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WINTER TRAINING REPORT

ON

ACME GENERIC LLP

A study on working capital management at ACME GENERIC LLP

A project report submitted in partial fulfillment for the degree of


masters in Business Administration

Submitted By:
Sheetal
MBA-Finance
Batch 2015-2017

Under the guidance of:


Project Mentor:
Prof. Nandika dogra

Institute:-
HPURC,DHARAMSHALA,H.P

1
TABLE OF CONTENTS

S.No Chapters Page


No.
Acknowledgements 3

Abstract 4

Certificate of company 5

Declaration by student 6

1 Introduction 7-13

2 Company Profile : Acme Generic LLP 14-22

3 Working capital analysis and its appraisal 23-40

4 Research methodology 41-67

5 Problems and limitations 68-


69
6 Major Findings 70-72

7 Conclusion 73

8 Suggestion and recommendations 74


9 Bibliography 75

2
ACKNOWLEDGEMENT
Words are indeed inadequate to convey my deep sense of
gratitude to all those who have helped me in completing this
winter project to the best of my ability. Being a part of this
project has certainly been a unique and a very productive
experience on my part.

I am really thankful to Mr. Jitender patial Finance Manager for


making all kinds of arrangements to carry the project
successfully and for guiding and helping me to solve all kinds of
quarries regarding the project work. His systematic way of
working and incomparable guidance has inspired the pace of the
project to a great extent.

My sincere thanks and deepest appreciation to my mentor under


whose guidance I learnt a lot and he encouraged me to pursue
this project and helped me achieve a clearer structure of the
topic.
Last but not the least I am thankful to my institute HPU Regional
Centre, Dharamshala who granted me the permission of
taking corporate bridge project as my intership.

SHEETAL

MBA finance

Batch 2015-17

3
ABSTRACT

This project is based on the study of working capital


management in Acme generic llp. An insight view of the
project will encompass what it is all about, what it aims to
achieve, what is its purpose and scope, the various methods
used for collecting data and their sources, including
literature survey done, further specifying the limitations of
our study and in the last, drawing inferences from the
learning so far.

The working capital management refers to the management


of working capital, or precisely to the management of
current assets. A firms working capital consists of its
investments in current assets, which includes short-term
assetscash and bank balance, inventories, receivable and
marketable securities.

This project tries to evaluate how the management of


working capital is done in Acme through inventory ratios,
working capital ratios, trends, computation of cash,
inventory and working capital, and short term financing.

4
CERTIFICATE OF COMPANY

5
6
DECLARATION BY STUDENT

I hereby declare that the project entitled working capital


management: ACME GENERIC LLP submitted for the MBA
Degree is my original work and the project has not formed the basis for
the award of any degree, associate ship, fellowship or any other similar
titles.

Name of the student: SHEETAL

University roll no: 3154

Signature of the Student:

Date:

7
CHAPTER - 1
INTRODUCTION

Introduction of working capital


Purpose of study
Scope of the study
Significance of working capital
Source of working capital
Liquidity Vs. profitability: Risk Return trade off
Classification of working capital
Types of working capital needs
Factors determining working capital requirements
Working capital cycle
Working capital position
Inventory management
Cash management
Receivables management
Managing payables (Creditors)
Financing current assets
Working capital & short-term financing
Financing Current Assets

8
INTRODUCTION

The project undertaken is on WORKING CAPITAL MANAGEMENT


IN ACME GENERIC LLP
It describes about how the company manages its working capital
and the various steps that are required in the management of
working capital.

Cash is the lifeline of a company. If this lifeline deteriorates, so


does the company's ability to fund operations, reinvest and
meet capital requirements and payments. Understanding a
company's cash flow health is essential to making investment
decisions. A good way to judge a company's cash flow prospects
is to look at its working capital management (WCM).

Working capital refers to the cash a business requires for day-to-


day operations or, more specifically, for financing the conversion
of raw materials into finished goods, which the company sells for
payment. Among the most important items of working capital
are levels of inventory, accounts receivable, and accounts
payable. Analysts look at these items for signs of a company's
efficiency and financial strength.
The working capital is an important yardstick to measure the

9
companys operational and financial efficiency. Any company
should have a right amount of cash and lines of credit for its
business needs at all times.
This project describes how the management of working capital
takes place at
ACME

Working Capital is the Life-Blood and Controlling Nerve Center of


a business
The working capital management precisely refers to
management of current assets. A firms working capital consists
of its investment in current assets, which include short-term
assets such as:

Cash and bank balance,


Inventories,
Receivables (including debtors and bills),
Marketable securities.

Working capital is commonly defined as the difference between


current assets and current liabilities.

Working Capital = Current Assets-Current Liabilities

There are two major concepts of working capital:

Gross working capital

10
Net working capital

Gross working capital:


It refers to firm's investment in current assets. Current assets
are the assets, which can be converted into cash with in a
financial year. The gross working capital points to the need of
arranging funds to finance current assets.

Net working capital:


It refers to the difference between current assets and current
liabilities. Net working capital can be positive or negative. A
positive net working capital will arise when current assets
exceed current liabilities. And vice-versa for negative net
working capital. Net working capital is a qualitative concept. It
indicates the liquidity position of the firm and suggests the
extent to which working capital needs may be financed by
permanent sources of funds. Net working capital also covers the
question of judicious mix of long-term and short-term funds for
financing current assets.

OBJECTIVE OF STUDY

The objectives of this project were mainly to study the inventory,


cash and receivable at ACME GENERIC LLP., but there are some
more and they are -
The main purpose of our study is to render a better understanding of the
concept Working Capital Management.

To understand the planning and management of working capital at ACME.


To measure the financial soundness of the company by analyzing various
ratios.

11
To suggest ways for better management and control of working capital at
the concern.

SCOPE OF THE STUDY


This project is vital to me in a significant way. It does have some
importance for the company too. These are as follows

This project will be a learning device for the finance student.


Through this project I would study the various methods of
the working capital management.
The project will be a learning of planning and financing
working capital.
The project would also be an effective tool for credit policies
of the companies.
This will show different methods of holding inventory and
dealing with cash and receivables.
This will show the liquidity position of the company and also
how do they maintain a particular liquidity position.

Significance Of Working Capital


Management

12
IN C R E A
SE
E F FE C IE
IN C R E A S E NY EASY
IN F IX LO A N
ASSETS FROM
BANKS

IN C R E A S E S IG N IFIC A N --C E
DEBT O F W O R K IN G
C A PAC IT Y C A P ITA L

D IV ID E N D
D IS T R IB U -
T IO N
PAYM E N T
TO
S U P P LIE
RS

The management of working capital is important for several


reasons:
For one thing, the current assets of a typical manufacturing firm
account for half of its total assets. For a distribution company,
they account for even more.
Working capital requires continuous day to day supervision.
Working capital has the effect on company's risk, return and
share prices,
There is an inevitable relationship between sales growth and the
level of current assets. The target sales level can be achieved
only if supported by adequate working capital Inefficient working
capital management may lead to insolvency of the firm if it is
not in a position to meet its liabilities and commitments.

13
SOURCES OF WORKING CAPITAL
ACME has the following banks available for the fulfillment of its
working capital requirements in order to carry on its operations
smoothly:

Banks:
These include the following banks
SYNDICATE Bank
ICICI Bank

NAME OF THE BANK FUND NON-FUND


BASED BASED

SYNDICATE BANK 300 250

ICICI BANK 200 100

TOTAL 500 350

Liquidity Vs Profitability: Risk - Return trade


off

Another important aspect of a working capital policy is to


maintain and provide sufficient liquidity to the firm. Like the
most corporate financial decisions, the decision on how much
working capital be maintained involves a trade off- having a
large net working capital may reduce the liquidity risk faced by a
firm, but it can have a negative effect on the cash flows.
Therefore, the net effect on the value of the firm should be used
to determine the optimal amount of working capital.

14
Sound working capital involves two fundamental decisions for
the firm. They are the determination of:
The optimal level of investments in current assets.
The appropriate mix of short-term and long-term financing used
to support this investment in current assets, a firm should
decide whether or not it should use short-term financing. If
short-term financing has to be used, the firm must determine its
portion in total financing. Short-term financing may be preferred
over long-term financing for two reasons:

The cost advantage


Flexibility

But short-term financing is more risky than long-term financing.


Following table will summarize our discussion of short-term
versus long-term financing

Maintaining a policy of short term financing for short term or


temporary assets needs (Box 1) and long- term financing for

15
long term or permanent assets needs (Box 3) would comprise a
set of moderate risk profitability strategies. But what one gains
by following alternative strategies (like by box 2 or box 4) needs
to weighed against what you give up.

16
CLASSIFICATION OF WORKING CAPITAL
Working capital can be classified as follows:

On the basis of time


On the basis of concept

GOTSRPNK E E PE E I MR P
OREASGM C E SR A A N R
NN
YOTIRUET A N/ L V T A / R
ISLNVAFWD A I EA X B E L E
HWD O R
SEWLROS
KWORO I ON RG
CBOKRK AI R N P G I T
ARFKCI ALI P I
SKTNW A II L
NIGSO
GSCOR A
COPAF IA
AFTPC
K A I
I
PNLTI T A I
TO
TILANG
AMLC
LEC
A
PP
I
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A
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17
Types of Working Capital Needs

Another important aspect of working capital


management is to analyze the total working capital
needs of the firm in order to find out the permanent
and temporary working capital. Working capital is
required because of existence of operating cycle. The
lengthier the operating cycle, greater would be the
need for working capital. The operating cycle is a
continuous process and therefore, the working
capital is needed constantly and regularly. However,
the magnitude and quantum of working capital
required will not be same all the times, rather it will
fluctuate.

The need for current assets tends to shift over time.


Some of these changes reflect permanent changes in
the firm as is the case when the inventory and
receivables increases as the firm grows and the sales
become higher and higher. Other changes are
seasonal, as is the case with increased inventory
required for a particular festival season. Still others
are random reflecting the uncertainty associated with
growth in sales due to firm's specific or general
economic factors.

18
The working capital needs can be bifurcated as:
Permanent working capital
Temporary working capital

Permanent working capital:


There is always a minimum level of working capital, which
is continuously required by a firm in order to maintain its
activities. Every firm must have a minimum of cash, stock
and other current assets, this minimum level of current
assets, which must be maintained by any firm all the
times, is known as permanent working capital for that
firm. This amount of working capital is constantly and
regularly required in the same way as fixed assets are
required. So, it may also be called fixed working capital.

Temporary working capital:


Any amount over and above the permanent level of
working capital is temporary, fluctuating or variable
working capital. The position of the required working
capital is needed to meet fluctuations in demand
consequent upon changes in production and sales as a
result of seasonal changes.

19
The permanent level is constant while the temporary
working capital is fluctuating increasing and decreasing in
accordance with seasonal demands as shown in the
figure. In the case of an expanding firm, the permanent
working capital line may not be horizontal. This is
because the demand for permanent current assets might
be increasing (or decreasing) to support a rising level of
activity. In that case line would be rising.

20
FACTORS DETERMINING WORKING CAPITAL
REQUIREMENTS

There are many factors that determine working capital


needs of an enterprise. Some of these factors are
explained below:

Nature or Character of Business.


The working capital requirement of a firm is closely
related to the nature of its business. A service firm, like
an electricity undertaking or a transport corporation,
which has a short operating cycle and which sells
predominantly on cash basis, has a modest working
capital requirement. Oh the other hand, a manufacturing
concern like a machine tools unit, which has a long
operating cycle and which sells largely on credit, has a
very substantial working capital requirement.
Acme is a manufacturing concern so this requires them
to keep a very sizeable amount in working capital.

Size of Business/Scale of Operations.


Acme has a good position in its segment and they are
also spending their operations in the domestic market as
well as in foreign market. The scale of operations and the

21
size it holds in the market makes it a must for them to
hold their inventory and current asset at a huge level.

Rate of Growth of Business.


The rate of growth of sales indicates a need for increase
in the working capital requirements of the firm. As the
firm is projected to increase their sales by 69% from
what it was in 2015, it is required to guard them against
the increasing requirements of the net current asset by
way of efficient working capital management. The sales
and projected sales level determine the investment in
inventories and receivables.

Price Level Changes.


Changes in the price level also affect the working capital
requirements. It was the reduced margins in the price of
the raw materials that had prompted them to go for bulk
purchases thus making on additions to their net current
assets. They might have gone for this large-scale
procurement for availing discounts and anticipating a rise
in prices, which would have meant that more funds are
required to maintain the same current assets.

22
WORKING CAPITAL CYCLE

23
RAW MATERIAL

CASH
OPERATING CYCLE

RS & BILLS RECEIVABL-ES


WORK IN PROGRESS

SALES
FINISH GOODS

The upper portion of the diagram below shows in a


simplified form the chain of events in a manufacturing
firm. Each of the boxes in the upper part of the diagram
can be seen as a tank through which funds flow. These
tanks, which are concerned with day-to-day activities,
have funds constantly flowing into and out of them.
The chain starts with the firm buying raw materials on
credit.
24
In due course this stock will be used in production,
work will be carried out on the stock, and it will
become part of the firms work-in-progress.
Work will continue on the WIP until it eventually
emerges as the finished product.
As production progresses, labor costs and overheads
need have to be met.Of course at some stage trade
creditors will need to be paid.
When the finished goods are sold on credit, debtors
are increased.
They will eventually pay, so that cash will be injected
into the firm.
Each of the areas- Stock (raw materials, WIP, and
finished goods), trade debtors, cash (positive or
negative) and trade creditors can be viewed as
tanks into and from which funds flow.
Working capital is clearly not the only aspect of a
business that affects the amount of cash.
The business will have to make payments to
government for taxation.
Fixed assets will be purchased and sold
Lessors of fixed assets will be paid their rent
Shareholders (existing or new) may provide new
funds in the form of cash
Some shares may be redeemed for cash
Dividends may be paid
Long-term loan creditors (existing or new) may
provide loan finance, loans will need to be repaid
from time-to-time, and
Interest obligations will have to be met by the
business

25
Unlike, movements in the working capital items,
most of these non-working capital cash transactions
are not every day events. Some of them are annual
events (e.g. tax payments, lease payments,
dividends, interest and, possibly, fixed asset
purchases and sales). Others (e.g. new equity and
loan finance and redemption of old equity and loan
finance) would typically be rarer events.

INVENTORY MANAGEMENT
Inventories
Inventories constitute the most important part of the
current assets of large majority of companies. On an
average the inventories are approximately 60% of the
current assets in public limited companies in India.
Because of the large size of inventories maintained by the
firms, a considerable amount of funds is committed to
them. It is therefore, imperative to manage the
inventories efficiently and effectively in order to avoid
unnecessary investment.

Nature of Inventories
Inventories are stock of the product of the company is
manufacturing for sale and components make up of the

26
product. The various forms of the inventories in the
manufacturing companies are:

Raw Material:
It is the basic input that is converted into the finished
product through the manufacturing process. Raw
materials are those units which have been purchased and
stored for future production.

Work-in-progress:
Inventories are semi-manufactured products. They
represent product that need more work they become
finished products for sale.

Finished Goods:
Inventories are those completely manufactured products
which are ready for sale. Stocks of raw materials and
work-in-progress facilitate production, while stock of
finished goods is required for smooth marketing
operations. Thus, inventories serve as a link between the
production and consumption of goods.

Inventory Management Techniques

27
In managing inventories, the firms objective should be to
be in consonance with the shareholder wealth
maximization principle. To achieve this, the firm should
determine the optimum level of inventory. Efficiently
controlled inventories make the firm flexible. Inefficient
inventory control results in unbalanced inventory and
inflexibility-the firm may sometimes run out of stock and
sometimes pile up unnecessary stocks.

Economic Order Quantity (EOQ):


The major problem to be resolved is how much the
inventory should be added when inventory is replenished.
If the firm is buying raw materials, it has to decide lots in
which it has to purchase on replenishment. If the firm is
planning a production run, the issue is how much
production to schedule. These problems are called order
quantity problems, and the task of the firm is to
determine the optimum or economic lot size. Determine
an optimum level involves two types of costs:-

Ordering Costs: This term is used in case of raw


material and includes all the cost of acquiring raw
material. They include the costs incurred in the following
activities:

Requisition
Purchase Ordering
Transporting
Receiving
28
Inspecting
Storing

Ordering cost increase with the number of orders placed;


thus the more frequently inventory is acquired, the higher
the firms ordering costs. On the other hand, if the firm
maintains large inventorys level, there will be few orders
placed and ordering costs will be relatively small. Thus,
ordering costs decrease with the increasing size of
inventory.

Carrying Costs: Costs are incurred for maintaining a


given level of inventory are called carrying costs. These
include the following activities:

Warehousing Cost
Handling
Administrative cost
Insurance
Deterioration and obsolescence

ABC System
ABC system of inventory keeping is followed in the
factories. Various items are categorized into three
different levels in the order of their importance. For e.g.
items such as memory, high capacity processors and
royalty are placed in the A category. Large number of
firms has to maintain several types of inventories. It is
not desirable the same degree of control all the items.
29
The firm should pay maximum attention to those items
whose value is highest. The firm should therefore, classify
inventories to identify which items should receive the
most effort in controlling. The firm should be selective in
approach to control investment in various types of
inventories. This analytical approach is called ABC
Analysis. The high-value items are classified as A items
and would be under tightest control. C items represent
relatively least value and would require simple control.
B items fall in between the two categories and require
reasonable attention of management.

CASH MANAGEMENT IN ACME


GENERIC LLP.
The cash management system followed by the ACME is
mainly lock box system.
Cash Management System involves the following
steps:

30
The branch offices of the company at various
locations hold the collection of cheques of the
customers.
Those cheques are either handed over to the CMS
agencies or bank of the particular location take
charge of whole collection.
These CMS agencies or bank send those cheques to
the clearing house to make them realized. These
cheques can be local or outstation.
The CMS agencies or bank send information to the
central hub of the company regarding
realization/cheque bounced.
The central hub passes on the realized funds to the
company as per the agreed agreements.
The CMS agencies or concerned bank provides the
necessary MIS to the company as per requirement.
In cash management the collect float taken for the
cheques to be realized into cash is irrelevant and non-
interfering because banks such as Standard Chartered,
HDFC and CitiBank who give credit on the basis of these
cheques after charging a very small amount. These
credits are given to immediately and the maximum time
taken might be just a day. The amount they charge is
very low and this might cover the threat of the cheque
sent in by two or three customers bouncing. Even
otherwise the time taken for the cheques to be processed
is instantaneous. Their Cash Management System is quite
efficient.

Financing Current Assets


31
The firm has to decide about the sources of funds, which
can be availed to make investment in current assets.

Long term financing:


It includes ordinary share capital, preference share
capital, debentures, long term borrowings from financial
institutions and reserves and surplus.

Short term financing:


It is for a period less than one year and includes working
capital funds from banks, public deposits, commercial
paper etc.
Depending on the mix of short and long term financing,
the company can follow any of the following approaches.

Matching Approach
In this, the firm follows a financial plan, which matches
the expected life of assets with the expected life of
source of funds raised to finance assets. When the firm
follows this approach, long term financing will be used to
finance fixed assets and permanent current assets and
short term financing to finance temporary or variable
current assets.

Conservative Approach
In this, the firm finances its permanent assets and also a
part of temporary current assets with long term financing.
In the periods when the firm has no need for temporary
current assets, the long-term funds can be invested in

32
tradable securities to conserve liquidity. In this the firm
has less risk of facing the problem of shortage of funds.

Aggressive Approach
In this, the firm uses more short term financing than
warranted by the matching plan. Under an aggressive
plan, the firm finances a part of its current assets with
short term financing.

33
CHAPTER - 2
ACME GENERICS LLP
(ORAL SOLID DOSAGE FACILITY)

OVERVIEW
HISTORY

CILENTS
EMPLOYEE STRENGHTH

LIFE
MISSION ,VISION

PRODUCTS

ACCREDITATION

34
HISTORY

Contract pharmaceutical manufacturing business


established in 2003 in strategic location of northern India
(Tax Exempted Zones)
First Manufacturing Solid Dosage Facility
(Tablets/Capsules) with built up area of more than 50000
sq. ft, commenced operation in 2004
Solid Dosage facility received WHO GMP certification in
Feb 2005
Expanded in solid dosage facility with a dedicated block
for hormonal products in Tablets in Nov. 2007
New Facility compliant to UK MHRA & USFDA for Oral
Liquid & External Preparation with built up area of more
than 150000 sq. ft, commenced operation in March 2008
Construction for New Formulation Development
Laboratory & Analytical Method Development Laboratory,
initiated in April 2008

MAJOR MACHINES & CAPABILITIES


In the Production area, all the equipment having contact
parts with the product, in manufacturing, are made of SS
316L. Equipments have been designed with ease of
cleaning in mind in each area of the production. Most of
the critical equipments like Rapid Mixer Granulator, Fluid

35
Bed Driers, Octagonal Blender, Compression Machines
with AWC, Automatic Coating Machines, Automatic
Capsule Filling Machines, Blister Packing Machines with
visual inspection system & Strip Packing Machines with
NFD are PLC controlled.

COMPRESSION AREA
It has installed various Tablet Compression Machines:

One Compression machine 31 D with capacity


223220 to 139500 tab/hr
One Compression machine 37 B with capacity 26640
to 166500 tab/hr
One Compression machine 45 station, B tooling with
capacity 324000/81000 max/min.
2 Compression machines 51 station, D tooling with
capacity 490000/91800 max/min
2 Compression machines 65 station, B tooling with
capacity 1,17,000/6,24,00 max/min
Twelve number of Deduster cum Metal Detectors
(Make Unique Equipment) with capacity 9999
tab/min are equipped with compression machines.

COATING
Coating Machines of different sizes are also equipped
along with other allied equipments.

36
One Coating pan of 60 inches with capacity of 300 Kgs
2 Coating pan of 48 inches with capacity of 140 Kgs
One Coating pan of 36/24 inches with capacity of 18-55
Kgs

CAPSULE FILLING

Fully Automatic Capsule Filling Machine AF-90 T (Make


PAM) is also equipped with capacity of 90000
capsules/hour.
Coating Machines of different sizes are also equipped
along with other allied equipments.

One Coating pan of 60 inches with capacity of 300 Kgs


2 Coating pan of 48 inches with capacity of 140 Kgs
One Coating pan of 36/24 inches with capacity of 18-55
Kgs
The judicious selection and orientation of equipments and
machinery are capable of offering exhaustive range of
oral solid dosage forms i.e. tablets (of any shape, size and
types) and filled hard gelatin capsules (of various size).

PACKING
37
It also has ten packing lines consisting of 7 Blister
packing machines and two Strip packing machine.

QUALITY CONTROL
(EQUIPMENTS AND
INSTRUMENTS)

In Quality Control Laboratory, the major instruments like


06 HPLCs (server) Make Shimadzu/Prominence, One
UV/Visible Spectrophotometer Make Agilent, 02 GC Make
Agilent/Agilent Cary-630, TOC analyzer, FTIR, Karl Fisher
Titrator, Autoclave, UV Cabinets etc. are computer
software controlled complying to 21 CFR Part 11.
Microbiology section has dedicated facility for microbial
testing having critical equipments/instruments like
Double door HPHV Steam Sterilizer, Incubators, LAF, Bio-
safety Cabinets etc.

Stability Section has 04 Walk-in Stability Chambers (for


accelerated, intermediate, long term and stand by) Make
THERMOLAB for storage conditions/country specific
requirement for conducting stability studies.
38
PROCUREMENT AND STORAGE
Raw/Packing materials are procured only from vendors
adhering to stringent quality standards. Evaluation of
vendor statistics is updated on a regular interval ensuring
quality control over receivables. Materials received are
subjected to rigorous quality checks and are then moved
to a designated storage area for later consumption in
production.

CLIENTS

39
EMPLOYEE STRENGTH
Acme Generics

40
LIFE @ ACME

Acme is an innovative and entrepreneurial organization,


built on the expertise of its people. We are committed to
attracting and retaining the best employees who help us
deliver reliable and high-quality service to our
international clients. In addition to competitive salaries
and benefit packages, we offer our employees an exciting
and dynamic work environment.

Acme is a truly leading contract manufacturing player,


with two manufacturing facilities in Himachal Pradesh. We
invite you to explore our Current Openings and to
consider joining our team of more than 250 employees.

41
MISSION & VISION

MISSION
To achieve the highest standards in Quality and
Regulatory so as to get certified from US FDA, EU-
GMP/UK-MHRA, TGA, ANVISA, PIC'S and many more.

VISION
To become a global leader in pharmaceutical contract
manufacturing and also developing & manufacturing
highest quality pharmaceutical products with ethical
standards and keeping in mind the social responsibilities
to contribute to the better health care of the society.

PRODUCTS
Cardiovascular Drugs/hypertension
Analgesics/pain Management
Enzyme
Urinary Tract Related Drugs
Liver Drugs

42
Antacids/gastrology/antivertigo
Anticold/antiallergic
Antidiabetic
Vitamins & Iron Supplements
Hpylori Kits
Gynaecology & Female Hormonal Products
Antibiotics
Antifungals
Calcium Preparation
Central Nervous Drugs
Anti-Obesity Drugs
Drugs Used In Gout
Laxative
Erectile Dysfunction
Anti Malaria
Peripheral Neuropathy
Thyroid Management

ACCREDITATIONS
PHARMACY AND POISONS BOARD

43
Kenya
03 & 04.08.2014

TANZANIA FOOD AND DRUG AUTHORITY


Tanzania
31.03.2012
PHARMACY AND POISONS BOARD

QUAMED AUDIT WHO GMP


Belgium
22,23 & 24.04.2015

CHAPTER 3

44
ANALYSIS

OF

WORKING CAPITAL

AND

ITS VARIOUS
COMPONENT

45
WORKING CAPITAL POSITION ANALYSIS
IN ACME GENERIC LLP

Net working Capital ( CURRENT ASSETS CURRENT


LIABILITIES)

(Rs.in lacks)

YEAR 31.03.14
31.03.15 31.03.16

CURRENT ASSETS

INVENTORIES 180.26
291.13 653.95

SUNDRY DEBTORS 114.33


390.84 219.79

CASH AND BANK 10.81


34.30 28.22

OTHER CURRENT ASSETS 6.67


28.08 21.99

LOANS & ADVANCES 21.44


78.74 83.92

46
--------------
-------------- -------------

TOTAL CURRENT ASSESTS 333.51


823.09 1008.67

--------------
-------------- --------------

LESS:-

CURRENT LIABILITIES AND PROVISIONS

Short term borrowing 94.54


336.70 315.76

Sundry creditors 159.49


256.33 305.99

Advanced received 25.30 18.16


59.88

Provisions 21.56
59.05 64.05

Instalments of term loan 14.66


21.11 72.00

Other current liabilities 16.82


29.36 70.34

--------------
-------------- ----------

TOTAL CURRENT LIABILITIES 332.37


720.71 888.02

47
----------------
---------------- --------

NET WORKING CAPITAL 1.14


102.38 120.65

NET WORKING CAPITAL


150
3
100 2
AMOUNT(IN LACKS)
50 102.38 120.65

0 1
1.14
2014 2015 2016
YEAR

Data Interpretation:

If we analysis the three years working capital position


of the company, we find out that company has
sufficient working capital to meets its short term
liability, it is good indicator for the company but in
2015, working capital is increased by 101.24 lacs
which shows that a sufficient amount has been
blocked in working capital which could be used for
some other more beneficial purpose.

48
INVENTORY ANALYSIS

Inventory means stock of three things :-


Raw materials
Semi finished goods.
Finished goods.

Position of inventory in acme generic llp

(rs.in lakh)

YEAR 31.03.14
31.03.15 31.03.16

Stores, Spare Parts etc. 10.10 .


87 25.57

Stock In trade-

Finished Goods 37.04


26.93 41.76

Raw Materials 78.74


184.53 340.08

49
Material under process 54.38
78.80 246.54

---------------
---------------- -------------

180.26
291.13 653.95

-------------------
---------------- ------------- Analysis through chart:

800

600

AMOUNT (IN LACKS) 400

200

0
2014 2015 2016
YEAR

INTERPRETATION:

50
By analyzing the 3 years data, We are looking
increasing pattern in inventories. We can see that
inventories are increased from 180.26 lacs to 291
lacs in the year 2015 and in the year 2016 it is
increased from 291 lacs to 653 lacs. By seeing this
pattern we can say that the company is managing
the inventory according to the sale. Company have a
great demand for the medicine in the year 2010 that
is biggest reason for increase in inventories. From
other point of view we can say that the liquidity of
firm is blocked in inventories but to stock is very
good due to uncertainty of availability of raw
material in time.

SUNDRY DEBTORS ANALYSIS

Debtors or an account receivable is an important


component of working capital and fall under current
assets. Debtors will arise only when credit sales are
made.

Position of ACME GENERIC LLP.

(Rs.in lacks)

51
YEAR 31.03.14
31.03.15 31.03.16

Sundry Debtors 114.33 390.84


219.79

-------------
------------- ---- --------

114.33
390.84 219.79

---------------
---------------- ----------

Analysis through chart:

400

300

200
AMOUNT ( IN LACKS)
100

0
2014 2015 2016
YEAR

INTERPRETATION:

52
In the table and figure we see that there is rise in
the debtors in the year 2015 and decrease in the
year 2016. A simple logic is that debtors increase
only when sales increase and decrease if sales
decrease. In the year 2015, sales is increased by
72.30% and decreased by 19.24% in the year 2016.
We can say that it is a good sign as well as negative
also. Company policy of debtors is very good but a
risk of bad debts is always present in high debtors.
when sales is increasing with a great speed the profit
also increases. If company decreases the Debtors
they can use the money in many investment plans.

CASH AND BANK BALANCE ANALYSIS

Cash is called the most liquid asset an vital current


assets, it is an important component of working capital. In
a narrow sense, cash includes notes, bank draft, cheque
etc while in a broader sense it includes near cash assets
such as marketable securities and time deposits with
bank.

Position of Cash and Bank Balance in Acme generic llp

53
(Rs.in lacks)

YEAR 31.03.14 31.03.15


31.03.16

Cash Balance in hand 1.45 27.30


2.90

Bank Balance-
With Scheduled Banks 9.36 7.00
26.12

-------------
------------- ------------

10.81 34.30
29.02

------------- -------------
------------

Analysis through chart:

54
35
30
25
20
AMOUNT ( IN LACKS ) 15
10
5
0
2014 2015 2016
YEAR

INTERPRETATION:

If we analyze the above table and chart we find that


it follows a uneven pattern. In the year 2014 it had
maintained a low amount of cash and bank balance.
But in the year 2015, cash and the bank balances
has increased from 10.81 lacs to 34.30 lacs which is
not a good sign for the company because it shows
that company is not using its cash for beneficial
activities. Although, in the year 2016, cash has
reduced from 34.30 lacs to 29.02 lacs but this is very
good sign for company because they are not holding
the cash in hand but using the cash for better
projects, but still it is not conducive. From the other
point of view, company will not face the problem of
liquidity as company is maintaining the cash
balance.

55
CURRENT LIABILITIES ANALYSIS

Current liabilities are any liabilities that are incurred by


the firm on a short term basis or current liabilities that
has to be paid by the firm with in one year.

Position of Other Current Liabilities in Acme generic llp

(Rs.in lacks)

YEAR 31.03.14 31.03.15


31.03.16

Current Liabilities
Sundry Creditors 159.49 256.33
305.99
Bank Loan 94.54 336.70
315.76
Advance Received 25.30 18.16
59.88

56
Provisions for taxes 21.56 59.05
64.05
Other Liabilities 16.82 29.36
70.34
----------------- -----------------
--------------
332.37 720.71
888.02
----------------- -----------------
---------------
Analysis through chart:

1000
800

AMOUNT ( IN600
LACKS ) 400

200
0
2014 2015 2016
YEAR

INTERPRETATION

If we analyze the above table then we can see that it


follow an uneven trend. The important component of
current liabilities is sundry creditors and other
liabilities. In 14-15 it decreased from 359.41 lacs to

57
256.33 lacs and in 15-16 it increased from 256.33
lacs to 305.99 lacs. This is liability for company so
this should be less. when company have minimum
liabilities it creates a better goodwill in market. High
current liabilities indicate that company is using
credit facilities by creditors.

BANK LOANS AND ADVANCES


ANALYSIS

Position of Bank Loans & Advances in Acme generic llp

(Rs.in lacks)

YEAR 31.03.14 31.03.15


31.03.16

Bank Loan 94.54 336.70


315.76
Advances from the customers 25.30 18.16
59.88
---------------
--------------- ------------

58
122.84
354.86 375.64
--------------
---------------- -----------

Analysis through chart:


400
350
300
250
AMOUNT ( IN LACKS ) 200
150
100
50
0
2014 2015 2016
YEAR

INTERPRETATION

If we analyze the table and the chart we can see


that it follows an increasing trend which is not a
good sign for the company. We can see that from the
year 2014 to 2015 it increased more than double.
The increasing pattern shows that company is taking
loan for the expansion of plants and machinerecy
which is not a good sign because company depends
on the external source. On the other hand, company
59
has reduced the bank loan in 2016 and increase in
advances received from the customer, this is good
sign for company

Working capital
ratio

And

Its
Interpretation

60
Position of WORKING CAPITAL
RATIO Acme generic llp

FORMULA:

INVENTORY +
RECIVEABLE PAYABLE
WORKING CAPITAL RATIO=
----------------------------------------------------------
(AS % OF SALES)
SALES

YEAR 31.03.14 31.03.15


31.03.16

61
WORKING CAPITAL RATIO 18 32
53

Analysis through chart:

60

50

40

30
AS %
20

10

0
2014 2015 2016
YEAR

INTERPRETATION:

This ratio indicates whether the investments in


current assets or net current assets ( i.e., working
capital ) have been properly utilized. In order words it
62
shows the relationship between sales and working
capital. Higher the ratio lower is the investment in
working capital and higher is the profitability. But too
high ratio indicates over trading.
This ratio is an important indicator about the working
capital position. Now if we analyze the three years
data, we find that it follows an increasing trend which
means that its investment in working capital is lower
and the company is utilizing more of its profit. But we
find that ratio is increasing at a very fast rate which
is not a good sign for the company and the company
is required to look into these matters closely.
Position of CURRENT RATIO in Acme
generic llp

FORMULA:
TOTAL CURRENT ASSET
CURRENT RATIO= ---------------------------------------
TOTAL CURRENT LIABILITIES

YEAR 31.03.14 31.03.15


31.03.16
CURRENT RATIO 1.00 1.14
1.14
63
Analysis through chart:

1.2
1.15
1.1
1.05
1
0.95
0.9
2014 2015 2016
YAER

INTERPRETATION

This ratio reflects the financial stability of the


enterprise. The standard of the normal ratio is 2:1
but in most of companies standard is taken according
to Tandon Committee which is taken as 1.33:1.
Now if we analyze the three years data it can be
predicted that it holds a stable position all through
out period but it is seen that it holds a low position
than the standard one and the company is required
to improve its position.

64
Position of QUICK RATIO in Acme
generic llp

FORMULA:

TOTAL CURRENT ASSETS -


INVENTORIES
QUICK RATIO=
-----------------------------------------------------------------
TOTAL CURRENT
LIABILITIES

YEAR 31.03.14 31.03.15


31.03.16

QUICK RATIO 0.46 0.74


0.40

Analysis through chart

65
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2014 2015 2016
YEAR

INTERPRETATION:
It is the ratio between quick liquid assets and quick
liabilities. The normal value for such ratio is taken to
be 1:1. It is used as an assessment tool for testing
the liquidity position of the firm. It indicates the
relationship between strictly liquid assets whose
realizable value is almost certain on one hand and
strictly liquid liabilities on the other hand. Liquid
assets comprise all current assets minus stock.

By analyzing the three years data it can be said that


its position was weak in the year 2014 but it
improved significantly in the next year and again it is
declined during the 2016. It is to be said that it does
not meet with the standard but in the year 2015 it
was very close to the standard and it can be said that
its liquidity position is not good & stable.

66
Position of CURRENT ASSETS TO
FIXED ASSETS RATIO in Acme
generic llp

FORMULA:
CURRENT ASSETS
CA TO FA RATIO = -----------------------------
FIXED ASSETS

YEAR 31.03.14 31.03.15


31.03.16

CATO FA RATIO 1.65 2.93


3.21

Analysis through chart:

67
3.5
3
2.5
2
DAYS 1.5
1
0.5
0
2014 2015 2016
YEAR

INTERPRETATION:
Assuming a constant level of fixed assets, a higher
CA/FA ratio indicates a conservative current assets
policy and a lower CA/FA ratio means an aggressive
current assets policy assuming other factors to be
constant. A conservative policy i.e. higher CA/FA ratio
implies greater liquidity and lower risk; while an
aggressive policy i.e. lower CA/FA ratio indicates
higher risk and poor liquidity.
Now if we analyze the three year data we find the CA
TO FA Ration in increasing pattern, so we can say
that company is following the conservative policy to
finance its short term capital requirement.

68
Position of INVENTORY TURNOVER
RATIO in Acme generic llp

Formula:

AVERAGE STOCk
STOCK TURN OVER RATIO ( IN DAYS )=
------------------------------------------ * 365
COST
OF GOODS SOLD

YEAR 31.03.14
31.03.15 31.03.16

INVENTORY TURNOVER RATIO 104 79


227
( in Days)

Analysis through chart:


69
250

200

150
DAYS 100

50

0
2014 2015 2016
YEAR

INTERPRETATION:
This ratio tells the story by which stock is converted
into sales. A high stock turnover ratio reveals the
liquidity of the inventory i.e., how many times on an
average, inventory is turned over or sold during the
year. If a firm maintains a minimum stock level in
order to maximize sales by quick rotation of
inventory and the holding cost of inventory will be
minimum. A low stock turn over ratio reveals
undesirable accumulation of obsolete stock.

By analyzing the three year data it seen that it


follows an uneven trend. We see that it is reduced to
79 from the 104 days in 2014 and in 2015 it is
increased by 148 days, Which is not a good indicator
for the company. Company should have to reduce the

70
inventory conversion period in order to reduce the
cost.

Position of RECEIVABLE RATIO in


Acme generic llp

FORMULA:
DEBTORS
RECEIVABLE RATIO = ---------------- * 365
SALES

YEAR 31.03.14
31.03.15 31.03.16
RECEIVABLE RATIO (IN DAYS) 54 70
104

Analysis through chart:

71
120
100
80
60
DAYS
40
20
0
2014 2015 2016
YEAR

INTERPRETATION:

Generally a low debtors turnover ratio implies that it


considered congenial for the business as it implies
better cash flow. The ratio indicates the time at
which the debts are collected on an average during
the year. Needless to say that a high Debtors
Turnover Ratio implies a shorter collection period
which indicates prompt payment made by the
customer.

Now if we analyze the three year data we can say


that it holds a good position while receiving its
money from its debtors. The ratios are in an
decreasing ternd, which implies that recovery
position is not good company and Company have to
reduce the receivable period.

72
Position of PAYABLE RATIO in Acme
generic llp

FORMULA:
CREDITORS
PAYABLE RATIO= ----------------------------- * 365
COST OF SALES

YEAR 31.03.14
31.03.15 31.03.16

PAYABLE RATIO (IN DAYS) 92 69


135

73
Analysis through chart:

160
140
120
100
80
DAYS
60
40
20
0
2014 2015 2016
YAER

INTERPRETATION:

Actually this ratio reveals the ability of the firm to


avail the credit facility from the suppliers throughout
the year. Generally a low creditors turnover ratio
implies favorable since the firm enjoys lengthy credit
period
Now if we analyze the three years data we find that
in the year 2015 the ratio was very high which
means that its position of creditors that year was not
good, but in the 2016 it is seen that it has followed a

74
decreasing trend which is very good sign for the
company. So we can say it enjoys a very good credit
facility from the from the suppliers.

RESEARCH

METHODOLOGY
75
RESEARCH METHODOLOGY:-
A research method is a systematic plan for conducting
research. Sociologists draw on a variety of
bothqualitative and quantitative research methods,
including experiments, survey research, participant
observation, and secondary data. Quantitative methods
aim to classify features, count them, and create statistical
models to test hypotheses and explain observations.
Qualitative methods aim for a complete, detailed
description of observations, including the context of
events and circumstances.

PRIMARY RESEARCH
Primary research is designed to meet your unique and
specific needs. The research is conducted by you, or by a
research firm you hire for the project. The research can
include focus groups, surveys, interviews, and
observations.

76
SECONDARY RESEARCH
Secondary market research is when you use previously
completed studies and apply the results to your own
situation. It's easy to find using the internet or research
journals and is usually free or low cost. The drawback for
businesses is that the results are not specific to your
business, and you may not be aware of all of the
variables involved. The results may also be broader than
your company's niche, making to more difficult to help
inform your business decisions.

This project requires a detailed understanding of the


concept Working Capital Management. Therefore,
firstly we need to have a clear idea of what is
working capital, how it is managed in ACME, what are
the different ways in which the financing of working
capital is done in the company.

The management of working capital involves


managing inventories, accounts receivable and
payable and cash. Therefore one also needs to have
a sound knowledge about cash management,
inventory management and receivables
management.

Then comes the financing of working capital


requirement, i.e. how the working capital is financed,
77
what are the various sources through which it is
done.

And, in the end, suggestions and recommendations


on ways for better management and control of
working capital are provided.

The Problems
In the management of working capital, the firm is faced
with two key problems:

First, given the level of sales and the relevant cost


considerations, what are the optimal amounts of cash,
accounts receivable and inventories that a firm should
choose to maintain?

78
Second, given these optimal amounts, what is the
most economical way to finance these working capital
investments? To produce the best possible results,
firms should keep no unproductive assets and should
finance with the cheapest available sources of funds.
Why? In general, it is quite advantageous for the firm
to invest in short term assets and to finance short-term
liabilities.

LIMITATION OF THE STUDY

We cannot do comparisons with other companies


unless and until

79
we have the data of other companies on the same
subject.

Only the printed data about the company will be


available and not the backend details.

Future plans of the company will not be disclosed to


the trainees.

Lastly, due to shortage of time it is not possible to


cover all the factors and details regarding the subject
of study.

The latest financial data could not be reported as the


companys websites have not been updated.

MAJOR FINDINGS

Statement Showing Difference from Previous Year

(amt. in lacks)

Particulars 14-15 15-16

80
Working Capital 102 121

by by
5000% 19%

Sales 1323 -1069

by 72% by
19.10
%

Current Assets 823 1009

Sundry Debtors 391 220 by 146% by


23%
by 243% by 44%

Inventories 291 654

by 62% by 125%

Cash & Bank 34 -29

by 209% by 15%

Bank Loan and 107 106


Advances
by 269% by .93

Current Liabilities 721 888

by 117% by
23%
Sundry Creditors 256 306

by 42% by 19.53%

Bank Loan and 355 376

Advances by 196% by 6%

81
Provisions & 80.16 136

Deposits by121.31% by70%

Other Liabilities 29.36 70.34

by 74.55% by 139.5%

Working Capital is increased by 19% only in 2015-


2016 as compare to 5000% increase in 2014-15 and
if we analysis the working capital with sales, the
sales is decreased by 19% in 2015-16, thats why
working capital is increased by 19% only.

Current assets and Current liabilities are increased by


23% in 2015-16 as compare to previous year but
current assets are increased by 146% in 2014-15 as
compare to 117% increase in current liabilities, so we
can say that working capital is increased because of
increase in current assets.

Inventory is increased by 125% in 2015-16 as


compare to 2014-15, so we can say that current
assets are increased due to the increase in the
inventory.

82
Cash and the bank balances are decreased by 15%
which shows company might face the liquidity
problem.

Debtors are decreased by 44% in 2015-16 whereas


creditors are increased by 19.37% in 2015-16, which
shows that company enjoys the good payable period
and goodwill among the creditors.

Bank loan and Advances are increased by 6% only as


compare to 196% increase in 2015-16, which shows
that company using more of its debt to fund the
short term requirement.

CONCLUSION
The working capital position of the company is sound and the
various sources through which it is funded are optimal

The company has used its purchasing, financing and investment


decisions to good effect can be seen from the inferences made
earlier in the project.

The debts doubtful have been doubled over the years but their
percentage on the debts has almost become half. This implies a
83
sales and collection policy that get along with the receivables
management of the firm.

The various ratios calculated are an indicator as to the fact that the
profitability of the firm and sales are on a rise and also the deletion
of the inefficiencies in the working capital management.

The firm has not compromised on profitability despite the high


liquidity is commendable.

Acme generic llp. has reached a position where the default costs
are as low as negligible and where they can readily factor their
accounts receivables for availing finance is noteworthy.

SUGGESTIONS AND
RECOMMENDATIONS
The management of working capital plays a vital role in
running of a successful business. So, things should go
with a proper understanding for managing cash,
receivables and inventory.
Acme generic llp. is managing its working capital in a
good manner, but still there is some scope for
improvement in its management. This can help the
company in raising its profit level by making less
investment in accounts receivables and stocks etc. This
will ultimately improve the efficiency of its operations.

84
Following are few recommendations given to the
company in achieving its desired objectives:
The business runs successfully with adequate amount of
the working capital but the company should see to it that
the cash should not be tied up in excessive amount of
working capital.
Though the present collection system is near perfect, the
company as due to the increasing sales should adopt
more effective measures so as to counter the threat of
bad debts.
The over purchasing function should be avoided as it
could lead to liquidity problems. The investment of cash
in marketable securities should be increased, as it is very
profitable for the company. Holding of excessive and
insufficient stock must be avoided as it creates a burden
on the cashresources of a business and results in lost
sales, delays for customers, etc respectively.

BIBLIOGRAPHY

Following sources have been sought for the


preparation of this report:
Financial Statements (Annual Reports)
Direct interaction with the employees of the
company

85
www.acmeformulation.com/
http://www.bloomberg.com/markets/
http://www.tcs.com/Pages/default.aspx
www.educorporatebridge.com
www.google.com
www.scribd.com
www.acmegeneric.in

Textbooks on financial management -


Financial management - Pandey, I.M.Vikas
Financial management : cases and problems - Rao,
A.P.Everest
Financial management : conceptual approach -
Kulkarni, P.V
Financial management : srivastava , R. M. Himalaya
Financial management and Policies : Satish Tiwari

86