, () Tyre:% "laim a% /o < tyre manufa"turer in !ndia i% a perfe"tly 'alid and "orre"t %tatement. Thi% al%o refle"t% ,SC!:% agreement to () Tyre:% 'ie point that figure%, a% %tated in the one:% annual report, "ould a"tually be mi%leading and "ould in"lude re'enue% from non?tyre?related bu%ine%%e% al%o. () Tyre, pioneer% of radial te"hnology in !ndia, i% today !ndia:% large%t manufa"turer of tyre% in the four? heel %egment, in"luding tyre% for tru"&% and bu%e%, *C-%, pa%%enger "ar%, $eep%, tra"tor%, ,D-% and OT+%. ,fter LA year% of pioneering orld?"la%% te"hnologie% in !ndia, () Tyre ha% re"ently laun"hed the "ountry:% fir%t e"o? friendly "oloured tyre% a% ell a% %teel?belted tra"tor rear radial%.

Mi$$ion & 8i$ion 8i$ion4 To be among%t the mo%t admire "ompanie% in !ndia "ommitted to be e3"ellen"e Mi$$ion4 a. 2e a "u%tomer ob%e%%ed "ompany b. ". d. e. f. /o.< Tyre brand in !ndia Deli'er enhan"ed 'alue at all %ta&eholder% Mo%t profitable Tyre Company in !ndia .nhan"e global pre%en"e through a"1ui%ition Moti'ated and "ommitted team de'elopment for high performan"e organi4ation

Marketing Strateg7

Strategi" thin&ing i% &ey to the e'olution of %u""e%%ful mar&eting %trategie% of () tyre. Thi% in'ol'e% the follo ing analy%e%: i. ii. iii. i'. '. Un+er$tan+ing market$4 Strategi" per%pe"ti'e of the mar&et re1uire% %&ilful analy%i% of the trend and ho they affe"t the mar&et %i4e and demand for the firm7% produ"t. 'in+ing market ni,)e$4 #ri"e, %er'i"e, "on'enien"e and te"hnology are %ome of the ni"he% in !ndian mar&et. #ro+(,t an+ $er:i,e planning4 ,naly%i% of the "u%tomer7% promotion of the brand, both of the firm and "ompetitor%, be%ide% an analy%i% of the %ituation in hi"h the "u%tomer u%e% the produ"t. Di$tri;(tion4 Stru"tural "hange% in in'entory management, mobile di%tribution are %ome of the &ey fa"tor% that are going to affe"t the di%tribution pro"e%% in the !ndian mar&et. Managing for re$(lt4 Fith pre%%ure on "o%t%, pri"e%, and margin%, mar&eter% ill ha'e to ma&e effe"ti'e utili4ation of e'ery rupee %pent in mar&eting. Market opport(nit7 of JK4 !dentifi"ation of mar&et opportunity i% "riti"al before the management of affirm ta&e% a de"i%ion to laun"h or di'er%ify in any produ"t area. Thi% in'ol'e% analy%i% of the follo ing: Si4e of the mar&et Mar&eting %trategie% and the e3tent and 1uality of %er'i"e% rendered by other firm in the indu%try. Mar&et programmed re1uired to %ati%fy mar&et ant% !dentifi"ation of &ey %u""e%% fa"tor% in an indu%try and lin&ing them to a firm7% %trength% and ea&ne%%

Mar&et opportunity a. Si4e of the mar&et b. Ho ell the mar&et i% %er'ed ". #ro%pe"ti'e in"he% d. Mar&eting mi3 re1uired to %u""eed e. Core "ompeten"ie% re1uired

Mar&et %egment analy%i%

!ndu%try analy%i%

Competition analy%i%

Demand Condition %

Trade analy%i%

Market opportunity Si4e of the mar&et Ho ell the mar&et i% %er'ed #ro%pe"ti'e in"he% Mar&eting mi3 re1uired to %u""eed Core "ompeten"ie% re1uired

5rame or& of mar&et opportunity analy%i%

Si<e of t)e market4 Si4e% of the mar&et are.... Deman+ anal7$i$4 i% the "ore a%pe"t of mar&et opportunity.

Segmentation anal7$i$4 i% the pro"e%% of di'iding the mar&et into homogeneou% %ub unit%. In+($tr7 anal7$i$4 .ntry 2arrier%: High The entry barrier% are high for the tyre indu%try. !t i% a highly "apital inten%i'e indu%try. , plant ith an annual "apa"ity of <.A million "ro%%?ply tyre% "o%t% bet een +%. @,CCC and +%. A,CCC million. , %imiliar plant produ"ing radial tyre% "o%t% +%. K,CCC million.

gaining #o er of the yer%: High

2argaining #o er of the Supplier%: High !nter 5irm +i'alry: *o The tyre indu%try in !ndia i% fairly "on"entrated, ith the top eight "ompanie% a""ounting for more than KCG of the total produ"tion of tyre%
The tyre indu%try "on%ume% nearly ACG of the natural rubber produ"ed in the "ountry. The pri"e of natural rubber i% "ontrolled by +ubber Control 2oard and the dome%ti" pri"e% of natural rubber ha'e regi%tered a %ignifi"ant in"rea%e in re"ent time%.

O.M% ha'e total trol o'er pri"e%. !n , the O.M% fa"ed ith lining profitability e al%o redu"ed the mber of "omponent plier% to ma&e the ply "hain more "ient.

Threat of Sub%titute%: *o but !n"rea%ing During the 58LCCL, o'er <,<C,CCC pa%%enger "ar tyre% ere imported. Thi% "on%titute% o'er LG of total radial pa%%enger "ar tyre produ"tion in the "ountry. Ho e'er, ith the redu"tion of pea& "u%tom duty, the import of tyre% i% li&ely to in"rea%e. In+($tr7 "nal7$i$ 0 #orter9$ Mo+el Competitor anal7$i$4 analy%i% of "ompetition ho ell the mar&et i% %er'ed.

WORKIN5 C"#IT"L M"N"5EMENT0"N O8ER8IEW

INTRODUCTION4
For&ing "apital mean% the fund% hi"h are re1uired to meet the daily tran%a"tion% of the bu%ine%% .!n other ord% it refer% to that part of the firm7% "apital hi"h i% re1uired for finan"ing "urrent a%%et% %u"h a% "a%h, mar&etable %e"uritie%, debtor% and in'entorie%. Thu% or&ing "apital i% 'ery %ignifi"ant fa"et of finan"ial management. .'ery bu%ine%% "on"ern %hould ha'e ade1uate or&ing "apital to run it% operation% %moothly. !t %hould ha'e neither e3"e%% or&ing "apital nor inade1uate or&ing "apital be"au%e both of the%e ha'e ad'er%e effe"t% on firm7% profitability and li1uidity po%ition%. Therefore, bu%ine%% "on"ern% %hould maintain ade1uate or&ing "apital. The ba%i" ob$e"ti'e of or&ing "apital i% to manage the firm7% "urrent a%%et% and "urrent liabilitie% in %u"h a ay that that a %ati%fa"tory le'el of or&ing "apital i% maintained. For&ing "apital poli"ie% ha'e a great effe"t on a firm7% li1uidity and profitability. Therefore, the or&ing "apital %hould be managed in %u"h a ay hi"h ill en%ure higher profitability and proper li1uidity to the bu%ine%% "on"ern. The %ignifi"an"e of or&ing "apital management i% to en%ure that the organi4ation maintain% a Jgood fit7 ith the "hanging en'ironment and %tri'e% to build the "apability to "ope ith "hallenge%.

CONCE#TS O' WORKIN5 C"#IT"L

There are t o "on"ept% of or&ing "apital: 2alan"e %heet "on"ept or traditional "on"ept. Operating "y"le "on"ept.

!"L"NCE S6EET CONCE#T OR TR"DITION"L CONCE#T

!t %ho % the po%ition of the firm at a "ertain point of time. !t i% "al"ulated on the ba%i% of balan"e %heet prepared at a %pe"ifi" date. !n thi% method there are t o type% of or&ing "apital. Gro%% or&ing "apital /et or&ing "apital

5ROSS WORKIN5 C"#IT"L

!t refer% to a firm7% in'e%tment in "urrent a%%et%. The %um of the "urrent a%%et% i% the or&ing "apital of the bu%ine%%. The %um of the "urrent i% 1uantitati'e a%pe"t of or&ing "apital hi"h empha%i4e% more on 1uantity than on it% 1uality, but it fail% to re'eal the true pi"ture of the finan"ial po%ition of the bu%ine%% be"au%e e'ery in"rea%e in "urrent liabilitie% ill de"rea%e the gro%% or&ing "apital.

NET WORKIN5 C"#IT"L

!t i% differen"e bet een the "urrent a%%et% and "urrent liabilitie% or the e3"e%% of total "urrent a%%et% o'er total "urrent liabilitie%. !t "an al%o be defined a% that part of a firm7% "urrent a%%et hi"h i% finan"ed ith long term fund%. !t may be either negati'e or po%iti'e. Fhen the "urrent a%%et% e3"eed the "urrent liabilitie%, the or&ing "apital i% po%iti'e and 'i"e?'er%a.

O#ER"TIN5 CYCYE CONCE#T

The duration or time re1uired to "omplete the %e1uen"e of e'ent% right from the pur"ha%e of ra material% for "a%h to the reali4ation of %ale% in "a%h i% "alled operating "y"le or or&ing "apital "y"le. The operating "y"le "on%i%t% of three pha%e%: !n pha%e <, "a%h get% "on'erted into in'entory. Thi% ould in"lude pur"ha%e of ra material%, "on'er%ion of ra material% into or&?in?progre%%, fini%hed good% and terminate in the tran%fer of good% to %to"& at the end of the manufa"turing pro"e%%. !n the "a%e of trading organi4ation, thi% pha%e ould be %horter a% there ould be no manufa"turing a"ti'ity and "a%h ill be "on'erted into in'entory dire"tly. The pha%e ill, of "our%e, be totally ab%ent in "a%e of %er'i"e organi4ation%. !n pha%e L of the "y"le, the in'entory i% "on'erted into re"ei'able% a% "redit %ale% are made to "u%tomer%. 5irm% hi"h do not %ell on "redit ill ob'iou%ly not ha'e pha%e L of the operating "y"le. The la%t pha%e, pha%e I, repre%ent% the %tage hen re"ei'able% are "olle"ted. Thi% pha%e "omplete% the operating "y"le. Thu%, the firm ha% mo'ed from "a%h to in'entory, to re"ei'able% and to "a%h again.

'I=ED>#ERM"NENT WORKIN5 C"#IT"L

To "arry on bu%ine%%, a "ertain le'el of or&ing "apital i% ne"e%%ary on a "ontinuou% and uninterrupted ba%i%, for all pra"ti"al purpo%e, the re1uirement ha% to be met a% ith other fi3ed a%%et%. #ermanent or&ing "apital repre%ent% the minimum le'el of ra material%, or&?in?progre%%, fini%hed good%, %tore%, a""ount% re"ei'able% and "a%h hi"h are in "ir"ulation to en%ure "ontinuity of produ"tion. #ermanent or&ing "apital i% again di'ided into t o part%: regular or&ing "apital and re%er'e or&ing "apital. The portion of fi3ed or&ing "apital hi"h i% utili4ed to "arry out the "y"li"al operation of "urrent a%%et% in the form of "on'er%ion of li1uid "a%h into ra material%, ra material% into fini%hed good%, fini%hed good% into debtor% and debtor% into li1uid "a%h in a "ontinuou% manner i% &no n a% regular or&ing "apital. On the other hand, the portion of fi3ed or&ing "apital, hi"h i% pre%er'ed for meeting un"ertain and emergent or&ing need% (li&e %udden pri"e hi&e, abnormal %"ar"ity in time% of ar, natural "alamity, et") i% &no n a% re%er'e or&ing "apital.

8"RI"!LE>TEM#OR"RY WORKIN5 C"#IT"L

2e%ide% fi3ed or&ing "apital, a bu%ine%% may need additional or&ing "apital to meet the gro ing demand% of bu%y %ea%on% at %tated inter'al%. !f the demand for the produ"t% of the bu%ine%% goe% up at any time it need% additional fund% to pay for more material%, labour and other e3pen%e% and to meet the re1uirement of "a%h balan"e to be maintained in the "hanged %ituation. Thi% additional or&ing "apital needed to feed the operating "y"le in bu%y bu%ine%% period% i% &no n a% 'ariable or temporary or&ing "apital. !t i% "alled 'ariable or temporary be"au%e the bu%ine%% doe% not need it al ay% but it i% re1uired a""ording to the need of the %ituation.

Generally the importan"e of 'ariable or&ing "apital i% more a"ute in bu%ine%% "on"ern ha'ing %ea%onal mar&et demand%. -ariable or temporary or&ing "apital may be further %ub? di'ided into (a) %ea%onal or&ing "apital and (b) %pe"ial or&ing "apital. The additional or&ing "apital re1uired by a "on"ern to "arry out it% operating a"ti'itie% in bu%y %ea%on% of high mar&et demand% i% &no n a% %ea%onal or&ing "apital. 2u%ine%%e% hi"h mo%tly ha'e %ea%onal demand% of their produ"t% li&e i"e? "ream, "old drin&%, ool and li&ely produ"t% manufa"turing "on"ern may need huge amount of %ea%onal or&ing "apital. !n other bu%ine%% "on"ern% too the mar&et may ri%e to the pea& in %ome parti"ular time period. So in all type% of bu%ine%% a portion of or&ing "apital may be pre%er'ed for meeting %ea%onal need%. On the other hand, the portion of or&ing "apital that i% needed by a "on"ern to meet the e3traordinary re1uirement% of %pe"ial %ituation% i% &no n a% %pe"ial or&ing "apital. Thi% i% "alled %pe"ial or&ing "apital be"au%e it i% needed in %pe"ial %ituation% and not in normal "ir"um%tan"e%.

Diagrammati" repre%entation of the "on"ept of or&ing "apital

IM#ORT"NCE O' WORKIN5 C"#IT"L

 The ade1uate re%er'e of pro"e%%.

or&ing "apital en%ure% a %teady flo

of ra

material% to the produ"tion

The ade1uate re%er'e of or&ing "apital indi"ate% the good %ol'en"y po%ition of the "on"ern and help% it to get loan from the mar&et at fa'orable term%. The ade1uate %to"& of or&ing "apital ma&e% it po%%ible for a "on"ern to pur"ha%e the trading good% in

"a%h and "a%h pur"ha%e al ay% "arrie% the benefit of getting "a%h di%"ount. , %trong or&ing "apital ba%e i% probably the only remedy to o'er"ome the odd %ituation% li&e dull material% and other "omponent% in "a%e of any emergen"y, %udden

mar&et "ondition%, %"ar"ity of ra mar&et flu"tuation%, et".

, bu%ine%% "on"ern "an e3ploit the mar&et opportunitie% ith the help of ade1uate or&ing "apital. The regular flo of ade1uate or&ing "apital ma&e% po%%ible effi"ient u%e of fi3ed a%%et%, redu"e%

a%tage, en%ure% 1ui"& replying of "urrent a%%et%, and e%tabli%h a ell? tuned or&ing en'ironment.
, 1ui"& rotation of

or&ing "apital "y"le and an effi"ient management of

or&ing "apital redu"e "o%t

and in"rea%e% produ"tion and %ale%. The "ombined effe"t of all the%e fa'orably add to the profitability of the "on"ern The ade1uate amount of or&ing "apital and it% 1ui"& rotation in"rea%e% profit. The rate of di'idend of

the %hareholder% al%o in"rea%e% a% a re%ult of %u"h in"rea%e in profit. Suffi"ient or&ing "apital help% in re%ear"h and de'elopment to fa"e the pre%ent era of "ut throat

"ompetition and 1ui"& te"hnologi"al ad'an"ement.

DETERMIN"NTS O' WORKIN5 C"#IT"L

The total or&ing "apital re1uirement i% determined by a ide 'ariety of fa"tor%. !t %hould be, ho e'er, noted that the%e fa"tor% affe"t different enterpri%e% differently. They al%o 'ary from time to time. !n general, the follo ing fa"tor% are in'ol'ed in a proper a%%e%%ment of the 1uantum of or&ing "apital re1uired:?

5ENER"L N"TURE O' !USINESS4

The or&ing "apital re1uirement% of an enterpri%e are ba%i"ally related to the "ondu"t of the bu%ine%%. ,""ording to the nature of bu%ine%% they ha'e to maintain a %uffi"ient amount of "a%h, in'entorie% and boo& debt%. The indu%trial "on"ern% re1uire fairly large amount% of or&ing "apital though it 'arie% from indu%try to indu%try depending on their a%%et% %tru"ture.

#RODUCTION CYCLE4
,nother fa"tor hi"h ha% a bearing on the 1uantum of or&ing "apital i% the produ"tion "y"le. The term Mprodu"tion or manufa"turing "y"le9 refer% to the time in'ol'ed in the manufa"ture of good%. !t "o'er% the time? %pan bet een the pro"urement of ra material% and the "ompletion of the manufa"turing pro"e%% leading to the produ"tion of fini%hed good%. To %u%tain %u"h a"ti'itie% the need of or&ing "apital i% ob'iou%.

!USINESS CYCLE4
The or&ing "apital re1uirement% are al%o determined by the nature of the bu%ine%% "y"le. The 'ariation% in bu%ine%% "ondition% may be in t o dire"tion%: (i) (ii) up ard pha%e hen boom "ondition% pre'ail do n ard pha%e hen e"onomi" a"ti'ity i% mar&ed by a de"line. During the up% ing of the bu%ine%% a"ti'ity the need of or&ing "apital i% more a% oppo%ed to the do n ard pha%e of the bu%ine%%.

#RODUCTION #OLICY4
The re1uirement of or&ing "apital al%o depend% on the produ"tion poli"y of the firm. !n manufa"turing "on"ern% ha'ing mo%tly %ea%onal demand for the produ"t the produ"tion poli"y i% a %ignifi"ant determinant of or&ing "apital

C6"N5ES IN #RICE LE8EL4

General in"rea%e in pri"e le'el in"rea%e% or&ing "apital need of a firm be"au%e the firm ha% to pay more for maintaining the pre'iou% le'el on or&ing "apital

5ROWT6 "ND E=#"NTION4

,% a "ompany gro %, it i% logi"al to e3pe"t that a larger amount of or&ing "apital ill be re1uired. The "riti"al fa"t i% ho e'er, i% that the need for in"rea%ed or&ing "apital fund% doe% not follo the gro th in bu%ine%% a"ti'itie% but pre"ede% it.

"8"IL"!ILITY O' R"W M"TERI"LS4

!n "a%e ra material% are ea%ily a'ailable on %oft term% the firm doe% not re1uire maintaining a huge in'entory of ra material%. Su"h a firm doe% not re1uire blo"&ing up huge amount of or&ing "apital for thi% purpo%e. On the "ontrary if ra material% are %"ar"e and it% %upply i% irregular and %ea%onal in nature the firm need% to %tore a rea%onable 1uantity of ra material% in hand. The or&ing "apital need of %u"h a firm i% %ignifi"antly high.

DI8IDEND #OLICY4
The payment of di'idend "on%ume% "a%h re%our"e% and, thereby, affe"t% or&ing "apital to that e3tent. Con'er%ely, if the firm doe% not pay di'idend but retain% the profit%, or&ing "apital ill in"rea%e.

DE#RECI"TION #OLICY4
Depre"iation poli"y al%o e3ert% an influen"e on the 1uantum of or&ing "apital. Depre"iation "harge% do not in'ol'e any "a%h outflo . The effe"t of depre"iation poli"y on or&ing "apital i%, therefore indire"t. ,t DS# depre"iation i% pro'ided on %traight line method at the rate% %pe"ified in %"hedule? H!- to the "ompanie% a"t, <=AB. Ho e'er here the hi%tori"al "o%t of the depre"iable a%%et undergoe% a "hange, the depre"iation on the re'i%ed amorti4ed depre"iable amount i% pro'ided pro%pe"ti'ely o'er the re%idual u%eful life of the a%%et ba%ed on the rate% %pe"ified in %"hedule? H!- to the "ompanie% a"t, <=AB. Depre"iation on a%%et% in%talledE di%po%ed off during the year i% pro'ided ith re%pe"t to the month of additionE di%po%al thereof.

STRUCTURE O' WORKIN5 C"#IT"L

The %tru"ture of or&ing "apital in"lude% a %tudy of the "omponent% of "urrent a%%et% and "urrent liabilitie%.

CURRENT "SSETS4

The li%t of "urrent a%%et% "ompri%e% in'entorie% (in"luding ra material%, or&?in?progre%% and fini%hed good% and %pare%), %undry debtor% in"luding re"ei'able%, readily reali4able %e"uritie% and ta3 re%er'e "ertifi"ate%, %hort? term in'e%tment%, a""rued in"ome%, prepaid e3pen%e% (not in the nature of deferred "harge), "a%h at ban&, and "a%h in hand. !n Durgapur Steel #lant "urrent a%%et% are: !n'entorie% (%tore% 6 %pare%, ra material%, %emi?fini%hed produ"t%) Sundry debtor% Ca%h 6 ban& balan"e% !ntere%t re"ei'ableEa""rued *oan% 6 ad'an"e% et".

CURRENT LI"!ILITIES4
The li%t of liabilitie% in"lude% trade "reditor%, a""ount% payable, out%tanding or a""rued e3pen%e%, ban& o'erdraft, out%tanding liabilitie%, %hort?term loan% and borro ing% and "ertain obligation% in"luding different pro'i%ion%, i.e., pro'i%ion for ta3ation, propo%ed di'idend et". !n Durgapur Steel #lant "urrent liabilitie% are: Sundry "reditor% ,d'an"e% from "u%tomer% Se"urity depo%it Other liabilitie% et".

'"CTORS TO !E CONSIDERED W6ILE ESTIM"TIN5 WORKIN5 C"#IT"L RE?UIREMENT

Total "o%t% in"urred on material%,

age% and o'erhead%.

The length of time for hi"h ra material% remain in %tore% before they are i%%ued to produ"tion. or&?in?progre%%, i.e., the time ta&en for "on'er%ion of ra material%

The length of the produ"tion "y"le or

into fini%hed good%.

The length of the Sale% Cy"le during

hi"h fini%hed good% are to be &ept aiting for %ale%.

The a'erage period of "redit allo ed to "u%tomer%. The amount of "a%h re1uired to pay day?to?day e3pen%e% of the bu%ine%%. The amount of "a%h re1uired for ad'an"e payment% if any. The a'erage period of "redit to be allo ed by %upplier%.

Time?lag in the payment of age% and other o'erhead%.

SOURCE O' WORKIN5 C"#IT"L 'OR JK TYRE #L"NT " #ermanent OR 'I=ED <. Share% L. Debenture% I. #ubli" Depo%it% @. #loughing 2a"& of profit% (+etained .arning)

A. *oan% from 5inan"ial !n%titution ! Temporar7 Or 8aria;le <. Commer"ial 2an&% L. !ndigenou% 2an&er% I. Trade Creditor% @. !n%tallment% Credit A. ,d'an"e !n%titutuion% B. ,""ount% +e"ei'able CreditE 5a"toring >. ,""rued .3pen%e% K. Commer"ial #aper

IM#ORT"NCE O' WORKIN5 C"#IT"L R"TIOS

+atio analy%i% "an be u%ed by finan"ial e3e"uti'e% to "he"& upon the effi"ien"y ith hi"h or&ing "apital i% being u%ed in the enterpri%e. The follo ing are the important ratio% to mea%ure the effi"ien"y of the or&ing "apital. The follo ing, ea%ily "al"ulated, ratio% are important mea%ure% of or&ing "apital utili4ation. R"TIOS C(rrent Ratio 'orm(lae Total Current ,%%et%ETotal Current *iabilitie% Re$(lt NH time% Interpretation !t i% the relation%hip bet een the amount of "urrent a%%et% and the amount of "urrent liabilitie%. !t mea%ure% the %hort? term li1uidity po%ition of the firm.

",i+0Te$t Ratio

Total Current ,%%et%? !n'entorie%E Total Current *iabilitie% Sale%EFor&ing Capital

NH time%

Similar to the Current +atio but ta&e% a""ount of the fa"t that it may ta&e time to "on'ert in'entory into "a%h.

Working Capital T(rno:er Ratio

NH time%

, Higher For&ing Capital +atio mean% lo er in'e%tment in or&ing "apital and better profitability.

Sto,k T(rno:er Ratio%in +a7$&

Sale%E!n'entory

NH day%

On a'erage, you turn o'er the 'alue of your entire %to"& e'ery 3 day%. 8ou may need to brea& thi% do n into produ"t group% for effe"ti'e %to"& management.

C(rrent "$$et$ T(rno:er Ratio

Sale%ECurrent ,%%et%

NH time%

!t refle"t% the effi"ien"y in generating %ale% by Current a%%et%.

@ A T6E D"N5ERS O' E=CESSI8E WORKIN5 C"#IT"L <. !t re%ult% in unne"e%%ary a""umulation of in'entorie% thu% "han"e% of in'entory mi%handling a%te theft and lo%%e% in"rea%e%.

L. !t i% an indi"ation of defe"ti'e "redit poli"y and %la"& "olle"tion period. Con%e1uently higher in"iden"e of bad debt% re%ult%, hi"h ad'er%ely effe"t degenerated into management "o pla"ement, hi"h degenerated into managerial ineffi"ient. I. .3"e%%i'e effi"ien"y. @. Tenden"ie% of a""umulating in'entorie% to ma&e %pe"ulation profit% gro thi% may tend to ma&e di'idend poli"y liberal and diffi"ult to "ope %pe"ulati'e profit%. IN"DE?U"TE WORKIN5 C"#TI"L <. !t %tage% gro th and be"ome diffi"ult for the firm to underta&en profitable pro$e"t% for non? a'ailability of or&ing "apital fund%. L. !t be"ome% diffi"ult to implement operating plan% and a"hie'e the firm% profit target. I. Operating ineffi"ien"ie% "reep in "ommitment%. @. 5i3ed a%%et% are not effi"iently utili4ed for the la"& of profitability ould deteriorate. A. #au"ity of et". B. The firm lo%%e% it% reputation hen it i% not in po%ition to honor it% %hort term obligation a% or&ing "apital fund% render% the firm unable to a'ail attra"ti'e "redit opportunitie% or&ing "apital fund% thu% the firm% hen it be"ome% diffi"ult e'en to meet day?to?day ith in future hen the firm i% unable to ma&e or&ing "apital ma&e% management "ompla"ent, hi"h degenerate% into managerial

re%ult the firm fa"e% tight "redit term%. Thu%, enlightened management %hould therefore maintain% a right amount of or&ing "apital on a "ontinuou% ba%i% hi"h help% to de'elop the organi4ation effe"ti'ely and effi"iently. @ 1. ROLE O' 'IN"NCI"L M"N"5ER IN WORKIN5 C"#IT"L M"N"5EMENT4

<. For&ing "apital management re1uire% mu%t of the finan"e manger time a% it repre%ent a large po%ition of in'e%tment i% a%%et%. L. For&ing "apital management re1uire% mu"h of the finan"e management time a% it repre%ent larger po%ition of in'e%tment in a%%et%. I. ,"tion %hould be ta&en to "urtail unne"e%%ary in'e%tment in "urrent a%%et%. @. ,ll pre"aution% %hould be ta&en for the effe"ti'e and effi"ient management of or&ing "apital. A. *arger firm% ha'e to manage their "urrent a%%et% and "urrent liabilitie% 'ery "arefully and %hould %ee that the or& %hould be done properly in order to a"hie'e predetermined organi4ation goal%. B. The finan"ial manger %hould pay %pe"ial attention to the management% of "urrent a%%et% on "ontinuing ba%i%.

C6"#TER B8 D"T" "N"LYSIS & INTER#RET"TION

!"L"NCE S6EET "ND #RO'IT "ND LOSS "CCOUNT

C,*C0*,T!O/ Current ratioN Current ,%%et% E Current *iabilitie% D.SC+!#T!O/ LCCK LCC= B<II LIKK L.AB

Current ,%%et% AKBA Current *iabilitie% I<C> Current +atio <.K=

D0!C) +,T!O N *i1uid ,%%et% E Current *iabilitie% N

5!/D!/GS <. Current +atio in"rea%ing in the year LCCA O CB ith re%pe"t to LCCB?C> L. Dui"& +atio i% %ho ing in"rea%ing trend% in the year LCCA?CB ith re%pe"t to year LCCB?C> I. ,% Current +atio 1ui"& +atio and "a%h ratio i% al%o in"rea%ing in the year LCCA?CB ith re%pe"t to year LCCB?C>