A STUDY ON WORKING CAPITAL MANAGEMENT of Sarvottam chemical

pvt LTD,

ambernath

PARTICUARS

PAGE NO

CONTENT
S
01

Meaning &definition

02

Company Profile

03

Objectives

04

Introduction to

05

Working Capital

06

Cash Management

07

Analysis and

08

interpretation

09

Ratio Analysis

10

Finding
Conclusion
Bibliography

DEFINITION:
Working capital is the difference between the current assets and the current liabilities.The basic
calculation of the working capital is done on the basis of the gross current assets of the firm

Management of working capital

Guided by the above criteria, management will use a combination of policies and techniques for
the management of working capital. The policies aim at managing the current assets (generally
cash and cash equivalents, inventories and debtors) and the short-term financing, such that cash
flows and returns are acceptable.

Cash management. Identify the cash balance which allows for the business to
meet day to day expenses, but reduces cash holding costs.

Inventory management. Identify the level of inventory which allows for

uninterrupted production but reduces the investment in raw materialsand
minimizes reordering costsand hence increases cash flow. Besides this, the
lead times in production should be lowered to reduce Work in Process (WIP)
and similarly, the Finished Goods should be kept on as low level as possible to
avoid over productionsee Supply chain management; Just In Time (JIT);
Economic order quantity (EOQ); Economic quantity

Debtors management. Identify the appropriate credit policy, i.e. credit terms
which will attract customers, such that any impact on cash flows and the cash
conversion cycle will be offset by increased revenue and hence Return on
Capital (or vice versa); see Discounts and allowances.

Short-term financing. Identify the appropriate source of financing, given the

cash conversion cycle: the inventory is ideally financed by credit granted by
the supplier; however, it may be necessary to utilize a bank loan (or
overdraft), or to "convert debtors to cash" through "factoring".

Factors effecting working capital:

Nature of business: generally working capital is higher in manufacturing compared to service

based organizations
Volume of sales: higher the sale, higher the working capital required
Seasonality: peak seasons for sales need more working capital

 Length of operating and cash cycle: longer the operating and cash cycle, more is the
requirement of working capital
Working capital Approaches:

A) Matching or hedging approach: This approach matches assets and liabilities to maturities.
Basically, a company uses long term sources to finance fixed assets and permanent current assets
and short term financing to finance temporary current assets.
Example: A fixed asset which is expected to provide cash flow for 5 years should be financed by
approx 5 years long-term debts. Assuming the company needs to have additional inventories for
2 months, it will then seek short term 2 months bank credit to match it.
B) Conservative approach: it is conservative because the company prefers to have more cash
on hand. That is why, fixed and part of current assets are financed by long-term or permanent
funds. As permanent or long-term sources are more expensive, this leads to lower risk lower
return.
C) Aggressive approach: The Company wants to take high risk where short term funds are used
to a very high degree to finance current and even fixed assets.

Classification of Working Capital:

Working capital can be categorized on basis of Concept (gross working capital and net working
capital) and basis of time (Permanent/ fixed WC and temporary/variable WC). The two major
components of Working Capital are Current Assets and Current Liabilities. One of the major
aspects of an effective working capital management is to have regular analysis of the company's
currents assets and liabilities. This helps to take into account unforeseen events such as changes
in the market conditions and competitor activities. Furthermore, steps taken to increase sales
income and collecting accounts receivable also improves a company's working capital.
Working Capital in adequate amount:

For every business entity adequate amount of working capital is required to run the operations. It
needs to be seen that there is neither excess nor shortage of working capital. Both excess as well
as shortage of working capital situations are bad for any business. However, out of the two,
inadequacy or shortage of working capital is more dangerous from the point of view of the
company operations. Inadequate working capital has its disadvantages where the company is not
capable to pay off its short term liabilities in time, difficulty in exploring favorable market

situations, day to day liquidity worsens and ROA and ROI fall sharply. On the other hand, one
should keep in mind that excess of working capital also leads to wrong indications like idle
funds, poor ROI, unnecessary purchase and accumulation of inventories over required level due
to low rate of return on investments, all of which leads to fall in the market value of shares and
credit worthiness of the company.

Working capital cycle:

The working capital cycle (WCC) is the amount of time it takes to turn the net current assets and
current liabilities into cash. The longer the cycle is, the longer a business is tying-up funds in its
working capital without earning any return on it. This is also one of the essential parameters to
be recorded in working capital management.

Working Capital Management:

Working Capital Management (WCM) refers to all the strategies adopted by the company to
manage the relationship between its short term assets and short term liabilities with the objective
to ensure that it continues with its operations and meet its debt obligations when they fall due. In
other words, it refers to all aspects of administration of current assets and current liabilities.
Efficient management of working capital is a fundamental part of the overall corporate strategy.
The WC policies of different companies have an impact on the profitability, liquidity and
structural health of the organization. Although investing in good long-term capital projects

receives more emphasis than the day-to-day work associated with managing working capital,
companies that do not handle this financial aspect (working capital) well will not attract the
capital necessary to fund those highly visible ventures; in other words, you must get through the
short run to get to the long run.
Components associated with WCM:

Often the interrelationships among the working capital components create real challenges for the
financial managers. Inventory is purchased from suppliers, sale of which generates accounts
receivable and collected in cash from customers to pay off those suppliers. Working capital has
to be managed because the firm cannot always control how quickly the customers will buy, and
once they have made purchases, exactly when they will pay. That is why; controlling the cashto-cash cycle is paramount.
The different components of working capital management of any organization are:
Cash and Cash equivalents
Inventory
Debtors / accounts receivables
Creditors / accounts payable
A) Cash and Cash equivalents:

One of the most important working capital components to be managed by all organizations is
cash and cash equivalents. Cash management helps in determining the optimal size of the firms
liquid asset balance. It indicates the appropriate types and amounts of short-term investments
alongwith efficient ways of controlling collection and payout of cash. Good cash management
implies the co-relation between maintaining adequate liquidity with minimum cash in bank. All
companies strongly emphasize on cash management as it is the key to maintain the firms credit
rating, minimize interest cost and avoid insolvency.
B) Management of inventories:

Inventories include raw material, WIP (work in progress) and finished goods. Where excessive
stocks can place a heavy burden on the cash resources of a business, insufficient stocks can result
in reduced sales, delays for customers etc. Inventory management involves the control of assets
that are produced to be sold in the normal course of business.

Meaning of working capital:

organization require adequate capital to establish business and operate their activities. The total
capital of a business can be classified as fixed capital and working capital. Fixed capital is
required for the purchase of fixed assets like building, land, machinery, furniture etc. Fixed
capital is invested for long period, therefore it is known as long-term capital.Similarly, the
capital, which is needed for investing in current assets, is called working capital.
The capital which is needed for the regular operation of business is called working capital.
Working capital is also called circulating capital or revolving capital or short-term capital.

Working capital is used for regular business activities like for the purchase of raw materials, for
the payment of wages, payment of rent and of other expenses. Working capital is kept in the form
of cash, debtors, raw materials inventory, stock of finished goods, bills receivable etc.
For better stock/inventory control:

o Regularly review the effectiveness of existing purchase and inventory systems

o Keep a track of stocks for all major items of inventory
o Slow moving stock needs to be disposed as it becomes difficult to sell if kept for long
o Outsourcing should also be a part of the strategy where part of the production can be done
through another manufacturer
o A close check needs to be kept on the security procedures as well
C) Management of receivables:

Receivables contribute to a significant portion of the current assets. For investments into
receivables there are certain costs (opportunity cost and time value) that any company has to
bear, alongwith the risk of bad debts associated to it. It is, therefore necessary to have a proper
control and management of receivables which helps in taking sound investment decisions in
debtors. Thereby, for effective receivables management one needs to have control of the credits
and make sure clear credit practices are a part of the company policy, which is adopted by all
others associated with the organization. One has to be vigilant enough when accepting new
accounts, especially larger ones. Thereby, the principle lies in establishing appropriate credit
limits for every customer and stick to them.
Effectively managing accounts receivables:

o Process and maintain records efficiently by regularly coordinating and communicating with
credit managers and treasury in-charges
o Prepare performance measurement reports
o Control accuracy and security of accounts receivable records.
o Captive finance subsidiary can be used to centralize accounts receivable functions and provide
financing for companys sales
D) Management of accounts payable:

Creditors are a vital part of effective cash management and have to be managed carefully to
enhance the cash position of the business. One has to keep in mind that purchasing initiates cash
outflows and an undefined purchasing function can create liquidity problems for the company.
The trade credit terms are to be defined by companies as they vary across industries and also
among companies.
Factors to consider:

o Trade credit and the cost of alternative forms of short-term financing are to be defined
o The disbursement float which is the amount paid but not credited to the payers account needs
to be controlled
o Inventory management system should be in place
o Appropriate methods need to be adopted for customer-to-business payment through ecommerce
o Company has to centralize the financial function with regards to the number, size and location
of vendors
Time and money concept in Working Capital:

Every component of working capital (namely inventory, receivables and payables) has two
dimensions TIME and MONEY, in managing working capital. By making the money move
faster around the cycle, one can reduce the amount of money tied up. This helps the business
generate more cash or it will need to borrow less money to fund its working capital.
Consequently, it would either reduce the cost of interest or have free funds to support additional
sales growth or investments of the company. Similarly, if one can negotiate on better terms with
suppliers i.e. get an increased credit limit or longer credit; it will effectively create additional
cash to help fund future sales.

INTRODUCTION
Backed by 10 years of experience in chemical rolling. Production started in March1998, initially, because of unavailability of power. The production was stated by
using Generator sets, using Diesel as fuel and continued for initial two years, after
that power was available, later generator set were disposed off and regular
production continued.
Initial years of company raw material were concerned because of recession period
1998-2001. The company would get raw materials (M.S Billets) from only USP Plant
and Indian Vijay nagar Ltd. But from 2002 onwards the above said materials got
comparatively costly and company could not afford to buy from them profitably.The
necessary Research and Development facility has been setup and clearance are
being obtained.
With the technology upgradation, the company hopes to increase it production to
50% more than the existing level of production.
Overview of Company business:Sarvottam chemical (the Company) is an private company. The Company is
presently involved in the business of manufacturing Steel Bars & chemical
prodouction, which is used in the Construction of Multistoried Buildings, Dams,
bridges, flyovers, and power plants as a basic reinforcement material. The Company
is manufacturer of TMT Bars. The Company is using the Tempcore Process, which
is the most advanced technology worldwide for manufacturing TMT Steel Bars. The
Companys products meet IS 1786-2008 specification
The company has a network of more than 150 distributors and dealers spread
across the State of Karnataka.

PROFILE OF THE COMPANY

Name of the company : sarvottam chemical PVT LTD
Reg. Office Address : 12-7-77, morivali m.i.d.c-421502
Factory Location : Survey No. a 49, 8th km,
morivali Village, ambernath,
thane,
ambernath-421502
PAN No. : AADCP6628H
Status : Private Limited Company
Tin No. : 29880042693

Advantages and Disadvantages of Working Capital Loans

Securing a loan for working capital is an excellent way to begin generating both capital and
growth from your business. To get your business off the ground, capital is essential for covering
the financial needs of your daily operations such as payroll or marketing costs. Funds that are
available to cover your businesss short term and immediate needs are known as working capital.
This capital can be redeemable notes or cash at the bank. Often times, small businesses such as
yours may struggle to come up with enough working capital to keep their business running. Even
if youve managed to secure the necessary startup money and establish a customer base, working

capital will be necessary to keep things moving; but it can be difficult to access. Mistakenly,
business owners tend to try filling the gap using their personal funds. While it may seem like a
viable option, it can quickly become a slippery slope. Instead, securing a loan for your working
capital will ensure that you get the cash your business needs without jeopardizing your personal
finances. As previously mentioned, a working capital loan is designed to finance your businesss
daily expenses (think payroll, supplies, etc.). Working capital loans are not intended for
investments or the purchasing of assets.
Regardless of the status of its profit and loss, a growing company is going to require cash to
continue functioning. This consumption of cash is referred to as working capital.

To put it into mathematical terms, working capital is the difference of your current assets and
liabilities. In laymans terms, its what is owed to you by customers plus your established
inventory minus your debts to vendors and employees. Your cash in the bank also factors in.
Working capital loans are specially designed to meet your businesss daily operating needs.
Different from conventional commercial loans which are approved only for specific uses,
working capital loans may be granted without specification of its purpose. The loan will be
approved regardless of its use within your business. Remember that working capital loans are a

short term option and are not intended for funding the purchase of assets or refinancing current
long term debts.
How should a Working Capital Loan be used?

The limits to how a working capital loan can be spent are few: buying assets and funding your
business long term. True to its name, the loan can be used for anything that promotes the growth
of your working capital. That may look different depending on your business and your situation.
The manner in which you spend the loan should be based on the needs of your business.
For example, if you need to plan on covering daily expenses during those typically slow months
the loan can help you meet those financial obligations. Or, if an upcoming holiday demands that
your inventory be expanded the loan can bridge the gaps in your current funds. Additionally,
should you need to take a vendor up on any one time offer discounts, the loan can be used to
ensure that opportunity doesnt pass you by due to a lack of funds. Short term loans such as this
are also very helpful in covering any unexpected losses that may come up. Numerous expenses
can lead to a gap in your cash flow. Maybe youve recently put extra money towards advertising
and marketing, hired new employees, or relocated your business. Perhaps its simply time to
update, renovate or expand your business and inventory. The economy may have caused an
uptick in customers who are slow or unable to pay. Maybe youve experienced some operating
losses which depleted your funds. The point is, many situations may arise that can leave you
temporarily unable to meet the financial demands of your growing business; thats where a
working capital loan comes in.
Working Capital Loan Benefits

You are insured against any financial constraints that might arise. Even businesses worth billions
may find themselves in court if the monthly bills arent paid. Even in the best cases, depleted
working capital can result in financial pressure, an increased need to borrow, and payments made
past due. These things will negatively impact the businesss credit score which will in turn result
in higher interest rates on any future loans. Taking advantage of a short term loan for working
capital when necessary will ensure that you stay in business even when losses occur.
Working Capital Loans ensure that you remain the sole owner of your
business

To cover the financial deficits, you may experience, you could turn to an investor. But, its likely
that in exchange for those funds you will lose ownership over a percentage of your business.
Along with the loss of ownership you will be relinquishing much of your ability to make
decisions for your business. However, if you turn to a financial institution such as a bank to fill
your financial needs, youre only obligation will be to make your payments on time. Securing
funding through a bank guarantees that you retain full control over your business.

You wont need collateral

Generally speaking, loans are either secured or unsecured. Though mostly unsecured, working
capital loans do come in both forms. Unsecured loans are reserved only for small businesses with
excellent credit history and zero (or very small) risk of defaulting. For business owners lucky
enough to fall into this category, a loan can be secured without the use of your inventory,
business or personal property as collateral. Obviously, under these circumstances repaying the
loan diligently is crucial if you dont want legal action brought against you.
Temporary loans for temporary problems

With a short term loan, you wont be committing yourself, or your business, to years of interest
and payments. Working capital loans are specifically intended to serve as a quick infusion of
cash, which is in turn quickly repaid.
The money can be spent at your discretion

Typically, the restrictions imposed on your loan will be few to none. Your lender will only expect
that you spend the money maintaining daily operations or increasing revenue, which shouldnt be
a problem because a business owner such as you intend to do those things anyway!
Its Fast!

Conventional loan application is a lengthy process, and youre approval is not guaranteed. You
may fill out excessive paperwork, establish collateral, personally guarantee the loan, establish a
payment schedule and agree to the terms and restrictions only to find that youve been denied
(and that youve wasted too much of your time). Working capital loans are simpler to apply for,
quicker to pay out and easier to use because of the lack of restrictions on how you can spend it.
With a working capital loan, you can access the money within as little as a week following the
acceptance of your application.

Working Capital Loan Drawbacks

It will need to be repaid

As with any borrowed income, your debt will need to be repaid. Just like any loan, you have an
obligation to make payments in a timely matter, regardless of what becomes of your business.
That means that should your business fail, repayments on the loan will need to continue anyway.
If the worst happens and you are reduced to bankruptcy, youll need to prioritize repaying the
lenders over any investors to which you are obligated.

Collateral may be required (especially for candidates with a lesser credit

history)

While its true that borrowers with a sterling credit history may be approved for an unsecured
loan with no collateral required, that will not be the case for all borrowers. Lenders will need
some form of assurance that the debts will be repaid. If assurance cant be established by your
credit history alone, collateral may be required. This means youll be applying for a secured loan
(one in which collateral is exchanged for funds), and will need to offer a tangible guarantee that
the loan will be paid on time and in full. The guarantee can come in the form of a home, vehicle,
inventory, even jewelry. Assets can be exchanged as collateral regardless of any mortgages you
may still owe on them. While the collateral required for a working capital loan will vary by
lender, you can get an idea of what youll need by examining your credit history and looking into
typical small business loan requirements.
High interest rates

Understand that an unsecured loan presents some risk for lenders. Typically to temper the risk
that risk, theyll charge a higher percentage of interest on the loan. This means that compared to
a secured loan for the same amount, youll end up paying more long term. A higher rate will also
bump up the monthly payments you make; depending on the bump, this can make the payments
more difficult to afford. Finally, its harder to be approved for an unsecured loan. Lenders
probably wont approve a business with a credit history thats poor or not well established.
Get an SBA working capital loan up to 150K, 10 years, Prime+2.75%
Negative effects on your credit

Be aware that each time you do take out a loan it is noted on your credit history. While a few
loans, repaid on time, can help your score and boost your business, too many loans will flag you
as a high risk borrower. The higher your risk as a borrower, the more interest youll have to pay.
Obviously, late payments or failure to make payments at all will directly and negatively impact
your credit. Be sure to borrow within your means and within reason.
Brief terms

Thats right, this is listed under both columns because depending on your needs a short loan term
may help or hurt you. For one, a short term loan is meant to solve short term problems. This is
not the loan to take out to reach your long-term goals or complete large scale projects with.
Explore Your Businesss Potential

Working capital loans are a great option if youre looking to test the potential of your small
business. Provided youre on good financial footing, a short term loan can provide the extra little
push you need to see your business explode. A working capital loan can beef up your inventory,
hire that extra pair of hands or just cover those slow months that you need to get through.
Whatever your need, consider how a working capital loan might help. Expand your business
without relinquishing control to an investor. Repayments can be easy and most of all, short term

loans (when borrowed responsibly) can shore up your credit as well as your reputation. When the
time has come to expand your business, apply for a working capital loan.
Give First Financial a call for your next business loan. We offer working capital loans through
the SBA with great terms and rates. . With a working capital loan from First Financial, you wont
miss that sale on inventory, you can increase efficiency by purchasing necessary equipment or
you can hire needed help for your busy season. For your working capital needs, First Financial is
a great solution.

The companys organizational chart is formed in a hierarchical way, where the

hierarchy starts with the Managing Director. Then in the next level of hierarchy
two Directors are there. After Director, Factory Manager leads to the next level
which is further divided into four departments namely Marketing Manager,
Financial Manager, Production Manager, Human Resource Manager. Where
each department is further divided into assistant managers and helpers which helps
the upper level of the organization to work effectively and efficiently. Hence the
organizational chart shows the structure of the company and the flow of authority
between different levels.
MANAGING DIRECTOR
1ST DIRECTOR

2ND DIRECTOR
MARKETING MANAGER
FINANCIAL MANAGER
PRODUCTION MANAGER
HUMAN RESOURCE MANAGER
FACTORY Manager

Boards of Directors:Managing Director : Mr. Shivji Patel

1st. Director : Mr. Mohanlal Patel
2nd. Director : Mr. Lalji Patel
Factory Manager : Mr. Shamlal
Marketing Manager : Mr. Bhim Rao
Assistant Marketing Manager : Mr. Mallikarjun
Finance Manager : Mr. Vinay Patel
Assistant Finance Manager : Mr. Mukesh Vyas
Production Manager : Mr. Ravji Patel
Assistant Production Manager : Mr. Punesh Solanki
Human Resource Manager : Mr. Shamlal

FUNCTIONS OF VARIOUS DEPARTMENTS

The company consists of four departments namely Production, Finance,
Administration & Marketing and Human Resource Management. The company of 48
permanent staff and there are some 5-10 more who work on a daily wage basis.
Every employee who joins the company for the first time has to under go a
probation period for one year. The employee will be under observation during this
period. If the director board is satisfied with the performance, he will be made
permanent. The permanent staff members are entitled for provident fund, gratuity,
employee state insurance, house rent allowance. The daily wage basis employees
are entitled for shift allowance. During the peek seasons the company works round
the clock with two shifts. The normal office working hours are from 9.00 to 14.00 hrs
and 15.00 hrs to 19.00 hrs. The working shifts is of 6(six) hrs of two shifts.

MARKETING DEPARTMENT
Marketing occupies an important position in the organization of any business unit.
Marketing functions are not limited to the functions of buying and selling but they
include all function necessary to satisfy the customer such as financing, storage,
risk bearing and after sales services etc. Marketing is a vital connecting link
between the producer and the customer.
Functions
Target Customer
Target customer are small dealers vending in Taluks and small villages and house
constructing customers.
Market Research
Market Research are determined by the feedback by their dealers and walk-in
customers.
Present Market Situation
The demand situation is slack due to general slowdown on the export front and
there by due to a slowdown general Indian economy. However due to agricultural
production the rural demand is intact and therefore demand situation is not totally
hopeless and the production is some-how seems to be picking up due to the
seasonal demand.
Major Competitor
Major Competitor are from outside the state steel producers because there is very
less production as the local electricity power rate is very high, so there is minimum
production allover the state(being electricity is the major cost in the production of
steel), naturally the goods comes from out of the state for local demand within the
state.
Market Segmentation

About 50% from city and other 50% from near by rural markets.

Market Target
Target Market is our own district (maharastra), because delivery to other places
involves higher transportation charges and hence less profitable.
Positioning
The main strategy is to produce only economically viable production that is produce
only such extant which is viably saleable.
Sales Promotion
For sales promotion, suitable incentives in kind are being offered to the dealer and
as well as direct customer, so that the sales volume is maintained at the optimum
level.
Just like: 1. Quantity discount.
2. Price discount.
3. Better credit facility to credit worthy dealer and customers.
4. FOR delivery.
General economic and business conditions
The demand for company products is dependent on general economic conditions in
India and may affect if there are changes in business conditions in our country.
Demand
The demand for company products viz. Steel, Cement, SS Pipes and POP is a
derived demand, meaning that it is dependent upon the state and condition of the
infrastructure, construction and housing industry. Company have a very well
diversified customer base which obviates dependence on any major Customer.
Company have further sought to expand company customer base. The prospects
and earnings growth of the customers company serve will have an impact on
company ability to generate sales.

Competition
Selling prices of company products may be affected if competition intensifies,
including as a result of increased capacity of Competitors or company competitors
adopt aggressive pricing strategies in order to gain market share or new
competitors enter the markets we serve.
Raw Material Prices
Raw materials i.e. Steel Ingots, Sponge Iron and M.S. Scrap constitute a major
portion of company total expenses. Fluctuations in the cost of these raw materials
may alter company cost structure and affect profitability. Historically, we have been
able to pass on increases in raw material costs to company customers but company
cannot assure you that in future also company will be able to do so.
Other Factors
Company results of operations are dependent upon company success in managing
company inventories. Company have to schedule out production process and
procurements according to delivery schedule of customers. Any change in schedule
may affect company operation in short run.
Demand Forecasting
The company expects the demand revival in the third quarter of this year following
the government realized finance through various schemes for enhancing
construction activities.
We have appointed special representative to study the demand from various
segment of the industry and various customers putting up houses.

Human Resource Department

Human Resource department is a department for the effective management of
personnel at work. uman Resources management is the sense of planning
organizing and controlling the various operating functions of processing, developing,
maintaining and utilizing the labor process for the purpose of contributing a lot
towards the accomplishment of major goals of the organization. FUNCTIONS 1.
Recruitment & Selection. 2. Performance Appraisal. 3. Compensation. 4. Human
Resource Planning. 5. Manpower Planning.
6. Maintaining Communication with Employees. HUMAN RESOURCE POLICY 1.
Sarvottam chemical recognizes that its people are the primary source of its
competitiveness. 2. It will pursue management practices designed to enrich the
quality of life of its employees, develop their potential and maximise their
productivity. 3. Sarvottam chemical will strive continuously to foster a climate of
openness, mutual trust and teamwork.
MANPOWER PLANNING
The present strength of the Company is 60 employees.
1. Technical & Administration Staff at 10
2. Administration ,Marketing and Finance at Registered Office 08
Total 18.
The Company also employs contract labour for its manufacturing facility at Raichur,
Karnataka RECRUITMENT AND SELECTION There is no recruitment from last few
years in Sarvottam chemical Due to heavy computerization, mechanisms, and
modern technologies. Preference is given to son(s) of workman. They require much
lesser manpower as there is centralized management. PERFORMANCE APPRAISAL
Performance appraisal assesses an individual's performance against previously
agreed work objectives. Performance appraisal is normally carried out once a year.
They assess key result areas of their employees, workers and supervisors. Since it is

a joint responsibility of the individual and the supervisor every individual in PSSPL
are co prime to each other. It also enables management to compare performance
and potential between employees and subordinates of the same rank. Rating of
employees is done by their performances. It is given as per ranks very good,
average, and average to medium and below average.
TRAINING AND DEVELOPMENT Safety is a high priority area. Several movements to
inculcate a culture of safety have been practiced, but the Company needs to do
more to prevent accidents and improve its safety record. They are trained to know
the changes in environment, market, and in steel prices. They also get training of
problem solving techniques, conflict management, etc.
COMPENSATION PLANNING It depends on financial capabilities. Yearly
increments are given. Compensation for inflation is common for all employees.
(flat rates) It is decided by union and management where various demands are
negotiated. It is paid as per other industries. Individual performance bonus is
also given.
MAINTAINING COMMUNICATION WITH EMPLOYEES Communication is maintained
through various communication channels such as: Notices Circulars Calling
forums Correspondents Functional departmental meetings, ETC.
FINANCE DEPARTMENT
FINANCE DEPARTMENT
It is finance, which brings together various segments of an organization and
transforms them into an integrated whole so that it may function smoothly and
move in the direction of achieving the organizational goal. Finance Manger is the
top authority in Finance Department. He has equal rights and responsibilities as
compared to the Managing Director of the Company in general matters.
Director himself handles finance department covering both purchase and sales as
price of steel very volatile, changing almost every day. Therefore they have make
bulk purchase at the time of lower price and make sales as and when appropriate.
Capital Structure of the Company
Capital structure or composition of capital or pattern of securities or the security
mix is a major aspect of financial planning. Once the finance manager has
determined the firms financial requirements and his next task is to see that there
are fund in hand. The capital comes in many forms long term and short term Loans,
secured and unsecured debtors, share contribution etc. The decision upon the ratio
of these securities into total capitalization is to decide the capital structure.
Working Capital

Short Term Funds:- Working Capital generally taken care of by cash credit facility
extended by SBI to the extend of 1.5 corers.
Long Term Funds:- Now, there been a long term slow down due to international
financial crisis, there is no proposal to invest further as of now. If economic revival
takes place in future, fund can be raise through Equity, Bank funds, Private Equity.

Financial Plan
General financial plan is not done on a regular basis due to volatility of prices, all
decisions regarding purchases and sales is done by market on daily basis.
Financial Position
Current financial position of the organization is quite stable.
Report to Government Agencies
1. The usual financial reports are always required for excise department, VAT
department and lending Banks.
2. Report to PCB Boards(Pollution Control Boards).
3. Report to Auditors.
Tax Policies and procedures
Tax policies and procedures are observed with the consultant CAs.
Insurance Cover
Regular insurance is covered for the value average stock held at the factory.
Cost of Unit of Product
Cost of product is approximately Rs. 3600 per ton inclusive of all taxes and
expenses.
1. Coal Rs. 700.
2. Power Rs. 750.

3. Burning Loss Rs. 700.

4. Labour Rs. 600.
5. Administrative Expenses Rs. 200.
6. Tax and Interest Rs. 650.

Financials
As of 31st March 2015 total turnover including other income was Rs. 12.51 Corers
and net profit after tax was Rs.9.7 Lacks.
Accounting Policies
1. Basis of Accounting: Financial statement is prepared under the historical cost
convention and on annual basis.
2. Fixed Assets: Fixed Assets are stated at their historical and less accumulated
depreciation there own. The cost of fixed assets comprises their acquisition cost and
any attributable of bringing the asset to its working conditions. The cost of self constructed fixed assets comprise those costs that are related directly to the
specific assets and overheads consistently allocated at predetermined percentage
of direct salaries and wages.
3. Valuation of Inventories
a. Raw Material, stores &Spares, Packing Material, Fuel, Stock in process are valued
at cost
b. Finished goods are valued at cost or realizable value whichever is less.
c. Waste & scrap and Runner & Riser are valued at realizable value.
4. Sales
Sales are stated net of sales returns.
5. Cenvat

Cenvat claimed on Plant & Machinery is reduced from the cost of Plant& Machinery.
Cenvat claimed on purchases of raw materials and other materials reduced from the
cost of such materials.
6. Provision For Current And Deffered Tax
Provision for current tax is made after taking into consideration benefits admissible
under the provision of income tax Act, 1961. Deferred tax resulting from timing
difference between book profit and taxable profit is accounted for using the tax
rates and laws that have been enacted or substantively enacted as on the dare of
balance sheet. The deferred tax liability is recognized and carried forward only to
the extent that there is a reasonable certainty that the same will be realized in
future.
Companys Future Business strategy
Company has taken a conscious decision to develop and enlarge its business
operations by adopting Franchise route. The Franchisee markets the Products at its
own using Marketing network of PSSPL and paying the Company Royalty on sales
per tone basis/per bag/percentage. Company have plans to establish our own Stock
Yards at various strategic locations and materials required for these yards will be
sourced from the nearby Franchisees, who are manufacturers of PSSPL Steel TMT/
CTD Bars.
The Company will derive following benefits of this strategy:
Company would be able to increase its profitability by increased turn-around cycle
of available resources.
Company would be able to derive benefits of handling large volumes.
Company would get Royalty payments from the Franchisees for use of PSSPL
brand.
. PSSPL proposes to establish the stockyards in leased properties. It is proposed to
acquire land at a suitable location.
Each stockyard would be managed by a team of 5-6 people.

Finance Department Chart

Director :rakesh bhalla
Finance Manager:avinesh patel
Asst. Finance Manager:rakesh patel
Financial Executives:HDFC,MOHAN RAJGURU

PRODUCTION DEPARTMENT
Production Process Chart:Production Process Chart:Charged in Re-heating Furnace
Roughing Mil (Ingot 4 reduced to 2)
Finishing Mill
(2 to reduced to required finishing size)

TMT Treatment Plant

Cooling Bed
Cutting and sizing
Bending and Staking
Finished Goods
(8mm,10mm,12mm,16mm,20mm TMT Bars)

PROCESS FLOW CHART FOR PRODUCTION OF CHEMICALS

Quenching Stage
The first stage consists of a drastic water cooling applied to the bar as it leaves the
last finishing stand. The efficiency of the water cooling equipment used at this stage
has to be as high as to produce a very hard cooling, on the bar surface, faster than
the critical rate to form the martensite so as to obtain a surface layer of crude
martensite while core remains austenite.
Tempering Stage
In the second stage the bar leaves the water quenching line and is exposed to air.
The heat flux from the still hot core reheats the quenched by conduction and the
martensite formed in the first stage is thus subjected to selftempering giving a
structure called Tempered Martensite which is strong and tough. The core is still
austenitic at this stage.
Final Cooling stage
The third stage of Atmospheric Cooling occurs on the cooling bed, where the
austenitic core is transformed to a ductile ferrite pearlite core. Thus, the final
structure consists of a combination of strong outer layer of tempered martensite
and a ductile core of ferrite-pearlite.

Sources of Raw-Materials
Ingot are procured from various private manufacturers(furnaces) from different
states, like Goa, Maharashtra, Andra Pradesh and within Karnataka itself.
Water
Water consumption for TMT & Mill Cooling and for domestic purpose consumption is
met from a bore well tube well within the factory premises. Water is recirculated and
re-used.
Power
The Company sources Power from GESCOMM, through dedicated high voltage
feeder lines and do not have alternate source of electricity for manufacturing
facilities.
Evaluate of Suppliers
Demanding upon the quality supplied by various private manufacturers and best
prices offered by them.
Suppliers Evaluation and Rating Mechanism
Usually evaluation is done in-house by quality material received from him and best
prized offered by him, these are only criteria for evaluation and rating mechanism.
Usual Ordering Practice
During these time of economic slowdown of lower demand, ordering is done only
when the inventory is of minimum requirement (i.e., 10 tons.)
Purchase
Around 4200 tons per annum.
Production Capacity
Production capacity is about 6000 ton per annum; usually single shift is operated
because of lower demand.

Schedule of Working Hours

Schedule is from 7am to 7pm with intermittent interval of one hour after each hour
of work for all workers, that mean effectively each worker works for only 6 hours
during 7am to 7pm.
Typical Mechanism/ Technology Used

1. Roughing Stands
Where in 7 passes are taken up for rolling down the materials from 100mm sq to
35mm sq.
2. Finishing Stands
Where in 7 to 9 passes are under taken up for rolling down to finishing size of
materials from 35mm sq to finishing size (i.e., 8mm, 10mm, 12mm, 14mm, 16mm,
20mm.)
3. Technology Used
Jet thermo technology is used for TMT Bars.

SWOT Analysis
(Strength, Weakness, Opportunity, Threat)
Strength
1. Company is using Tempcore Process which is the most advanced technology
worldwide for the manufacturing of the Thermo Mechanical Treatment bars. As the
plants are based on the upgraded Automatic US Technology, the speed of the plant
is 32 seconds for manufacturing of Thermo Mechanical Treatment Bars.
2. The company has a network of more than 175 dealers and distributors spread
across the state.
3. The Thermo Mechanical Treatment bars manufactured in the factory according to
standard of Indian Standard(IS) 1786:2008. In making Thermo Mechanical
Treatment bars US technology is used. The companys name is Jet Therm.
4. The company has talented, skilled and qualified man power to look after different
activities at various levels in the organization.
5. The company provides adequate training to staff to keep them updated on all
issues related to our Industry.
6. Raw material is locally available within the boundary of 200 kms.

7. The company has a Skilled Manpower.

8. The company has its own trading shop and has experience of 3 decades.
9. Company produces quality product at reasonable prices which has competitive of
the company.
10. Direct Marketing helps company to deal directly with the customers to know
their needs and satisfaction.

WEAKNESS
1. Fluctuation in raw material prices results in fluctuation in daily prices of the
product.
2. Labour shortage and communication problem with labour.
3. High cost of production compared to giant producers like Tata, SAIL (Steel
Authority of India Limited).
4. Irregularity of power supply stops the production process and leads to the idle
machine time, idle workforce as there is no power backup.

OPPORTUNITIES
1. The major raw material is available within the boundary of 200 kms, so that
company can compete easily with the bigger player as the cost of production is very
less.
2. Beside the factory about 2000 acres has been allotted towards development of
growth center, because of this all development activity needs heavy quantity of
steel. Obviously they will buy from nearby manufacturing only.
3. Company can make use of full capacity of production by providing good
maintenance of machines and proper power supply.
4. Company should create good dealers distribution network to make a good hold
and a large market share for its product.
5. Company can reduce its cost of production due to high productivity.

THREATS
1. Emerging big player & hence there is competition in the market.
2. Steel prices are depends globally, so sometimes it affects the availability of raw
material and it is not possible to make a large stock of raw material due to daily
fluctuation in price.
The Company Vision
To be the first choice of customers through leadership in quality and services and
achieve sustainable growth through backward integration.
The Company Mission
To constantly strive to meet or exceed customers' needs and expectations by
staying ahead of competition with innovative ideas and add super-value to all
customers.
Scope of Study

Since the decision regarding working capital are of an operating nature not one time
decision, the scope of the study is geared towards identifying important areas of
control and to establish model for better control of the various components of
working capital
The study would also attempt to identify the various sources available for financing
of working capital.
The study gives a fair idea of improvement in efficiency of working capital
management and also to have proper control over the components of working
capital and managing of efficiency.

Objectives of Study
? To study the efficiency of working capital management of the company
? To analyze the working capital trends in the company
? To study the efficiency of cash, and receivables management of the company
? To understand and analyze the working capital position of PSSP Ltd. During the
period of 2004-2008.
? To measure the overall financial position of the organization with the help of ratio
analysis.
METHODOLOGY

The information of the budgetary control where obtained from

Primary Data : The information Collected from Personnel Interaction with manager
and other staff
Secondary:- Annual reports of SC&SPVT LIM Company
Limitation of the study
? This study deals only with the data made available. Hence the result of this study
cannot judge the business of the firm in general
? The study have been influenced by the limitation of the ratio analysis
? The study extensively uses the data provided is the financial reports of the firm
which may also have their own limited perspective
? The analysis made on the working capital management is for a particular period of
time the current assets and current liabilities will change for an analysis made at
any other of time.

Theoretical background
Introduction
One of the vital aspects of companys financial management is to manage its
current assets and the current liabilities in such a way that a satisfactory level of
working capital is maintained. Working capital management means administration
of all aspects of working capital i.e. current assets and current liabilities. Firm has to
manage it properly in order to attain its goal of wealth maximization.
Meaning
Working capital is that part of total capital which is used for carrying out routine
business operations. In simple terms, working capital is the capital with which the
business of the company is worked over. Working capital is the lifeblood of business
and it is the controlling system of every business firm.
The working capital management is concerned with the problems that arise in
attempting to manage the current assets and current liabilities and the
interrelationships that exists between them. This tries to evolve how much funds to
be invested in each type of current assets and what should be the proportion of
long-term funds to short-term funds and which are the sources that are ideal for
financing current assets.
Concepts of working capital
There are two concepts of working capital, they are;
1. Gross working capital concept
2. Net working capital concept

Gross working capital concept

Gross working capital concept refers to firms investments in its current assets.
Current assets are assets, which can be converted into cash within an accounting
year (or operational cycle) and includes cash, short-term securities, debtors, bills
receivables and inventories.
The gross working capital is a financial concept. It is also called as current capital or
circulating capital and is represented as sum total of current assets of an enterprise.
The gross working capital concept focuses attention on two aspects of current asset
management:
1. Optimum investment in current assets
2. Financing of current assets
Net working capital concept
Net working capital is the difference between current assets and current liabilities. It
may be positive or negative. A positive working capital arises when current assets
exceeds current liabilities and a negative working capital occurs when current
liabilities exceeds current assets
Net working capital= Current assets-Current liabilities
Net working capital is a qualitative concept and it indicates the:
1. Liquidity position of the firm
2. Suggests the extent to which working capital needs may be financed by
permanent sources of funds.
The current assets of the firm should be sufficiently in excess of current liabilities to
constituting a margin for maturing obligations within the ordinary operating cycle of
the business. A weak liquidity position poses a threat to the solvency position of the
firm and makes it unsafe and unsound. A negative working capital may prove to be
harmful for the companys reputation. On the other hand, excessive liquidity is also
bad which may lead to mismanagement of current assets.
The net working capital concept also covers the question of judicious mix of longterm funds for financing the current assets. Every firm needs a minimum amount of
net working

capital, which is permanent. Hence a portion of working capital should be financed

with the permanent sources of funds such as owners capital, debenture, long-term
debts, preference capital or retained earnings. Management must therefore decide
the extent to which current assets should be financed with long-term sources.
Even though both gross and net working capital concepts are the important facets
of working capital, there is no precise way to determine the exact of gross or net
working capital for every firm. The working capital needs depends upon the
business operations of the firm.
Significance of working capital:
To fulfill its endeavor to maximize the shareholders wealth, firm has to earn
sufficient return from its operations, which needs a successful sales activity. The
firm has to invest sufficient funds in current assets to succeed in sales, as the sale
do not convert into cash instantaneously because of time gap between the sale of
goods and actual receipts in cash. Hence there is a need for working capital in the
form of current assets to sustain sales activity during that period. Since cash inflows
and cash out flows dont match, firms have to necessarily keep cash or investment
in short term liquid securities to fulfill its obligations as and when they become due.
The adequate stock of inventory provides a cushion against being out of stock and
help as a guard to meet the demand for its products. To be competitive, the firm
must sell its products to their customers on credit, which necessitates the holding of
accounts receivables therefore an adequate level of working capital is absolutely
necessary for the smooth sales activities, which in turn enhance the owners wealth.
The working capital need arises for the following purpose:
? For purchasing raw materials, components and spare parts
? For paying wages and salaries
? To incur day-to-day expense and overhead costs like fuel, power and office
expense etc.
? To meet selling costs of packing advertising etc
CLASSIFICATION OF WORKING CAPITAL
WORKING CAPITAL
On the basis of concepts

On the basis of time

Net working Capital
Gross working capital
Seasonal working Capital
Special working capital
Initial working capital
Regular working capital
Permanent working capital
Variable Working capital
A. On the basics of Concept :
1. Net Working capital :
This is the difference between current assets and current liabilities. Current
liabilities are those that are expected to mature within an accounting year and
include creditors, bills payable and outstanding expenses.
Working Capital Management is no doubt significant for all firms, but its significance
is enhanced in cases of small firms. A small firm has more investment in current
assets than fixed assets and therefore current assets should be efficiently managed.
The working capital needs increase as the firm grows. As sales grow, the firm needs
to invest more in debtors and inventories. The finance manager should be aware of
such needs and finance them quickly.
Current Assets can be financed through long term and short-term sources. The
ratio of long term to short-term source will depend on whether the firm is
aggressive or conservative. If the firm is aggressive then it will finance a part of its
permanent current assets with short-term funds. On the other hand , a conservative
firm will finance its permanent assets and also a part of temporary current assets
with long- term financing.

2. Gross Working Capital

This refers to the firms investment in current assets. Current assets are the assets
which can be converted into cash within a short period say, an accounting year.
Current assets include cash, debtors, bills receivables, short term securities etc.
B) On the Basis of Time
1) Permanent Working Capital
Permanent Working Capital is permanently locked up in the circulation of current
assets. It covers the minimum amount requested for maintaining the circulation of
current ass
a) Initial working capital
At its inception and during the formative period of its operations a company must
have enough cash fund to meet its obligations. The need for initial working capital is
for every company to consolidate its position.
b) Regular working capital
It refers to the minimum amount of liquid capital required to keep up the circulation
of the capital from the cash inventories to accounts receivable and from account
receivables to back again cash. It consists of adequate cash balance on hand and at
bank, adequate stock of raw materials and finished goods and amount of
receivables.
2. Variable Working Capital
It refers to the past of the Working Capital which changes with the volume of
business; it may be divided into two classes.
a) Seasonal Working Capital
There are many lines of business where the volumes of operations are different and
hence the amount of working capital varies with the seasons. The capital required to
meet the seasonal needs of the enterprise is known as seasonal Working capital.
b) Special Working Capital
The Capital required meeting any special operations such as experiments with new
products or new techniques of production and making interior advertising campaign
etc, are also known as special Working Capital.

Sources of Working capital:

Sources of working capital can be broadly divided into two types,
1. Internal sources
2. External sources
Internal sources:
1. Shares
2. Debentures
3. Retained earnings
4. long term loans
5. Sale of fixed assets
6. Depreciation fund
7. Using the resource meant for taxation
External resources:
1. Bank credit
2. Customer advances
3. short term public deposits
4. Installment credit
5. Factoring
6. Commercial papers
7. Indigenous banker
8. Trade credit
9. Outstanding expenses
CASH MANAGEMENT:
Cash is the liquid money, which a firm can disburse immediately without any
restriction. The term cash includes coins, currency and cheques held by the firm
and balances in its bank accounts. Sometimes near cash items, such as marketable
securities or bank time deposits are also included in cash. The basic characteristics
of wear cash assets are that they can readily be converted into cash, and we invests

it in marketable securities. The kind of the investment contribute some profit to the
firm.
Cash is often called as non earning asset. It is needed to pay for labor and raw
materials, to buy fixed assets, to pay taxes, to service debts, to pay dividends and
so on. However, cash itself earns no interest. Thus the goal of the firms must hold
for use in conducting its normal business activities. It the same time it should have
sufficient cash.
1. To take trade discounts
2. To maintain its credit rating
3. To meet unexpected cash needs
The cash management is concerned with the managing of
1. Cash flows into and out of the firm
2. Cash flows within the firm at
3. Cash balance held by the firm at a point of time by financing deficit.
Cash management techniques or procedures:
1. Improving forecasts of cash flows
2. Synchronizing cash inflows and outflows
3. Speed up the cheque clearing process
4. Using float
5. Accelerating collections
6. Getting available funds to where they are needed
7. Controlling disbursements
Collection technique:
1. Speedy cash collections
2. Prompt payment by customer
3. Early conversion of payments into cash
ANALYSIS AND INTERPRETATION OF DATA
Evaluating the financial performance of sarvottam chemical Pvt ltd.

Working Capital Management

Schedule showing working capital for the financial years
Calculation of Gross working capital
Particular
2011-12
2012-13
Increase
Decrease
A. Current assets
? Inventories
11108491
10293700
_
814971
? Sundry debtors
4955298
6466001
1510703
_
? Cash and bank balance
2115880
1466183
_
649697
? Loans and advances
646872

10095831
3627103
_
Total current assets or gross working capital
B. Current Liabilities
Decreased W C
Net working capital
24648397
42403714
(17755317)
36560523
18805206
28321715
9516509
18805206
_
18805206
_
32887205
38025011
_
38025011
_
_
1464488
36560523

38025011
Interpretion As we can see increase in the table 2005-06 as compared to 2004-05.
above table current assets are increases more. In current assets are llike
inventeiors, bank and loan, sundry detros.

Calculation of Gross working capital

Particular
2013-14
2014-15
Increase
Decrease
A. Current assets
Inventories
10293700
8244141
2049560
Sundry debtors
646600
5805123
660878
Cash and bank balance
1466183
1266688
199495
Loans and advances
10095831
12995701

2899871
Total current assets or gross working capital
B. Current Liabilities
Net Working Capital
Decreased W C
Net working capital
28321715
9516510
18805205
(4032149)
22837454
28311653
5474299
22837454
22837454
2899871
4042211
6942082
2909933
4032149
6942082
As we can decreases in the above table 2006-07assets are decreases because of
increases the inventories decrease bank and loan sundry debtors decreases as
compare to previous years.
Calculation of Gross working capital
Particular
2007-08

2008-09
Increase
Decrease
A. Current assets
Inventories
8244141
13318258
5074117
Sundry debtors
5805123
30322092
24516969
Cash and bank balance
1266688
1019325
247363
Loans and advances
12995701
4977737
8017962
Total current assets or gross working capital
B. Current Liabilities
Decreased W C
Net working capital
28311653
5474299

22837354
14183860
37031214
496377414
12616200
37021314
37021314
29591086
29591086
8265325
7141901
14183860
29591086
Interpretation As we can increases in the above table current assets 2007-08 as
compared to 2006-07 are decreases because of increases the inventories bank and
loan sundry debtors increases as compare to previous years.
RATIO ANALYSIS
INTRODUCTION
The financial statement of a company contains a lot of information about the
financial performance of the company. Financial statements mainly consist of the
Balance Sheet and Profit and Loss Accounts. These statements give the overall
picture of the company, but to analyse each aspect of business extensively,
financial ratios are used. The Balance Sheet and the Statement of Income are
essential, but they are only the starting point for successful financial management.
Financial Ratio Analysis derived from Financial Statements analyses the success,
failure, and progress of business.
Ratio Analysis is a very powerful analytical tool useful for measuring the
performance of an organization. The ratio analysis concentrates on the
interrelationship among the figures appearing in the mentioned financial
statements. The ratio analysis helps the management to analyze the past
performance of the firm and to make further projections.

Note: we have used the ratio analysis in this project in order to substantiate the
managing of working capital. For this, we used some of the ratios to get the
required output.
Various working capital ratios used by me are as follows:
Liquidity ratios
Turnover/activity ratios
I. Liquidity Ratio
Liquidity ratio measures the ability of the firm to meet its current obligation
(liabilities). In fact analysis of liquidity needs the preparation of cash budget and
cash and fund flow statement but liquidity ratio, by establishing a relationship
between cash and other current asset to current obligation, to provide a quick
measure of liquidity. A firm should ensure that it doesnt suffer lack of liquidity and
also that it dose not have excess liquidity.
The common liquidity ratios are:1. Current Ratio
Current ratio may be defined as the relationship between quick or liquid asset and
current liabilities. This is a measure of general liquidity & is most widely used to
make analysis of short-turn financial position or liquidity of firm. It is calculated by
dividing the total current assets by total current liabilities.
Current Ratio = Current Assets
Current Liabilities
TABLE-1.1 Current Ratio
Year
Current
Assets
Current
Liabilities
Ratio
2004-05
24648397

42403714
0.58
2005-06
28321715
9516509
2.97
2006-07
28311652
5474299
5.171
2007-08
49637413
12616200
3.93
INTERPRETATION
An arbitrary standard of current ratio is 2:1 indicates that for every one rupee of
current liability two rupee of current assets is available. in the year 2004-05 Ratio
was 0.58. in the year 2005-06 increasing ratio 2.97. in the year 2006-07 increasing
ratio 5.17. in the year2007-08 decreasing 3.93. company position is favorable.
2. Quick Ratio/Acid Test Ratio
Quick ratio establishes relationship between quick or liquid assets & current
liabilities. It is also known as acid test ratio. An asset is said to be liquid if it can be
converted into case within short period of time without loss of value. The prepaid
expenses and stock were excluded.
Quick ratio = Quick asset
Current Liabilities
TABLE-1.2 Quick Ratio
Year
Quick

Assets
Current
Liabilities
Ratio
2004-05
13539906
42403714
0.31
2005-06
18028015
9516507
1.89
2006-07
20067511
5474299
3.66
2007-08
36319155
20012616
2.87
INTERPRETATION
Table 1.2 Standard of ratio is 1:1 . in the year 2004-05 ratio was 0.31. in the year
2005-06 increasing 1.89. in the year 2006-06 increasing ratio 3.66. and in the year
2007-08 decreasing trend 2.87. company position is favorable.
3. Absolute Quick Ratio/cash Ratio
Cash ratio is the strongest measurement of liquidity. Since cash is the most liquid
assets, a financial analyze may examine cash ratio & its equivalent to current

liabilities. Trade investments or marketable securities are equivalent of cash

therefore they may be included in computation of cash ratio.
To calculate absolute quick ratio we consider cash in hand, cash at bank &
marketable securities.
Cash Ratio = Cash + Marketable securities
Current Liabilities
TABLE-1.3 Absolute Quick Ratio
Year
Quick Assets
Current Liabilities
Ratio
2004-05
2115880
42403714
0.04
2005-06
146183
9516509
0.15
2006-07
1266688
5474299
0.23
2007-08
1019325
12616200
0.08

INTERPRETATION
In the year 2004-05 ratio was 0.04 in the year 2005-06 increased o.15. in the year
2006-07 increased o.23. in the year 2007-08 again decreased 0.08 . there fore
company position is unfavorable.
Table 1.3 reveals that absolute quick ratio is below the standard ratio i.e. 0.5:1
indicates that 50 paisa worth of absolute liquidity assets are sufficient to meet one
rupee worth of current liabilities.
A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS
PVT LTD, RAICHUR
Babasabpatilfreepptmba.com Page 60
4. Net Working capital ratio
Net Working capital ratio is the relationship between net working capital to its net
assets. The different between current asset & current liabilities excluding short term
borrowing is called net working capital (NWC) or net current assets.
NWC = Net Working Capital
Net Assets
TABLE-1.4 Net Working Capital Ratio
Year
NWC
Net Asset
Ratio
2004-05
17755317
65071495
0.27
2005-06
18805206
88085255
0.21

2006-07
22837353
822771402
0.02
2007-08
36751213
98137066
0.37
INTERPRETATION
In the year 2004-05 ratio was 0.02 in the year 2005-06 decreased 0.5. in the year
2006-07 increased 0.26. in the year 2007-08 again increased 0.37 . there fore
company position is unfavorable.
Table 1.3 reveals that absolute quick ratio is below the standard ratio i.e. 0.5:1
indicates that 50 paisa worth of absolute liquidity assets are sufficient to meet one
rupee worth of current liabilities.
In Relation to Sales
Gross Profit Ratio
G.P.Ratio measures the relationship between gross profits & sales; it is usually
represented in percentage. Thus Gross profit margin highlights the production
efficiency at a concern
G.P.Ratio = Gross Profit X 100
Sales
G.P.Ratio indicate the extent to which selling price of goods per unit may decline
without resulting in losses on operations of firm. It reflect efficiency with which firm
produces the product.
TABLE-3.1 Gross Profit Ratio
Year
Gross Profit
Sales

Ratio
2004-05
3218328
125946615
2.55
2005-06
5556628
108477129
5.12
2006-07
3446889
107302000
3.212
2007-08
7459228
122909228
6.06
INRTEPRETATION
In the year 2004-05 ratio was 2.55 . in the year 2013-14 increased 5.12 and in the
year 2014-15 decreased 3.21 and 2007-08 increased 6.06.
Findings:1) Current ratio is favorable of the company.
2) Quick ratio is below the standard of ratio so for it is unfavorable of the company.
3) Cash ratio is fluctuating year by year .there fore un favorable of the company.
4) Gross profit is increasing year by year so it favorable of the company.

CONCLUSION
Today working capital is considered to be an important tool for progress. Working
capital management techniques are playing significant role in assistant the
management for design making. The study of working capital system at

sarvottam chemical PVT LTD is found to be very affective. The

working capital contains the management of cash, management of receivables and
management of inventory.

BIBOLOGRAPHY
Financial management by M.Y. Khan and P.K. Jain
Financial management by I.M. Pandey

A pro forma cost sheet of a company provides the following particulars:

Particulars Amount per unit
Elements of cost:
Raw materials Rs 80
Direct labour Rs 30
Overhead Rs 60
Total cost Rs 170
Profit Rs 30
Selling price Rs 200
The following further particulars are available: Raw materials in stock, on average,
one month; Materials in process (completion stage, 50 per cent), on average, half a
month; Finished goods in stock, on average, one month .Credit allowed by suppliers
is one month; Credit allowed to debtors is two months; Average time-lag in payment
of wages is 1.5 weeks and one month in overhead expenses; one-fourth of the
output is sold against cash; cash in hand and at bank is desired to be maintained at
Rs 3,65,000.You are required to prepare a statement showing the working capital
needed to finance a level of activity of 1,04,000 units of production. You may assume
that production is carried on evenly throughout the year ,and wages and overheads
accrue similarly. For calculation purposes, 4 weeks may be taken as equivalent to a
month.
Solution 1:TABLE
13.2 Statement showing determination of net working capital
(A) Current assets:
(i) Stock of materials for 1 month: (1,04,000 Rs 80 4/52) Rs 6,40,000(ii) Work-inprogress for 0.5 month:(a) Material (1,04,000 Rs 80 2/52) 0.50 1,60,000(b)
Labour (1,04,000 Rs 30 2/52) 0.50 60,000(c) Overheads (1,04,000 Rs 60
2/52) 0.50 1,20,000(iii) Finished goods for 1 month: (1,04,000 Rs 170 4/52)
13,60,000(iv) Debtors for 2 months (78,000 Rs 170 8/52) 20,40,000(v) Cash in
hand and at bank 3,65,000Total investments in current assets 47,45,000
(B) Current liabilities:
(i) Creditors, 1 months purchase of raw materials, (i.e. 1,04,000 Rs.80 4/52)
6,40,000(ii) Average time-lag in payment of expenses(a) Overheads (1,04,000 Rs
60 4/52) 4,80,000(b) Labour (1,04,000 Rs 30 3/104) 90,000Total estimate of
current liabilities 12,10,000
(C)Net working capital = Current assets
Current liabilities (A B) 35,35,000
Working Notes and
Assumptions
(i) 26,000 units have been sold for cash. Therefore, credit sales pertain to 78,000
units only.(ii) Year has 52 weeks.(iii) All overheads are assumed to be variable.
Presence of depreciation element in overheads will lower the working capital
requirement

Needs and importance of working capital

2. Enhance Goodwill
Sufficient working capital enables a business concern to make prompt payments
and hence helps in creating and maintaining goodwill. Goodwill is enhanced
because all current liabilities and operating expenses are paid on time.
3. Easy Obtaining Loan
A firm having adequate working capital, high solvency and good credit rating can
arrange loans from banks and financial institutions in easy and favorable terms.
4. Regular Supply Of Raw Material
Quick payment of credit purchase of raw materials ensures the regular supply of
raw materials fro suppliers. Suppliers are satisfied by the payment on time. It
ensures regular supply of raw materials and continuous production.
5. Smooth Business Operation
Working capital is really a life blood of any business organization which maintains
the firm in well condition. Any day to day financial requirement can be met without
any shortage of fund. All expenses and current liabilities are paid on time.
6. Ability To Face Crisis
Adequate working capital enables a firm to face business crisis in emergencies such
as depression.
list of current assets

Cash Cash is all coin and currency a company owns. This includes all of the
money in a companys bank account, cash registers, petty cash drawer, and
any other depository. This can include domestic or foreign currencies, but
investments are not included.
Cash Equivalents Cash equivalents are investments that are so closely
related to cash and so easily converted into cash, they might as well be
currency. An example of an equivalent is a US Treasury Bill. T-bills can be
exchanged for cash at any point with no risk of losing their value.
Accounts Receivable Accounts receivable is essentially a short-term loan to
customers and vendors who purchase goods on account. Typically,
customers can purchase goods and pay for them in 30 to 90 days. Accounts
receivable keeps track of these loans.

Inventory Inventory is the merchandise that a company purchases or

makes to sell to customers for a profit. This could be anything from pencils
to cars to houses. It depends on the business. For example, a car dealership
is in the business of reselling cars. Thus, their cars are considered inventory,
even though they have plenty of pencils in their offices.
Prepaid Expenses Prepaid expenses are exactly what they sound like
expenses that have been paid before they were consumed. Insurance is a
good example. A six-month insurance policy is usually paid for up front even
though the insurance isnt used for another six months. Even though these
assets will not actually be converted into cash, they will be consumed in the
current period.
Investments Investments that are short-term in nature and expected to be
sold in the current period are also included in this category. These typically
include investments in stock called available for sale securities.
Notes Receivable Notes that mature within a year or the current period are
often grouped in the current assets section of the balance sheet.
Due from Officer Notes Often times the officers or owners loan money to
the company on a short-term basis. These 90-180 day loans are typically
considered current.

Types of current liability

A:

The current liabilities of a company consist of debt obligations that are due within one year and
as such, play an important role in determining certain accounting and liquidity ratios of a
business. In order to meet ever pressing corporate governance standards, it is necessary for a
company to calculate current liabilities accurately so that the financial stability of a business can
be regularly calculated or estimated by current or potential shareholders.
Although the following examples do not constitute a full list of debt obligations, they represent
some of the most common current liabilities a company may be responsible for within the course
of a year.

Accrued Expenses

Some of the most common current liabilities of a company fall under the purview of accrued
expenses. These debt obligations can include accrued salaries or wages due to employees, real
estate or property taxes accrued, or interest accrued on loans or other financing each payable
within the year. Accrued federal, state and local taxes are also included in current liabilities.
Payroll Liabilities

Companies may be responsible for payroll liabilities that are due within the year. These current
liabilities can include employee federal, state or local income tax withheld, as well as FICA and
Medicare payments withheld for staff. Employer benefits such as retirement plan contributions or
health insurance premiums may also constitute current liabilities.
Company Liabilities

Some current liabilities stem from business financing activities. These can include dividends
payable, which are the dividends declared by a company's board of directors that have yet to be
paid out to shareholders, bank account overdrafts and other short-term advances from a financial
institution. Unearned revenue is also considered a current liability; these payments have been
advanced to the company, but the work still needs to be completed.