A

Study Report on

Working Capital Management of
IDEA Cellular Ltd.
Training Undertaken at
Submitted in te partial fulfillment for te a!ard of degree of Ma"ter
of #u"ine"" Admini"tration $M#A%

Submitted To Submitted #y
&ea Sarma mam Deepak Soni
Ape' In"titute of Te(nology and Management) *aipur
(Approved by AICTE, New Delhi & Affiliated to University of Rajasthan, aip!r"
(2011-2012)
DEC#ARATI$N
I, the undersigned, a student of Final year MBA at Apex Institute of Management &
Science, Jaipur that the project wor presented in this report is my own wor!
"his wor has not #een su#mitted to any other uni$ersity for any other examination!

( Deepa% &oni "
'RE(ACE
India%s wireless maret is undergoing a #oom and recent political e$ent are not liely to
slow it down either! &ith current wireless su#scri#ers totaling more than '() million the
country is expected to see that num#er swell to more than *)+ million o$er the next few
years
"here is a concern that A$erage re$enue per ,ser -A./,0 is relati$ely low, and that
India is a risy maret #ecause of potential low profita#ility! 1onetheless, sa$$y players
will figure out how to mae money in this en$ironment and this clearly is the time for
interested companies to tae ad$antage of India%s thri$ing wireless maret!
"he summer training of a management student plays an important role to de$elop him
into a well 2 groomed professional! It gi$es theoretical concepts a practical shape in a
field of applications!
It gi$es an idea of dynamic & $ersatile professional world as well as an exposure to the
intricacies & complexities of corporate world!
AC)N$*#ED+E,ENT
I express my sincere thans to my project guide Mrs 134A S4A.MA for guiding me
right form the inception till the successful completion of the project! I sincerely
acnowledge her for extending their $alua#le guidance, support for literature, critical
re$iews of project and the report and a#o$e all the moral support she had pro$ided to
me with all stages of this project!
I would also lie to than the supporting staff of Idea 5ellular 6td! for their help and
cooperation throughout our project!
&t!dent
,-A .
rd
&e/0
Contents
7! 8$er$iew of "elecom Industry
'! Introduction of Idea 5ellular 6td!
9! .esearch Methodology
:! 8#jecti$e of the Study
)! &oring 5apital 5ycle
*! ;ata Analysis and Interpretation
(! 5onclusion
<! Bi#liography
+,er,ie! of Tele(om Indu"try
Tele1o/ Ind!stry in India
"he telecom industry is one of the fastest growing industries in India! India has nearly
'++ million telephone lines maing it the third largest networ in the world after 5hina
and ,SA! &ith a growth rate of :)=, Indian telecom industry has the highest growth
rate in the world!
> Much of the growth in Asia /acific &ireless "elecommunication Maret is spurred #y
the growth in demand in countries lie India and 5hina!
> India?s mo#ile phone su#scri#er #ase is growing at a rate of <'!'=!
> 5hina is the #iggest maret in Asia /acific with a su#scri#er #ase of :<= of the
total Su#scri#ers in Asia /acific! 5ompared to that India%s share in Asia /acific Mo#ile
/hone maret is *!:=! 5onsidering the fact that India and 5hina ha$e almost
compara#le populations, India%s low mo#ile penetration offers huge scope for growth!
2istory of Indian Tele1o//!ni1ations
Started in 7<)7 when the first operational land lines were laid #y the go$ernment near
5alcutta -seat of British power0! "elephone ser$ices were introduced in India in 7<<7! In
7<<9 telephone ser$ices were merged with the postal system! Indian .adio "elegraph
5ompany -I."0 was formed in 7@'9! After independence in 7@:(, all the foreign
telecommunication companies were nationaliAed to form the /osts, "elephone and
"elegraph -/""0, a monopoly run #y the go$ernmentBs Ministry of 5ommunications!
"elecom sector was considered as a strategic ser$ice and the go$ernment considered it
#est to #ring under stateBs control!
In 7@@+s, telecommunications sector #enefited from the general opening up of the
economy! Also, examples of telecom re$olution in many other countries, which resulted
in #etter Cuality of ser$ice and lower tariffs, led Indian policy maers to initiate a change
process finally resulting in opening up of telecom ser$ices sector for the pri$ate sector!
1ational "elecom /olicy -1"/0 7@@: was the first attempt to gi$e a comprehensi$e
roadmap for the Indian telecommunications sector! In 7@@(, "elecom .egulatory
Authority of India -".AI0 was created! ".AI was formed to act as a regulator to facilitate
the growth of the telecom sector!
"elecommunication sector in India can #e di$ided into two segmentsD Fixed Ser$ice
/ro$ider -FS/s0, and 5ellular Ser$ices! Fixed line ser$ices consist of #asic ser$ices,
national or domestic long distance and international long distance ser$ices! "he state
operators -BS16 and M"160, account for almost @+ per cent of re$enues from #asic
ser$ices! /ri$ate sector ser$ices are presently a$aila#le in selecti$e ur#an areas, and
collecti$ely account for less than ) per cent of su#scriptions! 4owe$er, pri$ate ser$ices
focus on the #usinessEcorporate sector, and offer relia#le, high> end ser$ices, such as
leased lines, IS;1, closed user group and $ideoconferencing!
5ellular ser$ices can #e further di$ided into two categoriesD Flo#al System for Mo#ile
5ommunications -FSM0 and 5ode ;i$ision Multiple Access -5;MA0! "he FSM sector is
dominated #y Airtel, Godafone>4utch, and Idea 5ellular, while the 5;MA sector is
dominated #y .eliance and "ata Indicom! 8pening up of international and domestic
long distance telephony ser$ices are the major growth dri$ers for cellular industry!
5ellular operators get su#stantial re$enue from these ser$ices, and compensate them
for reduction in tariffs on airtime, which along with rental was the main source of
re$enue! "he reduction in tariffs for airtime, national long distance, international long
distance, and handset prices has dri$en demand!
India added 79!<' million new mo#ile su#scri#ers in Fe#ruary +@, down from 7)!:7
million a month earlier, according to Indian telecom regulator ".AI! India%s total num#er
of mo#ile su#scri#ers rose to 9(*!7' million at end>Fe#ruary from 9*'!9+ million at the
end of January!
&hile 5hina added 7<!)) million new mo#ile phone su#scri#ers in the first two months
of '++@ and total wireless su#scri#er #ase stood at *)@!(< million as of end>Fe#ruary
'++@! 5hina Mo#ile su#scri#ers sent *+(!7 #illion SMSs last year, up #y o$er 7++ #illion
from the last year, and downloaded more than (* million full music tracs!
India%s FSM su#scri#ers totaled '((!) million #y end>Fe#ruary, accounting for nearly
()= of total wireless maret share! According to figures released #y the 5ellular
8perators Association of India -58AI0, FSM players added 7+!<: million new
su#scri#ers in March, taing total FSM su#scriptions for the fiscal year to '<<!9 million!
"he num#ers exclude su#scriptions for .eliance 5ommunications, the 5;MA ser$ice
pro$ider that recently launched FSM ser$ices, #ecause the company does not re$eal
FSM num#ers separately! If the estimates of '!) million to '!( million FSM su#scri#ers
for .eliance 5ommunications are added, the total monthly increase for FSM
su#scriptions will #e 79!): million!
At this rate, India%s FSM su#scri#er #ase is growing at more than dou#le the monthly
growth rate of 5hina, which is adding around * million customers e$ery month!
H"hough March has more days and companies push sales at the end of the financial
year, we expect to see monthly incremental growth of 7: to 7) million consumers in
'++@>7+! 8ur estimate is that mo#ile penetration will go up from 9)= currently to )+=
#y the end of this financial year,I said "G .amachandran, 58AI secretary> general!
58AI has predicted that India will ha$e around )++ million FSM su#scri#ers #y the end
of '++@>7+ and o$er <++ million #y '+7'! "he country would hit the one #illion marets
in a few years after that!
C+M-A&. USERS AT MARC/ 0121
AI."36 @9@'9':<
G8;AF813 *<(*<@@<
BS16 :**<:+:@
I;3A :9+''(@@
AI.536 7<:(<9')
.36IA153 "36358M 777:)7(*
M"16 +:7(**(*
B/6 +'7*:'77
"his ta#le shows the present status of FSM players in India, where Bhari Airtel is
leading then at '
nd
position Goafone>3ssar group is present after that Bharat Sanchar
1igam 6imited with customer of : 5r is present! Idea 5ellular with :9+''(@@ is present
then Aircel, .eliance FSM, M"16 and B/6 are at )
th
, *
th
, (
th
and <
th
position
respecti$ely!
"he pie chart #elow shows that percentage of maret capture in terms of customer!

"he 5hart shows that in FSM ser$ice 9)= of the total maret captured #y Airtel, ')=
maret captured #y Godafone, 7(= maret captured #y BS16, 7*= maret captured #y
Idea and then rest are follows!
Maret research firm Fartner Inc! Forecasts India will spend (9@ #illion rupees -J7*!9:
#illion0 on telecom ser$ices and eCuipment in '+7', up '(!9 percent from this year!
(ore1asted +rowth of Indian
Tele1o/ &pendin3 Thro!3h 456578
India
r!pees
(/illions"
4559 455: 455; 4565
CA+R
45598
4565
A+R
5985:
A+R
5:85;
"elecom
spending
)+7,++@ )<7,7+7 (9@,@7+ 7,:7@,+*' '9!7= 7*= '(!9=
SourceD Fartner Inc!
Reven!e of Tele1o/ Ind!stry in India78
5ontinuing its ro#ust growth, the Indian telecom industry saw its gross re$enues
growing '!* percent to more than .s!:+, +++ crore in the Cuarter ending March 97, said
the sectoral watchdog here on Monday!
According to the "elecom .egulatory Authority of India -".AI0, the gross re$enue of the
telecom sector for the period under re$iew stood at .s!:+, :::!** crore, as against
.s!9@, :+< crore in the pre$ious Cuarter! "he state>owned operators >> Bharat Sanchar
1igam and Mahan agar "elephone 1igam >> together earned .s!7+, )@@ crore, while
pri$ate players raed in .s!'@, <:* crore! ".AI said IndiaBs total su#scri#er #ase
reached :'@!(' million #y March>end, as against 9<:!(@ million for the Cuarter ending
;ecem#er, registering a growth of 77!*< percent!
"ele>density, too, increased 9*!@< percent from 99!'9 percent in the pre$ious Cuarter!
"he su#scri#er #ase of wireless and wire line increased to 9@7!(* million and 9(!@*
million respecti$ely! 4owe$er, rural wire line decreased from 7+!*< million to 7+!)<
million, a decrease of +!@9 percent! According to the watchdog, the A./,s -a$erage
re$enue per user0 continued to fall, decreasing *!<' percent from .s!''+ in ;ecem#er>
end to .s!'+) in March!
"he num#er of Internet wire line su#scri#ers increased )!9 percent to 79!): million in
the fourth Cuarter as against 7'!<) million in the same period a year #efore!
&ales of 1ell!lar 1o/panies in India ( 455;865"78
3ro"" -rofit (ellular (ompanie" in India $0114521%65

Classifi1ation of Tele1o//!ni1ation servi1es
60 Basic ser$ices
40 5ellular ser$ices
.0 Internet Ser$ice /ro$ider -IS/0
The )ey players in the Tele1o/ ,ar%et in India
Cell!lar &ervi1e provider7
60 -&N#
40 Airtel
.0 <odafone
=0 Idea
>0 Relian1e
?0 Tata indi1o/
90 Air1el
:0 ,TN#
&!bs1ribers
*ireless s!bs1ribers 1rosses 455 /illion /ar%
Tele density rea1hes 46045@
"he total num#er of telephone su#scri#ers has reached ':7!+' million at the end of
Fe#ruary '+7+ as compared to '9'!<( million in January '+7+! "he o$erall teledensity
has increased to '7!'+= in Fe#ruary '+7+ as compared to '+!)'= in January '+7+!
In the wireless segment, <!97 million su#scri#ers ha$e #een added in Fe#ruary '+7+
while <!+* million su#scri#ers were added in January '+7+! "he total wireless
su#scri#ers -FSM, 5;MA & &66 -F00 #ase reaches '+7!'@ million at the end of
Fe#ruary '+7+!
"he wire line segment su#scri#er #ase stood at 9@!(9 million with a decrease of +!7*
million at the end of Fe#ruary '+7+! 5ircle wise wire line su#scri#er #ase of ser$ice
pro$iders is gi$en at following chart!

,ar%et &hare of the Tele1o/ Co/pany in India
Introdu(tion
+f
Idea
Cellular
INTR$DUCTI$N
As IndiaBs leading FSM Mo#ile Ser$ices operator, I;3A 5ellular has licenses to operate
in 77 circles! &ith a customer #ase of o$er 7( million, I;3A 5ellular has operations in
;elhi, Maharashtra, Foa, Fujarat, Andhra /radesh, Madhya /radesh, 5hattisgarh,
,ttaranchal, 4aryana, ,/>&est, 4imachal /radesh and Kerala! I;3A 5ellularBs footprint
currently co$ers approximately :)= of IndiaBs population and o$er )+= of the potential
telecom>maret!
As a leader in Galue Added Ser$ices, Inno$ation is central to I;3ABs GAS Factory! It is
the first cellular company to launch music messaging with B5ellular JoceyB, BBacground
"onesB, BFroup "alB, a $oice portal with BSay I;3AB and a complete suite of Mo#ile 3mail
Ser$ices!
Idea 5ellular is a wireless telephony company operating in $arious states in India! It
initially started in 7@@) as a join $enture #etween the "atas, Aditya Birla Froup and
A"&" #y merging "ata 5ellular and Birla A"&" 5ommunications!
Initially ha$ing a $ery limited footprint in the FSM arena, the acCuisition of 3scotel in
'++: ga$e Idea a truly pan>India presence co$ering Maharashtra -excluding Mum#ai0,
Foa, Fujarat, Andhra /radesh, Madhya /radesh, 5hattisgarh, ,ttar /radesh -3ast and
&est0, 4aryana, Kerala, .ajasthan and ;elhi -inclusi$e of 15.0!
"he company has its retail outlets under the LIdea nB ,L #anner! "he company has also
#een the first to offer flexi#le tariff plans for prepaid customers! It also offers F/.S
ser$ices in ur#an areas!
I;3A 5ellular is a pu#licly listed company, ha$ing listed on the Bom#ay
Stoc 3xchange -BS30 and the 1ational Stoc 3xchange -1S30 in March'++(!
II;3A 5ellular is a leading FSM mo#ile ser$ice operator with pan India licenses! &ith a
customer #ase of o$er :: million in 7( ser$ice areas, operations are soon expected to
start in 5hennai MetroM Kolata & &est Bengal, 1orth 3ast & Assam, and J&K!
A frontrunner in introducing re$olutionary tariff plans, I;3A 5ellular has the distinction of
offering the most customer friendly and competiti$e /re /aid offerings, for the first time
in India, in an increasingly segmented maret! From #asic $oice & Short Message
Ser$ice -SMS0 ser$ices to high>end $alue added ser$ices such as Mo#ile "G, Fames
etc > I;3A is seen as an inno$ati$e,customerfocused#rand!
I;3A B&omenBs 5ardB caters to the special needs of women on the mo$e, and BNouth
5ardB co$ers the emerging youth segment! I;3A BMy FangB > the widely popular
community user group product recently #agged the prestigious BFolden /eacoc Award
'++<B under the Most Inno$ati$e /roduct category at the L7@th &orld 5ongress on "otal
OualityL!
A #rand nown for many firsts, I;3A was the first to launch F/.S and 3;F3 in India!
I;3A has partnered with .esearch in Motion -.IM0 to offer Blac#erry ser$ices on
its networ! I;3A B1et SetterB> /lug & /lay, 3;F3 ena#led ,SB ;ata 5ard offers
afforda#le data connecti$ity with faster speed and consistency!

I;3A offers seamless co$erage to roaming customers tra$eling to any part of the
country, as well as to international tra$eling customers across o$er '++ countries!
I;3A 5ellular has partnership with o$er :++ operators worldwide to ensure that
customers are always connected while on the mo$e, across the glo#e!

I;3A has recei$ed se$eral national and international recognitions for its path>
#reaing inno$ations in mo#ile telephony products & ser$ices! It won the FSM
Association Award for LBest Billing and 5ustomer 5are SolutionL for ' consecuti$e
years! It was awarded LMo#ile 8perator of the Near Award > IndiaL for '++( and '++< at
the Annual Asian Mo#ile 1ews Awards!
$!r &ervi1e Areas
"he Indian telecommunications maret for mo#ile ser$ices is di$ided into '' LSer$ice
AreasL classified into LMetroL, 5ategory LAL, 5ategory LBL and 5ategory L5L ser$ice
areas #y the Fo$ernment of India! "hese classifications are #ased principally on a
Ser$ice AreaBs re$enue generating potential! 8ur 7( operational Ser$ice Areas are
#roen up into 3sta#lished and 1ew Ser$ice Areas
Established &ervi1e Areas
"he esta#lished ser$ice areas are ;elhi, Andhra /radesh, Fujarat, Maharashtra,
4aryana, Kerala, Madhya /radesh and ,ttar /radesh -&est0!
6icenses for the Maharashtra and Fujarat Ser$ice Areas were awarded in ;ecem#er
7@@), with networ rollout and commercial launch achie$ed in 7@@(! In January '++7
the mo#ile operations in Andhra /radesh Ser$ice Area were integrated with I;3A
through a merger with "ata 5ellular 6imited!
In June '++7, the mo#ile operations in Madhya /radesh Ser$ice Area were fully
integrated with I;3A through an acCuisition of ./F 5ellcom 6imited! In 8cto#er '++7,
the license for ;elhi Ser$ice Area was acCuired during the fourth mo#ile license auction,
with networ rollout and commercial launch in 1o$em#er '++'!
In January '++:, 3scotel Mo#ile 5ommunications /ri$ate 6imited
-L3scotelL0, was acCuired with its original licenses in the Ser$ice Areas of 4aryana, ,ttar
/radesh -&est0 and Kerala! All these Ser$ice Areas were re>#randed and integrated
with I;3A in June '++:
New &ervi1e Areas
"he 1ew Ser$ice Areas are ,ttar /radesh -3ast0, .ajasthan, 4imachal /radesh, Bihar,
Mum#ai, Karnataa, /unja#, 8rissa and "amil 1adu ,6icenses for ,ttar /radesh -3ast0,
.ajasthan and 4imachal /radesh were acCuired through the acCuisition of 3scotel
-3scorts "elecommunications 6imited0!
Brand Idea was launched in Karnataa and /unja#,
through the acCuisition of Spice 5ommunications! Idea launched its ser$ices in Mum#ai
and Bihar in '++<! "he Mum#ai launch was the largest Metro 5ity launch in India! In
Bihar, Idea acCuired )++,+++ su#scri#ers in just o$er 7++ days!
2oldin3
Initially the Birlas, the "atas and A"&" &ireless each held one>third eCuity in the
company! But following A"&" &irelessB merger with 5ingular &ireless in '++:, 5ingular
decided to sell its 9'!@= stae in Idea! "his stae was #ought #y #oth the "atas and
Birlas at 7*!:)= each!
"ataBs foray into the cellular maret with its own su#sidiary,
"ata Indicom, a 5;MA>#ased mo#ile pro$ider, cropped differences #etween the "atas
and the Birlas! "his dual holding #y the "atas also #ecame a major reason for the delay
in Idea #eing granted a license to operate in Mum#ai! "his was #ecause as per
;epartment of "elecom -;8"0 license norms, one promoter could not ha$e more than
7+= stae in two companies operating in the same circle and "ata Indicom was already
operating in Mum#ai when Idea filed for its license!
"he Birla thus approached the ;8" and sought its
inter$ention, and the "atas replied #y saying that they would exit Idea #ut only for a
good price! 8n April 7+, '++*, the Aditya Birla Froup announced its acCuisition of the
:<!7<= stae held #y the "atas at .s! :+!)7 a share amounting to .s! ::!+* #illion!
&hile 7)= of the :<!7:= stae was acCuired #y Aditya Birla 1o$o, a company in>
charge of the BirlasB new #usiness initiati$es, the remaining stae was acCuired #y Birla
"M" holdings /ri$ate 6td!, an AG Birla family owned company! 5urrently, Birla Froup
holds @<!9= of the total shares of the company!
Idea has successfully launched 9 more new circles -states0 in India $iA! .ajasthan,
4imachal /radesh and ,/ -3ast0 to mae itself a pan>India player! .ecently, Idea got
licenses to operate in Mum#ai & Bihar! "hey are awaiting the spectrum from ;ot!
,ission
)ey 'eople
-oard of Dire1tors
Mr! Kumar Mangalam Birla -5hairman0
Smt! .ajashree Birla
Mr! Saura#h Mishra
Mr! Sanjee$ Aga -Managing ;irector0
Mr! Arun "hiagarajan
Ms! "arjani Gail
Mr! Mohan Fyani
Mr! Fian /raash Fupta
Mr! .!5! Bharga$a
Mr! /! Murari
Mr! Biswajit A! Su#ramanian
;r! 4ansa &ijayasuriya
,ana3e/ent Tea/
Corporate #eadership Tea/
Mr! Sanjee$ Aga, Managing ;irector
Mr! Ashaya Moondra, 5hief Financial 8fficer
Mr! Anil K! "andan, 5hief "echnology 8fficer
Mr! /raash K! /aranjape, 5hief Information 8fficer
Mr! /radeep Shri$asta$a, 5hief Mareting 8fficer
Mr! 1a$anit 1arayan, 5hief Ser$ice ;eli$ery 8fficer
Mr! Ginay K! .aAdan, 5hief 4uman .esource 8fficer
Mr! .amjet K! Muarji, 5hief 5orporate Affairs 8fficer
Mr! .ajesh K! Sri$asta$a, 5hief Materials & /rocurement 8fficer
Mr! Am#rish Jain, ;irector > 8perations
Mr! 4imanshu Kapania, ;irector 2 8perations
-rand Infor/ation0
The brand Idea
It is almost impossi#le to disintegrate #rand Idea from the corporate Idea! Brand $alues
are the company $alues and $ise $ersa!
Brand GisionD It goes without saying that the #rand $ision of idea mirrors the company%s
$ision! "he #rand mission statement is!!!!!! "o #e the most customer>focused mo#ile
ser$ice #rand, continuously inno$ating to help li#erate our customers from the shacles
of time & space!
IDEA 8 -rand <al!es
Inno$ate! Stimulate! 6i#erate!!!!
It is these #rand $alues, which ha$e made us a formida#le player in the telecom
industry! Inno$ations that stimulate the customer and li#erate him from the shacles of
time and space are the core of our #rand! "his is what we stri$e for! 1othing more,
nothing less, nothing else!
IDEA 8 -rand ,ission
The India footprint Idea
Anywhere connecti$ity > #ringing India closer!
The Te1hnolo3y Advanta3e Idea
"omorrowBs technology to enrich today!
The C!sto/er (o1!s Idea
Mae a single interaction a lasting relationship!
The E/ployee (o1!s Idea
1urture the roots that nurture our ideas!
-rand Initiatives
8ur aim, through media #uying and planning, is to create year round impact! &ith the
o#jecti$e of strengthening our #rand, we wor with strategic communication partners on
campaigns lie sponsorship of the Idea International Indian Film Academy awards and
the tele$ision programs HIdea .ocs IndiaI, HIdea Star SingerI and HIdea Andhra IdolI!
&e see engagement with su#scri#ers on a $ariety of le$els, from major cele#rity
fashion shows to small local e$ents timed to coincide with new product offerings!
Since August '++9, we ha$e commissioned a Brand "rac Index
Study to e$aluate the health of our #rand! "he Brand "rac Index Study is a monthly
study conducted #y "1S, a mareting consultant engaged #y us to e$aluate our #rand
using face>to>face inter$iews on a random sample of mo#ile users a well as those
intending to purchase mo#iles within the next three months! According to the study our
#rand is percei$ed as Hrelia#leEtrustworthyI and one that Hoffers cheaper and good
promotional offersI! &e ha$e impro$ed our rating in the Brand "rac Index calculated #y
the study in the past year reflecting, we #elie$e, the growing strength of our #rand!
"he main communication medium for the Idea #rand is tele$ision,
where we see strategic Idea #rand co$erage in $arious formats! Bill#oards and
hoardings are used as a secondary medium, customiAed for specific regional
preferences to communicate effecti$ely at the local le$el! &e also use other mass
communication media such as the press and radio to communicate price plans and
other tactical and customer information!
All our ey initiati$es are su#jected to a rigorous testing and launch
process to ensure accounta#ility for all ad$ertising spend and impro$e the chances of
success of a new product! "his process is followed up with extensi$e #riefing of call
center agents and sales personnel and real>time tracing of the impact of the
communication and feed#ac from su#scri#ers!
RE&EARC2 ,ET2$D$#$+A
"itle of the .esearch
H&oring 5apital Management of Idea 5ellular 6td!I
;uration of the .esearch
:) days
The Research Methodology here includes.
1. Meaning of Research.
2. Research Problem.
3. Research Design.
4. Sampling Design.
. Data !ollection method.
". #nalysis and interpretation of Data.
Meaning Research$
Research is defined as a scientific and systematic search for pertinent information on a
specific topic%. Research is an art of scientific investigation. Research is a systematized effort to
gain now knowledge. It is a careful investigation or inquiry especially through search for new
facts in any branch of knowledge. Research is an academic activity and this term should be used
in a technical sense. Research comprises defining and redefining problems, formulating
hypothesis or suggested solutions. Making deductions and reaching conclusions to determine
whether they if the formulating hypothesis. Research is thus, an original contribution to the
eisting stock of knowledge making for its advancement. !he search for knowledge through
ob"ective and systematic method of finding solutions to a problem is research.
Research Problem
!he first step while conducting research is careful definition of Research #roblem. !o $RR I%
!&$ &'M()* is a proverb which indicates that no one is perfect in this world. $very
researcher has to face many problems which conducting any research that+s why problem
statement is defined to know which type of problems a researcher has to face while conducting
any study. It is said that,
&Problem 'ell defined is problem half sol(ed.%
,asically, a problem statement refers to some difficulty, which researcher eperiences in the
contet of either a theoretical or practical situation and wants to obtain the solution for the same.
!he problem statement here is-
Research Design
( research designs is the arrangement of conditions for collection and analysis data in a manner
that aims to combine relevance to the research purpose with economy in procedure. Research
.esign is the conceptual structure with in which research in conducted. It constitutes the
blueprint for the collection measurement and analysis of data. Research .esign includes and
outline of what the researcher will do form writing the hypothesis and it operational implication
to the final analysis of data. ( research design is a framework for the study and is used as guide
in collection and analyzing the data. It is a strategy specifying which approach will be used for
gathering and analyzing the data. It also include the time and cost budget since most studies are
done under these two cost budget since most studies are done under theses tow constraints.
!he design is such studies must be rigid and not fleible and most focus attention on the
following.
What is the study about?
1. Why is the study being made?
2. Where will the study be carried out?
3. )hat type of data is re*uired+
4. )here can be re*uired data be found+
. )hat period of time 'ill the study include+
". )hat 'ill be sample design+
,. )hat techni*ues of data collection 'ill be used+
-. .o' 'ill the data be analy/ed+
0. 1n 'hat style 'ill the report be prepared+
T2P3S 45 R3S3#R!. D3S167$
38P3R1M37T#9 R3S3#R!. D3S167
38P94R#T4R2 R3S3#R!. D3S167
D3S!R1PT1:3; D1#674ST1! R3S3#R!.
3<ploratory Research Design$ !his research design is preferred when researcher has a
vague idea about the problem the researcher has to eplore the sub"ect.
3<perimental Research Design = !he research design is used to provide a strong basis for
the eistence of casual relationship between two or more variables.
Descriti!e Research Design " It seeks to determine the answers to
who, what, where, when and how questions. It is based on some previous
understanding of the matter.
Diagnostic Research Design It determines the frequency with which something occurs or
its association with something else.
Research Design >sed in this Pro?ect
Research .esign chosen for this study is .escriptive Research .esign. .escriptive study is
based on some previous understanding of the topic. Research has got a very specific ob"ective
and clear cut data requirements.
Sampling Design
%ampling is necessary because it is almost impossible to eamine the entire parent population
/i.e. the entire universe0 various factors such as time available cost, purpose of study etc. make it
necessary for the researchers to choose a sample. It should neither be too small nor too big. It
should be manageable. !&$ sample size of past 1 years is taken for present study due to time
limitation.
D#T# !4993!T147S
!he process of data collection begins after a research problem has been defined and research
design ahs been chalked out. !here are two types of data 2
M3T.4DS 45 PR1M#R2 D#T#
4@S3R:#T147 M3T.4D
17T3R:13) M3T.4DS
A>3ST147#1R3 M3T.4D
#$%&D'(& )&*%+D
PR,)-R. D-*- -
It is frst hand data, which is collected by researcher itself. Primary data is collected
by various approaches so as to get a precise, accurate, realistic and relevant data.
The main tool in gathering primary data was investigation and observation. It was
achieved by a direct approach and observation from the ofcials of the company.
S3!47D#R2 D#T# B it is the data which is already collected by someone else. Researcher
has to analyze the data and interprets the results. It has always been important for the completion
of any report. It provides reliable, suitable, adequate and specific knowledge.
I took data comprise annual reports and post records. ,ank has provided me annual reports from
3445647 to 3484688 by help of which, I prepared my report.
!he valuable cooperation etended by staff members contributed a lot to fulfill the requirements
in the collection of data in order to complete the pro"ect. 9arious statistical tools are applied
depending on the research problem. In this study ratio analysis, comparative financial statements
analysis, common size statements and !rend (nalysis has been used for analyzing and
interpreting the result.
$-ECTI<E $( T2E 'R$ECT
*or%in3 Capital
3$ery #usiness needs in$estment to procure fixed assets, which remain in use for a
longer period! Money in$ested in these assets is called ?6ong term Funds% or ?Fixed
5apital%!
Business also needs funds for short>term purposes to finance current operations!
In$estment in short term assets lie cash, in$entories, de#tors etc!, is called ?Short>term
Funds% or ?&oring 5apital%! "he ?&oring 5apital% can #e categoriAed, as funds needed
for carrying out day>to>day operations of the #usiness smoothly! "he management of the
woring capital is eCually important
as the management of long>term financial in$estment!
3$ery running #usiness needs woring capital! 3$en a #usiness which is fully eCuipped
with all types of fixed assets reCuired is #ound to collapse without
o adeCuate supply of raw materials for processingM
o cash to pay for wages, power and other costsM
o creating a stoc of finished goods to feed the maret demand regularlyM and,
o "he a#ility to grant credit to its customers!
All these reCuire woring capital! &oring capital is thus lie the life#lood of a #usiness!
"he #usiness will not #e a#le to carry on day>to>day acti$ities without the a$aila#ility of
adeCuate woring capital!
&oring capital cycle in$ol$es con$ersions and rotation of $arious constituents
5omponents of the woring capital! Initially ?cash% is con$erted into raw materials!
Su#seCuently, with the usage of fixed assets resulting in $alue additions, the raw
materials get con$erted into wor in process and then into finished goods! &hen sold on
credit, the finished goods assume the form of de#tors who gi$e the #usiness cash on
due date! "hus ?cash% assumes its original form again at the end of one such woring
capital cycle #ut in the course it passes through $arious other forms of current assets
too! "his is how $arious components of current assets eep on changing their forms due
to $alue addition! As a result, they rotate and #usiness operations continue! "hus, the
woring capital cycle in$ol$es rotation of $arious constituents of the woring capital!
&hile managing the woring capital, two characteristics of current assets should #e ept
in mind $iA! -i0 short life span, and -ii0 swift transformation into other form of current
asset!
3ach constituent of current asset has comparati$ely $ery short life span! In$estment
remains in a particular form of current asset for a short period! "he life span of current
assets depends upon the time reCuired in the acti$ities of procurementM production,
sales and collection and degree of synchroniAation among them! A $ery short life span
of current assets results into swift transformation into other form of current assets for a
running #usiness!
These 1hara1teristi1s have 1ertain i/pli1ationsD
;ecision regarding management of the woring capital has to #e taen freCuently
and on a repeat #asis!
"he $arious components of the woring capital are closely related and
mismanagement of any one component ad$ersely affects the other components
too!
"he difference #etween the present $alue and the #oo $alue of profit is not
significant!
"he woring capital has the following components, which are in se$eral forms of current
assetsD
o Stoc of 5ash
o PStoc of .aw Material
o PStoc of Finished Foods
o PGalue of ;e#tors
o Miscellaneous current assets lie short term in$estment loans & Ad$ances
A n!/ber of definitions have been for/!lated7 perhaps the /ost widely
a11eptable wo!ld beB
H&8.KI1F 5A/I"A6 represents the excess of 5,..31" ASS3"S o$er 5,..31"
6IABI6I"I3S H
"he same may #e designated in the following eCuationD
*$R)IN+ CA'ITA#C CURRENT A&&ET& D CURRENT #IA-I#ITIE&D
Funds thus in$ested in current assets eep re$ol$ing fast and are #eing constantly
con$erted in to cash and this cash flows out again in exchange for other current assets!
"hus it is nown as re$ol$ing or circulating capital or short term capital!
These are two 1on1epts of wor%in3 1apitalD>
a! Fross &oring 5apital!
#! 1et &oring 5apital!
Fross woring capital is the total of all current assets! 1et woring capital is the
difference #etween current assets and current lia#ilities! "hough the later concept of
woring capital is commonly used it is an accounting concept with little sense to say that
a firm manages its net woring capital! &hat a firm really does is to tae decisions with
respect to $arious current assets and current lia#ilities! "he constituents of current
assets and current lia#ilities are shown in ta#le A!


Constit!ents of C!rrent Assets and C!rrent #iabilities
C!rrent Assets
In$entories 2 .aw materials and components, &or in progress, Finished goods,
other!
"rade ;e#tors!
6oans and Ad$ances!
In$estments!
5ash and Ban #alance!
C!rrent #iabilities
Sundry 5reditors!
"rade Ad$ances!
Borrowings!
/ro$isions!
The wor%in3 1apital needs of a b!siness are infl!en1ed by n!/ero!s
fa1tors0 The i/portant ones are dis1!ssed in brief as 3iven belowD
Nat!re of Enterprise
"he nature and the woring capital reCuirements of an enterprise are interlined! &hile
a manufacturing industry has a long cycle of operation of the woring capital, the same
would #e short in an enterprise in$ol$ed in pro$iding ser$ices! "he amount reCuired also
$aries as per the natureM an enterprise in$ol$ed in production would reCuire more
woring capital than a ser$ice sector enterprise!
,an!fa1t!rin3E'rod!1tion 'oli1y
3ach enterprise in the manufacturing sector has its own production policy, some follow
the policy of uniform production e$en if the demand $aries from time to time, and others
may follow the principle of Bdemand>#ased productionB in which production is #ased on
the demand during that particular phase of time! Accordingly, the woring capital
reCuirements $ary for #oth of them!
*or%in3 Capital Cy1le
In manufacturing concern, woring capital cycle starts with the purchase of raw
materials and ends with realiAation of cash from the sale of finished goods! "he cycle
in$ol$es the purchase of raw materials and ends with the realiAation of cash from the
sale of finished products! "he cycle in$ol$es purchase of raw materials and stores, its
con$ersion in to stoc of finished goods through wor in progress with progressi$e
increment of la#or and ser$ice cost, con$ersion of finished stic in to sales and
recei$a#les and ultimately realiAation of cash and this cycle continuous again from cash
to purchase of raw materials and so on!
$perations
"he reCuirement of woring capital fluctuates for seasonal #usiness! "he woring
capital needs of such #usinesses may increase considera#ly during the #usy season
and decrease during the slac season! Ice creams and cold drins ha$e a great
demand during summers, while in winters the sales are negligi#le!
,ar%et Condition
If there is high competition in the chosen product category, then one shall need to offer
sops lie credit, immediate deli$ery of goods etc! for which the woring capital
reCuirement will #e high! 8therwise, if there is no competition or less competition in the
maret then the woring capital reCuirements will #e low!
Credit 'oli1y
"he credit policy is concerned in its dealings with de#tors and creditors influence
considera#ly the reCuirements of the woring capital! A concern that purchases its
reCuirements on credit and sells its productsEser$ices on cash reCuires lesser amount of
woring capital! 8n the other hand a concern #uying its reCuirements for cash and
allowing credit to its customers, shall need larger amount of funds are #ound to #e tied
up in de#tors or #ills recei$a#les!

-!siness Cy1le
Business 5ycle refers to alternate expansion and contraction in general #usiness
acti$ities! In a period of #orn i!e! when the #usiness is prosperous there is a need for
larger amount of woring capital due to increase in sales, rise in prices, optimistic
expansion of #usiness etc! 8n the country at he time of depression i!e! when there is a
down swing of the cycle, #usiness contracts, sales decline, difficulties are faced in
collections from de#tors and firms may ha$e a large amount of woring capital lying
ideal
Availability of Raw ,aterial
If raw material is readily a$aila#le then one need not maintain a large stoc of the same,
there#y reducing the woring capital in$estment in raw material stoc! 8n the other
hand, if raw material is not readily a$aila#le then a large in$entoryEstoc needs to #e
maintained, there#y calling for su#stantial in$estment in the same!

+rowth and EFpansion
Frowth and expansion in the $olume of #usiness results in enhancement of the woring
capital reCuirement! As #usiness grows and expands, it needs a larger amount of
woring capital! 1ormally, the need for increased woring capital funds precedes growth
in #usiness acti$ities!
Earnin3 Capa1ity and Dividend poli1y

Some firms ha$e more earning capacity than others due to the Cuality of their products,
monopoly conditions etc! Such firms with high earning capacity may generate cash
profits from operations and contri#ute to their capital! "he di$idend policy of a concern
also influences the reCuirements of the woring capital! A firm that maintains steady
high rate of cash di$idend irrespecti$e of its generation of profits needs more capital
than the firm retains larger part of its profits and does not pay high rate of cash
di$idend!
'ri1e #evel Chan3es
Fenerally, rising price le$el reCuires a higher in$estment in the woring capital! &ith
increasing prices, the same le$el of current assets needs enhanced in$estment!
,an!fa1t!rin3 Cy1le
"he manufacturing cycle starts with the purchase of raw material and is completed with
the production of finished goods! If the manufacturing cycle in$ol$es a longer period, the
need for woring capital would #e more! At times, #usiness needs to estimate the
reCuirement of woring capital in ad$ance for proper control and management! "he
factors discussed a#o$e influence the Cuantum of woring capital in the #usiness! "he
assessment of woring capital reCuirement is made eeping these factors in $iew! 3ach
constituent of woring capital retains its form for a certain period and that holding period
is determined #y the factors discussed a#o$e! So for correct assessment of the woring
capital reCuirement, the duration at $arious stages of the woring capital cycle is
estimated! "hereafter, proper $alue is assigned to the respecti$e current assets,
depending on its le$el of completion!
$ther (a1tors
5ertain other factors such as operating efficiency, management a#ility, irregularities a
supply, import policy, asset structure, importance of la#or, #aning facilities etc! also
influences the reCuirement of woring capital!
Co/ponent of *or%in3 Capital -asis of <al!ation
Stoc of raw material /urchase cost of raw materials
Stoc of wor in process At cost or maret $alue, whiche$er is lower
Stoc of finished goods 5ost of production
;e#tors 5ost of sales or sales $alue
5ash &oring expenses
3ach constituent of the woring capital is $alued on the #asis of $aluation
3numerated a#o$e for the holding period estimated! "he total of all such $aluation
#ecomes the total estimated woring capital reCuirement!
"he assessment of the woring capital should #e accurate e$en in the case of small and
micro enterprises where #usiness operation is not $ery large! &e now that woring
capital has a $ery close relationship with day>to>day operations of a #usiness!
1egligence in proper assessment of the woring capital, therefore, can affect the day>
to>day operations se$erely! It may lead to cash crisis and ultimately to liCuidation! An
inaccurate assessment of the woring capital may cause either under>assessment or
o$er>assessment of the woring capital and #oth of them are dangerous!
*$R)IN+ CA'ITA# ,ANA+E,ENT
&oring 5apital Management refers to management of current assets and current
lia#ilities! "he major thrust of course is on the management of current assets !"his is
understanda#le #ecause current lia#ilities arise in the context of current assets! &oring
5apital Management is a significant fact of financial management! Its importance stems
from two reasonsD>
In$estment in current assets represents a su#stantial portion of total in$estment!
In$estment in current assets and the le$el of current lia#ilities ha$e to #e geared
Cuicly to change in sales! "o #e sure, fixed asset in$estment and long term
financing are responsi$e to $ariation in sales! 4owe$er, this relationship is not as
close and direct as it is in the case of woring capital components!
"he importance of woring capital management is effected in the fact that financial
manages spend a great deal of time in managing current assets and current lia#ilities!
Arranging short term financing, negotiating fa$ora#le credit terms, controlling the
mo$ement of cash, administering the accounts recei$a#le, and monitoring the
in$entories consume a great deal of time of financial managers!
"he pro#lem of woring capital management is one of the H#estI utiliAation of a scarce
resource!
"hus the jo# of efficient woring capital management is a formida#le one, since it
depends upon se$eral $aria#les such as character of the #usiness, the lengths of the
merchandising cycle, rapidity of turno$er, scale of operations, $olume and terms of
purchase & sales and seasonal and other $ariations!
C$N&EGUENCE& $( UNDER A&&E&&,ENT $( *$R)IN+ CA'ITA#
o Frowth may #e stunted! It may #ecome difficult for the enterprise to undertae
profita#le projects due to non>a$aila#ility of woring capital!
o PImplementation of operating plans may #ecome difficult and conseCuently the
profit goals may not #e achie$ed!
o P5ash crisis may emerge due to paucity of woring funds!
o 8ptimum capacity utiliAation of fixed assets may not #e achie$ed due to non
a$aila#ility of the woring capital!
o P"he #usiness may fail to honour its commitment in time, there#y ad$ersely
affecting its credi#ility! "his situation may lead to #usiness closure!
o "he #usiness may #e compelled to #uy raw materials on credit and sell finished
goods on cash! In the process it may end up with increasing cost of purchases
and reducing selling prices #y offering discounts! Both these situations would
affect profita#ility ad$ersely!
o 1on>a$aila#ility of stocs due to non>a$aila#ility of funds may result in production
stoppage!
o &hile underassessment of woring capital has disastrous implications on
#usiness, o$er assessment of woring capital also has its own dangers!
C$N&EGUENCE& $( $<ER A&&E&&,ENT $( *$R)IN+ CA'ITA#
o P3xcess of woring capital may result in unnecessary accumulation of in$entories!
o It may lead to offer too li#eral credit terms to #uyers and $ery poor reco$ery
system and cash management!
o PIt may mae management complacent leading to its inefficiency!
o 8$er>in$estment in woring capital maes capital less producti$e and may
reduce return on in$estment! &oring capital is $ery essential for success of a
#usiness and, therefore, needs efficient management and control! 3ach of the
components of the woring capital needs proper management to optimiAe profit!
The wor%in3 1apital in 1ertain enterprise /ay be 1lassified into the
followin3 %inds0
60 Initial wor%in3 1apital! "he capital, which is reCuired at the time of the
commencement of #usiness, is called initial woring capital! "hese are the promotion
expenses incurred at the earliest stage of formation of the enterprise which include the
incorporation fees! AttorneyBs fees, office expenses and other expenses!
40 Re3!lar wor%in3 1apital! "his type of woring capital remains always in the
enterprise for the successful operation! It supplies the funds necessary to meet the
current woring expenses i!e! for purchasing raw material and supplies, payment of
wages, salaries and other sundry expenses!
.0 (l!1t!atin3 wor%in3 1apital! "his capital is needed to meet the seasonal
reCuirements of the #usiness! It is used to raise the $olume of production #y
impro$ement or extension of machinery! It may #e secured from any financial institution
which can, of course, #e met with short term capital! It is also called $aria#le woring
capital!
=0 Reserve /ar3in wor%in3 1apital0 It represents the amount utiliAed at the time of
contingencies! "hese unpleasant e$ents may occur at any time in the running life of the
#usiness such as inflation, depression, slump, flood, fire, earthCuaes, strie, lay off and
una$oida#le competition etc! In this case greater amount of capital is reCuired for
maintenance of the #usiness!

(inan1in3 *or%in3 Capital
1ow let us understand the means to finance the woring capital! &oring capital or
current assets are those assets, which unlie fixed assets change their forms rapidly!
;ue to this nature, they need to #e financed through short>term funds! Short>term funds
are also called current lia#ilities! "he following are the major sources of raising short>
term fundsD
I0 &!pplierHs Credit
At times, #usiness gets raw material on credit from the suppliers! "he cost of raw
material is paid after some time, i!e! upon completion of the credit period! "hus, without
ha$ing an outflow of cash the #usiness is in a position to use raw material and continue
the acti$ities! "he credit gi$en #y the suppliers of raw materials is for a short period and
is considered current lia#ilities! "hese funds should #e used for creating current assets
lie stoc of raw material, wor in process, finished goods, etc!
ii0 -an% #oan for *or%in3 Capital
"his is a major source for raising short>term funds! Bans extend loans to #usinesses to
help them create necessary current assets so as to achie$e the
.eCuired #usiness le$el! "he loans are a$aila#le for creating the following current
AssetsD
PStoc of .aw Materials
Stoc of &or in /rocess
Stoc of Finished Foods
;e#tors
Bans gi$e short>term loans against these assets, eeping some security margin!
"he ad$ances gi$en #y #ans against current assets are short>term in nature and #ans
ha$e the right to as for immediate repayment if they consider doing so! "hus #an
loans for creation of current assets are also current lia#ilities!
iii0 'ro/oterHs (!nd
It is ad$isa#le to finance a portion of current assets from the promoter%s funds! "hey are
long>term funds and, therefore do not reCuire immediate repayment!
"hese funds increase the liCuidity of the #usiness!

,ana3e/ent of Inventory
In$entories constitute the most significant part of current assets of a large majority of
companies in India! 8n an a$erage, in$entories are approximately *+ = of current
assets in pu#lic limited companies in India!
Because of the large siAe of in$entories maintained #y firms maintained #y firms, a
considera#le amount of funds is reCuired to #e committed to them! It is, therefore $ery
necessary to manage in$entories efficiently and effecti$ely in order to a$oid
unnecessary in$estments! A firm neglecting a firm the management of in$entories will
#e jeopardiAing its long run profita#ility and may fail ultimately!
"he purpose of in$entory management is to ensure a$aila#ility of materials in sufficient
Cuantity as and when reCuired and also to minimiAe in$estment in in$entories at
considera#le degrees, without any ad$erse effect on production and sales, #y using
simple in$entory planning and control techniCues!

Needs to hold inventories78
"here are three general moti$es for holding in$entoriesD>
Transa1tion /otive emphasiAes the need to maintain in$entories to facilitate
smooth production and sales operation!

're1a!tionary /otive necessities holding of in$entories to guard against the
ris of unpredicta#le changes in demand and supply forces and other factors!

&pe1!lative /otive influences the decision to increases or reduce in$entory
le$els to tae ad$antage of price fluctuations and also for sa$ing in re>ordering
costs and Cuantity discounts etc!

$bje1tive of Inventory ,ana3e/ent78
"he main o#jecti$es of in$entory management are operational and financial! "he
operational mean that means that the materials and spares should #e a$aila#le in
sufficient Cuantity so that wor is not disrupted for want of in$entory! "he financial
o#jecti$e means that in$estments in in$entories should not remain ideal and minimum
woring capital should #e loced in it!
"he following are the o#jecti$es of in$entory managementD>
o "o ensure continuous supply of materials, spares and finished goods!
o "o a$oid #oth o$er>stocing of in$entory!
o "o maintain in$estments in in$entories at the optimum le$el as reCuired #y the
operational and sale acti$ities!
o "o eep material cost under control so that they contri#ute in reducing cost of
production and o$erall purchases!
o "o eliminate duplication in ordering or replenishing stocs! "his is possi#le with
the help of centraliAing purchases!
o "o minimiAe losses through deterioration, pilferage, wastages and damages!
o "o design proper organiAation for in$entory control so that management! 5lear
cut account a#ility should #e fixed at $arious le$els of the organiAation!
o "o ensure perpetual in$entory control so that materials shown in stoc ledgers
should #e actually lying in the stores!
o "o ensure right Cuality of goods at reasona#le prices!
o "o facilitate furnishing of data for short>term and long term planning and control
of in$entory


,ana3e/ent of 1ash
5ash is the important current asset for the operation of the #usiness! 5ash is the #asic
input needed to eep the #usiness running in the continuous #asis, it is also the ultimate
output expected to #e realiAed #y selling or product manufactured #y the firm!
"he firm should eep sufficient cash neither more nor less! 5ash shortage will disrupt
the firm%s manufacturing operations while excessi$e cash will simply remain ideal
without contri#uting anything towards the firm%s profita#ility! "hus a major function of the
financial manager is to maintain a sound cash position!
5ash is the money, which a firm can dis#urse immediately without any restriction! "he
term cash includes coins, currency and cheCues held #y the firm and #alances in its
#an account! Sometimes near cash items such as mareting securities or #an term
deposits are also included in cash! Fenerally when a firm has excess cash, it in$ests it
is mareta#le securities! "his ind of in$estment contri#utes some profit to the firm!



Need to hold 1ash
"he firm%s need to hold cash may #e attri#uted to the following three moti$esD>
The Transa1tion ,otive7 "he transaction moti$e reCuires a firm to hold cash to
conduct its #usiness in the ordinary course! "he firm needs cash primarily to mae
payments for purchases, wages and salaries, other operating expenses, taxes,
di$idends, etc!
The 're1a!tionary ,otive7 A firm is reCuired to eep cash for meeting $arious
contingencies! "hough cash inflows and outflows are anticipated #ut there may #e
$ariations in these estimates! For example a de#tor who pays after ( days may inform
of his ina#ility to pay, on the other hand a supplier who used to gi$e credit for 7) days
may not ha$e the stoc to supply or he may not #e in opposition to gi$e credit at
present!
&pe1!lative ,otive7 5 "he speculati$e moti$e relates to the holding of cash for
in$esting in profit maing opportunities as and when they arise!

"he opportunities to mae profit changes! "he firm will hold cash, when it is expected
that interest rates will rise and security price will fall!
Co/ponents of wor%in3 1apital are 1al1!lated as followsD
6" Raw ,aterials &tora3e 'eriodQA$erage stoc of raw materialsEA$erage cost of raw
material consumption per day!
40" *8I8' 2oldin3 periodCA$erage w>i>p in in$entoryEA$erage cost of production per
day!
.0" &tores and spares 1onversion periodC A$erage stoc of Stores and sparesE
A$erage consumption per day!
=0" (inished 3oods 1onversion periodC A$erage stoc of finished goodsEA$erage cost
of goods sold per day!
>0" Debtors 1olle1tion periodCA$erage #oo de#tsEA$erage credit sales per day!
?0" Credit period availedCA$erage trade creditorsEA$erage credit purchase per
day!

,ana3e/ent of Re1eivables
A sound managerial control reCuires proper management of liCuid assets and in$entory!
"hese assets are a part of woring capital of the #usiness! An efficient use of financial
resources is necessary to a$oid financial distress! .ecei$a#les result from credit sales!
A concern is reCuired to allow credit sales in order to expand its sales $olume! It is not
always possi#le to sell goods on cash #asis only! Sometimes other concern in that line
might ha$e esta#lished a practice of selling goods on credit #asis! ,nder these
circumstances, it is not possi#le to a$oid credit sales without ad$ersely affecting sales!
"he increase in sales is also essential to increases profita#ility! After a certain le$el of
sales the increase in sales will not proportionately increase production costs! "he
increase in sales will #ring in more profits! "hus, recei$a#les constitute a significant
portion of current assets of a firm! But for in$estment in recei$a#les, a firm has to insure
certain costs! Further, there is a ris of #ad de#ts also! It is therefore, $ery necessary to
ha$e a proper control and management of recei$a#les!
Needs to hold 1ash7
.ecei$a#les management is the process of maing decisions relating to in$estment in
trade de#tors! 5ertain in$estments in recei$a#les are necessary to increase the sales
and the profits of a firm! But at the same time in$estment in this asset in$ol$es cost
consideration also! Further, there is always a ris of #ad de#ts too!
"hus, the o#jecti$e of recei$a#le management is to tae a sound decision as regards
in$estments in de#tors! In the words of Bolton, S!3!, the need of recei$a#les
management is Hto promote sales and profits until that point is reached where the return
of in$estment in further funding of recei$a#les is less than the cost of funds raised to
finance that additional credit!I



I/portant Ter/s
*or%in3 Capital Cy1le
5ash flows in a cycle into, around and out of a #usiness! It is the #usinessBs life #lood
and e$ery managerBs primary tas is to help eep it flowing and to use the cash flow to
generate profits! If a #usiness is operating profita#ly, then it should, in theory, generate
cash surpluses! If it doesnBt generate surpluses, the #usiness will e$entually run out of
cash and expire!
"he faster a #usiness expands , the more cash it will need for woring capital and
in$estment! "he cheapest and #est sources of cash exist as woring capital right within
#usiness! Food management of woring capital will generate cash will help impro$e
profits and reduce riss! Bear in mind that the cost of pro$iding credit to customers and
holding stocs can represent a su#stantial proportion of a firmBs total profits!
"here are two elements in the #usiness cycle that a#sor# cash > Inventory -stocs and
wor>in>progress0 and Re1eivables -de#tors owing you money0! "he main sources of
cash are 'ayables -your creditors0 and EI!ity and #oans!
3ach component of woring capital -namely in$entory, recei$a#les and paya#les0 has
two dimensions !!!!!!!!"IM3 !!!!!!!!! and M813N! &hen it comes to managing woring
capital > TI,E I& ,$NEA! If you can get money to mo$e faster around the cycle -e!g!
collect monies due from de#tors more Cuicly0 or reduce the amount of money tied up
-e!g! reduce in$entory le$els relati$e to sales0, the #usiness will generate more cash or
it will need to #orrow less money to fund woring capital! As a conseCuence, you could
reduce the cost of #an interest or youBll ha$e additional free money a$aila#le to support
additional sales growth or in$estment! Similarly, if you can negotiate impro$ed terms
with suppliers e!g! get longer credit or an increased credit limitM you effecti$ely create
free finance to help fund future sales!
If you....... Ten......
5ollect recei$a#les -de#tors0 faster Nou release cash from
the cycle
5ollect recei$a#les -de#tors0 slower Nour recei$a#les soa
up cash
Fet #etter credit -in terms of duration
or amount0 from suppliers
Nou increase your
cash resources
Shift in$entory -stocs0 faster Nou free up cash
Mo$e in$entory -stocs0 slower Nou consume more
cash
It can #e tempting to pay cash, if a$aila#le, for fixed assets e!g! computers, plant,
$ehicles etc! If you do pay cash, remem#er that this is now longer a$aila#le for woring
capital! "herefore, if cash is tight, consider other ways of financing capital in$estment >
loans, eCuity, leasing etc! Similarly, if you pay di$idends or increase drawings, these are
cash outflows and, lie water flowing downs a plug hole, they remo$e liCuidity from the
#usiness!
,ore b!sinesses fail for la1% of 1ash than for want of
profit0

&o!r1es of Additional *or%in3 Capital
Sources of additional woring capital include the followingD
3xisting cash reser$es
/rofits -when you secure it as cashR0
/aya#les -credit from suppliers0
1ew eCuity or loans from shareholders
Ban o$erdrafts or lines of credit
6ong>term loans
If you ha$e insufficient woring capital and try to increase sales, you can easily o$er>
stretch the financial resources of the #usiness!
"his is called o,ertrading! 3arly warning signs includeD
o /ressure on existing cash
o 3xceptional cash generating acti$ities e!g! offering high discounts for early cash
payment
o Ban o$erdraft exceeds authoriAed limit
o Seeing greater o$erdrafts or lines of credit
o /art>paying suppliers or other creditors
o /aying #ills in cash to secure additional supplies
o Management pre>occupation with surviving rather than managing
FreCuent short>term emergency reCuests to the #an -to help pay wages, pending
receipt of a cheCue0!
2andlin3 Re1eivables (Debtors"
5ash flow can #e significantly enhanced if the amounts owing to a #usiness are
collected faster! 3$ery #usiness needs to now!!!! who owes them money!!!! how much
is owed!!!! how long it is owing!!!! for what it is owed!
#ate pay/ents erode profits and 1an lead to bad debts0
Slow payment has a crippling effect on #usinessM in particular on small #usinesses who
can least afford it! If yo! donJt /ana3e debtors, they will be3in to /ana3e yo!r
b!siness as you will gradually lose control due to reduced cash flow and, of course,
you could experience an increased incidence of #ad de#t!
The followin3 /eas!res will help /ana3e yo!r debtorsD
7! 4a$e the right mental attitude to the control of credit and mae sure that it gets
the priority it deser$es!
'! 3sta#lish clear credit practices as a matter of company policy!
9! Mae sure that these practices are clearly understood #y staff, suppliers and
customers!
:! Be professional when accepting new accounts, and especially larger ones!
)! 5hec out each customer thoroughly #efore you offer credit! ,se credit agencies,
#an references, industry sources etc!
*! 3sta#lish credit limits for each customer!!! and stic to them!
(! 5ontinuously re$iew these limits when you suspect tough times are coming or if
operating in a $olatile sector!
<! Keep $ery close to your larger customers!
@! In$oice promptly and clearly!
7+! 5onsider charging penalties on o$erdue accounts!
77! 5onsider accepting credit Ede#it cards as a payment option!
7'! Monitor your de#tor #alances and ageing schedules, and donBt let any de#ts get
too large or too old!
.ecogniAe that the longer someone owes you, the greater the chance you will ne$er get
paid! If the a$erage age of your de#tors is getting longer, or is already $ery long, you
may need to loo for the following possi#le defectsD
wea credit judgement
poor collection procedures
lax enforcement of credit terms
slow issue of in$oices or statements
errors in in$oices or statements
5ustomer dissatisfaction!
;e#tors due o$er @+ days -unless within agreed credit terms0 should generally demand
immediate attention! 6oo for the warning signs of a future #ad de#t! For example!!!!!!!!!
o longer credit terms taen with appro$al, particularly for smaller orders
o use of post>dated checs #y de#tors who normally settle within agreed terms
o e$idence of customers switching to additional suppliers for the same goods
o new customers who are reluctant to gi$e credit references
o .ecei$ing part payments from de#tors!
'rofits only 1o/e fro/ paid sales0
"he act of collecting money is one which most people dislie for many reasons and
therefore put on the long finger #ecause they con$ince themsel$es there is something
more urgent or important that demand their attention now! There is nothin3 /ore
i/portant than 3ettin3 paid for yo!r prod!1t or servi1e0 A 1!sto/er who does not
pay is not a 1!sto/er0

,ana3in3 'ayables (Creditors"
5reditors are a $ital part of effecti$e cash management and should #e managed
carefully to enhance the cash position! /urchasing initiates cash outflows and an o$er>
Aealous purchasing function can create liCuidity pro#lems! 5onsider the followingD
o &ho authoriAes purchasing in your company > is it tightly managed or spread
among a num#er of -junior0 peopleS
o Are purchase Cuantities geared to demand forecastsS
o ;o you use order Cuantities which tae account of stoc>holding and purchasing
costsS
o ;o you now the cost to the company of carrying stocS
o ;o you ha$e alternati$e sources of supplyS If not, get Cuotes from major
suppliers and shop around for the #est discounts, credit terms, and reduce
dependence on a single supplier!
o 4ow many of your suppliers ha$e a returns policyS
o Are you in a position to pass on cost increases Cuicly through price increases to
your customersS
o If a supplier of goods or ser$ices lets you down can you charge #ac the cost of
the delayS
o 5an you arrange -with confidenceR0 to ha$e deli$ery of supplies staggered or on
a just>in>time #asisS
"here is an old adage in #usiness that if you (an buy !ell ten you (an "ell !ell!
Management of your creditors and suppliers is just as important as the management of
your de#tors! It is important to loo after your creditors > slow payment #y you may
create ill>feeling and can signal that your company is inefficient -or in trou#leR0!
Re/e/ber, a 3ood s!pplier is so/eone who will wor% with yo! to enhan1e the
f!t!re viability and profitability of yo!r 1o/pany
)ey *or%in3 Capital Ratios
"he following, easily calculated, ratios are important measures of woring capital
utiliAation!

Ratio (or/!lae Res!lt Interpretation
Stoc
"urno$er
-in days0
A$erage Stoc T
9*)E
5ost of Foods
Sold
Q x
days
8n a$erage, you turn o$er the $alue of your
entire stoc e$ery x days! Nou may need to
#rea this down into product groups for
effecti$e stoc management!
8#solete stoc, slow mo$ing lines will extend
o$erall stoc turno$er days! Faster
production, fewer product lines, just in time
ordering will reduce a$erage days!
.ecei$a#les
.atio
-in days0
;e#tors T 9*)E
Sales
Q x
days
It taes you on a$erage x days to collect
monies due to you! If you%re official credit
terms are :) day and it taes you *) days!!!
whyS
8ne or more large or slow de#ts can drag out
the a$erage days! 3ffecti$e de#tor
management will minimiAe the days!
/aya#les
.atio
-in days0
5reditors T 9*)E
5ost of Sales
-or /urchases0
Q x
days
8n a$erage, you pay your suppliers e$ery x
days! If you negotiate #etter credit terms this
will increase! If you pay earlier, say, to get a
discount this will decline! If you simply defer
paying your suppliers -without agreement0
this will also increase > #ut your reputation,
the Cuality of ser$ice and any flexi#ility
pro$ided #y your suppliers may suffer!
5urrent
.atio
"otal 5urrent
AssetsE
"otal 5urrent
6ia#ilities
Q x
times
5urrent Assets are assets that you can
readily turn in to cash or will do so within 7'
months in the course of #usiness! 5urrent
6ia#ilities are amount you are due to pay
within the coming 7' months! For example,
7!) times means that you should #e a#le to
lay your hands on J7!)+ for e$ery J7!++ you
owe! 6ess than 7 times e!g! +!() means that
you could ha$e liCuidity pro#lems and #e
under pressure to generate sufficient cash to
meet oncoming demands!
Ouic .atio
-"otal 5urrent
Assets >
In$entory0E
"otal 5urrent
6ia#ilities
Q x
times
Similar to the 5urrent .atio #ut taes account
of the fact that it may tae time to con$ert
in$entory into cash!
&oring
5apital
.atio
-In$entory U
.ecei$a#les >
/aya#les0E
Sales
As =
Sales
A high percentage means that woring capital
needs are high relati$e to your sales!
8ther woring capital measures include the followingD
Bad de#ts expressed as a percentage of sales!
5ost of #an loans, lines of credit, in$oice discounting etc!
;e#tor concentration > degree of dependency on a limited num#er of
customers!
8nce ratios ha$e #een esta#lished for your #usiness, it is important to trac them o$er
time and to compare them with ratios for other compara#le #usinesses or industry
sectors!
&hen planning the de$elopment of a #usiness, it is critical that the impact of woring
capital #e fully assessed when maing cash flow forecasts!

DATA ANA#A&I& AND INTER'RETATI$N
$R" in (ore"%
'++:E+) '++)E* '++*E( '++(E<
A7 CURRENT A&&ET&7
Inventories7 >4;05? >;60>: ?.=0;? ?:?0?>
&!ndry debtors7 ;40:6 4;0=4 .=06. ?50?>
Cash and ban% balan1e7 9>>046 46;.096 .?:?0>. .>6?0=?
$ther 1!rrent assets7 :4056 66:0?4 4640= 4.?0=?
#oans and advan1es7 .>60;> .?=0;> =5?0=4 >=6065
KKKKKKKKKKKKKKKKKKKKKKKKKKKKK00
T$TA#7 6:6605= .4>90:: >5=60.. =;9=05:
-7 CURRENT #IA-E#ITIE&7
&!ndry 1reditors7
a" $n 1apital aE17 ?=094 ==0.; 65405; 49409:
b" on others7 6?;0.: 4440;> 4?509= .4=0;=
$ther liabilities7 .4?0;4 4:=0;? =4=0?= >>90;=
&e1!rity deposit7 >>0;4 >>065 9=0?? 6?40?;
-oo% over draft KK0 KKK ;0;: KK0
'rovisions7 6;506= ..40:4 .=?0=; 4440>9
K KKKKKKKKKKKKKKKKKKKKKK
T$TA#7 :5?0.; ;=506> 646:0?6 6>=50=5
*$R)IN+ CA'ITA# (A8-"7 655=0?> 4.6909. .:44094 .=..0?:

I,'$RTANT RATI$& $( IDEA

60 $'ERATIN+ 'R$(IT ,AR+IN (@"
40 NET 'R$(IT ,AR+IN (@"
.0 RETURN $N NET*$RT2 (R$N*" (@"
=0 RETURN $N CA'ITA# E,'#$AED (R$CE"
C$NC#U&I$N
After studying the components of woring capital management system of IDEA! It is
found that the company has a sound and effecti$e policy and its performance is $ery
good e$en in this #ad recession situation company has managed to post good profit!
5ompany is competing well at the domestic as well as the international le$el and it is
among the low cost producers of aluminium in the world only #ecause of its proper
management of finance, specially the short term finance nown as the woring capital!
"he company is a matured one and it has contri#uted well in the countries growth and
de$elopment and will also continue to perform and contri#ute to the whole nation!
In conclusion ,we can say that the companies management is an effecti$e one and
nows well the management of finance, its woring capital management system is $ery
good #ecause of which only the company has got the status of NA<RATNA company!
@1@9146R#P.2
@ooCs
oel !.". #$anagement %ccounting and &inancial $anagement
'
(,Pg
)* #In this I found the di+erent types of ratios and there formulas and
about thumb rule and all basic concept(.
Pandey , I.$ #&inancial $anagement
,
( Pg-./0-./' #1ow to prepare
comparative balance sheet and how can we evaluate(.
$aheshwari ,2.3 , 4%dvanced %ccounting
)
( pg b/5-b/*, #It e6plains
ratio analysis as a tool to analy7e the fnancial statements of
organi7ation. !i+erent ratios depict the position of frm in market(.
$ittal 8." , #$anagement %ccounting9 &inancial $anagement
*
( pg :*-
05 #from this I have how to prepare comparative balance sheet and
how to interpret it(
;ain T.8. , #2tatistics for $<%
=
( Pg part > .0'-.0*, #Information about
the calculation of chi square test(.
<erry .>., #$arketing 8esearch
.5
( pg.' #2ome theoretical
knowledge about the type of data(.
2.> upta, #&undamentals of 2tatistics
..
( pg..:, #&rom here I found
the defnitions that are the base for the statistical tools(.
1ooda 8.P. #2tatistics for <usiness and ?conomics
.:
( pg:5=-:.:
#>alculation of trend analysis and its interpretation(.