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LUCKNOW
PROJECT ON
WORKING CAPITAL MANAGEMENT
SUBMITTED TO
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It is crucial for us, all that businesses get a better handle on the whole
working capital cycle, and the drivers behind it. Working capital
management is a key issue for any business'ssurvival and
sustainability. Much more focus needs to be put on educating
companies on theimportance of strong management of working
capital, and that the focus in the good times hasbeen far too much on
profit and debt
"Cash is the lifeblood of business" is an often repeated maxim
amongst financial managers. Working capital management refers to
the management of current or short-term assets and short-term
liabilities. Components of short-term assets include inventories,loans
and advances, debtors, investments and cash and bank balances.
Short-term liabilities include creditors, trade advances, borrowings
and provisions.
The major emphasis of this project is, however, on short-
term assets, since short-term liabilities arise in the context of short-
term assets. It is important that companies minimize risk by prudent
working capital management
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Contents
Contents......................................................................................................................................4
References................................................................................................................................27
INTRODUCTION
Future Trends
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Indian companies have penetrated the overseas market,
signaling a new phase for the industry.
WORKING CAPITAL
Purchasing resources,
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Objective of working capital management:
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”OPERATING CYCLE”
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ARIES AGRO LTD.f
Company was founded by Dr. T. B. Mirchandani and Mrs. Bala
Mirchandani in 1969. The company is into the business of
manufacturing of micronutrients and other nutritional products for
plants and animals. It started its activity by manufacturing a small
range of mineral feed additives for animals & birds and then
diversified into mineral additives for the agriculture use. The products
were immediately accepted by the consumers and slowly it became
the brand leader in the field of mineral nutrition with a range of
products including mineral premixes, milk boosters, protein
concentrates, vitamin premixes, anti-coccidian and anti-bacterial feed
additives.
In 1975, the company diversified into nutrients for plant. It had
in-house expertise in the area of mineral nutrition and thereby decided
to concentrate on the same. It conducted research on compounds that
could deliver mineral nutrients to plants more efficiently. The research
zeroed in on "Metal Chelates". The product had to be manufactured in
accordance with the locally available ingredients and expertise which
posed a challenge for the Company.
Through in-house R&D efforts, Company branched out into
Agrochemicals in 1975 with the introduction of Chelated Micro-
nutrients. They pioneered the concept of Chelates in India with the
introduction of "Agromin", a micronutrient fertilizer in the year 1975,
followed by "Chelamin" in 1976. Agromin (chelated micronutrients)
and Chelamin (chelated zinc) are the company's flagship brands. They
are the one of the leading manufacturer and seller of Chelates in the
Country.
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Financial information for year 2006, 2007 &2008
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Analysis
In 2007 operating cycle was short it means that there were fast
cash inflow but the operating cycle of 2006 was longest period were it
can interpreted that late cash inflow was there due to which there is
increase in working capital requirement In 2008 operating cycle got
high due to increase in account receivable and inventory holding
period increases.
The inventory holding period in 2008 was high which
increases firms holding cost of inventory. In 2008 the longer cash
conversion cycle indicates that the greater the amount of investment
tied up in low return assets, the higher costs and lower profits and
increases the risk and the firm had liquidity problem.
So, it can concluded that 2007 was the best year where the
operating cycle was low and it has the lowest cash cycle where APP
is medium and ARP compare to 2008 is low which indicate that the
firm is able to convert receivables into cash indicates that fast cash
inflow in a firm.
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Aimco Pestisides LTD.
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Financial information for year 2006, 2007 &2008
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Analysis
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Basant Agro Tech (I) Ltd, a leading agribusiness company
committed to sustainable agriculture through innovative research and
technology. Company believes in delivering better food for a better
world through outstanding crop solutions, and has been working
relentlessly to improve the farmers' plight through extensive R & D
and rendering quality seeds, fertilizers and services to meet the
changing requirements of a farming community..
Basant Agro Tech (I) Ltd is engaged in Manufacturing,
Marketing & Distribution of NPK mixed fertilizer, Single super
phosphate, Secondary nutrient & quality seed under "KRISHI
SANJIVANI" brand name. Company is also engaged in the business
of green power generation, through its wind mills.
At Basant Agro Tech (I) Ltd, use of genetics to leapfrog in to
the future and innovation to usher in prosperity. While continuing
with traditional breeding principals, the company have over the years
successfully adopted latest technological innovations to fast track our
crop research. Keeping pace with the fast changing future marketing
scenario, Basant Agro Tech (I) Ltd., has ventured in the field of
Biotech research to develop transgenic crop for resistance to biotic
and abiotic factors. The company entered into strategic alliance with
some of the leading and very best technology innovation companies
like Mahyco Monsanto Biotech, for value added biotech traits.
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YEARS 2006 2007 2008
Particulars
SALES 23.94 18.73 18.20
EXPENSES 26.02 19.27 16.08
CREDITORS: 2.42 2.64 24.00
RAW 1.68 2.42 2.04
MATERIALS
Analysis
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In 2006 operating cycle was short it means that there were fast
cash inflow but the operating cycle of 2007 was longest period were it
can interpreted that late cash inflow was there due to which there is
increase in working capital requirement In 2008 operating cycle
decreased due to decrease in account receivable and inventory holding
period increases.The inventory holding period in 2007 was high which
increases firms holding cost of inventory.
So, it can concluded that 2007 was the best year where the
operating cycle is low. APP is lowest and ARP compare to is low
which indicate that the firm is able to convert receivables into cash
indicates that fast cash inflow in a firm.
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Bharat Fertilizer Industries Limited is an India-based company.
The Company is engaged in the manufacturing of single super
phosphate (powder and granulated), sulphuric acid and alum (liquid and
solid) at its plant situated at Kharvalli Village, Tal. Wada. District
Thane.
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YE 2006 2007 2008
ARS
Particulars
SALES 68.11 92.41 109.37
EXPENSES 64.84 89.57 109.58
Analysis
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In 2008 operating cycle was short which shows that there were
fast cash inflow but the operating cycle of 2007 was of longest period
were, it can interpreted that late cash inflow was there due to which
there was an increase in working capital requirement. In 2008
operating cycle again got low due to decrease in account receivable
and inventory holding period.
The inventory holding period in 2007 was high which
increases firms holding cost of inventory. In 2007 the longer cash
conversion cycle indicates that the greater the amount of investment
tied up in low return assets, the higher costs and lower profits and
increases the risk and the firm had liquidity problem.
So, it can concluded that 2008 was the best year where the
operating cycle was low and it has the lowest cash cycle where APP
is medium and ARP compare to 2007 is low which indicate that the
firm is able to convert receivables into cash indicates that fast cash
inflow in a firm.
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Asian Fertilizers Ltd
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YEARS 2006 2007 2008
Particulars
SALES 2.00 4.52 1.31
EXPENSES 2.14 4.91 6.52
CREDITORS 00.59 00.54 00.59
RAW 00.83 02.64 2.96
MATERIALS
FINISHED 00.84 00.09 00.03
GOODS
RECEIVABLE 15.98 20.52 18.86
S
INVENTORIES 01.88 03.34 5.99
Analysis
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In the year 2006 and 2008, operating cycle and cash cycle of
Asian Fertilizers Ltd. was quite high in comparison to year 2007. In
the year 2007, the operating cycle was 271.26 days which reflects
sound management of working capital. Whereas in year 2006 and
2008, it was 700.80 days and 790.77 days that denotes that capital is
occupied when the commercial entity is expecting its clients to make
payments.
Company is facing long inventory holding period in the year
2006 and 2008. That means it is holding inventory for long time. Also
inventory holding period has increased in the year 2008 which shows
company has blocked a lot of cash in inventory. It further implies that
company is not able to sell its goods at faster rate. So it needs to take
action in that respect may be by reducing its selling price. But this can
be because company is facing difficulty in procuring raw material
because of increase in the cost of raw material.
So it can be concluded that 2007 was the best year for Asian
Fertilizers Ltd. As its operating cycle period and cash cycle period
both were low.
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Comparison between the companies
Year 2008
Company Aries Basant Aimco Bharat Asian
Agro Agrotech Pesticide Fertilizer fertilizers
Particulars
ltd. ltd. s ltd. s ltd. ltd.
COGS 11.62 27.65 3.44 0.95 1.95
IHP 208.13 343 63.63 2656.42 730.15
APP 1260.15 86.68 281.51 427.32 170.76
ACP 238.48 75.06 178.16 348.63 60.62
Operating 1468.28 418.06 345.15 3083.74 790.77
cycle
Cash cycle 1229.80 331.48 166.99 2735.11 620.01
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GRAPHICAL PRESENTATION OF YEAR 2008
OF COMPANIES:
3500
3000
2500
COGS
2000 IHP
APP
1500 ACP
OC
CC
1000
500
0
ARIES BASANT AIMCO BHARAT ASIAN
It is seen from the chart that AMICO Pesticides Ltd has smallest
operating cycle period and cash cycle period in comparison to all
other companies.
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Formulas used In Calculation
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References
Annual Reports
Company websites
www.google.com
www.business-beacon.com
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