A PROJECT REPORT ON

“A STUDY OF WORKING CAPITAL MANAGEMENT”

FOR

“SANVIJAY ROLLING AND ENGINERRING PVT LTD”

SUBMITTED BY

RUPAL PANJABRAO KINKAR

UNDER THE GUIDANCE OF

DR. MEGHNA BHILARE

SUBMITTED TO

SAVITRIBAI PHULE PUNE UNIVERSITY

In the partial fulfillment of the requirements for the award of

MASTERS IN BUSINESS ADMINISTRATION (MBA)

Through

DR. D. Y. PATIL UNITECH SOCIETY’S

DR. D. Y. PATIL INSTITUTE OF MANAGEMENT & RESEARCH,

SANT TUKARAM NAGAR, PIMPRI, PUNE – 411018

BATCH 2018 - 20
 DECLARATION

I undersigned hereby declare that project report titled “A STUDY OF WORKING CAPITAL
MANAGEMENT IN SANVIJAY ROLLING ANG ENGINEERING PVT LTD” which has been submitted
by me to Savitribai Phule Pune University, in partial fulfillment of requirement for the award of degree of
Master of Business Administration under the guidance of Dr. MEGHNA BHILARE, is an original work of
the undersigned and not been reproduced from any other source.

Signature

RUPAL PANJABRAO KINKAR

DATE:

PLACE:
 ACKNOWLEDGEMENT

It is great pleasure for me to express my deep feeling of gratitude to my respected guide Dr.Meghna
Bhilare (Head of Department), Dr.D.Y.Patil Institute of Management and Research, Pimpri for her great
encouragement and constant support which provides desired moral and confidence to carry on my work.

I also acknowledge my deep sense of gratitude to Dr. Rakesh Dholakia,Director, Dr.D.Y.Patil Institute of
Management & Research for allowing me to carry out this project work.

I would like to express my sincere gratitude to Mr.Pradeep Dixit (Finance Manager) who gave me a chance
to be a part such a Prestigious Organization And given a constant encouragement for the completion of this
project report.

I would also like to express my heartfelt thanks to all the Employees of Sanvijay Rolling and Engineering
Pvt Ltd who have directly or indirectly helped me for the completion of my project.

RUPAL PANJABRAO KINKAR

 EXECUTIVE SUMMERY

This project is based on the study of working capital management in Sanvijay Rolling and Engineering Pvt
Ltd, 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.

“Sanvijay Rolling and Engineering Pvt Ltd” is Steel Manufacturing Company. The company maintained the
highest standards of excellence through quality, technology and innovation. It has ability to provide the best
services to their customers.

During the project company’s records & annual reports used for data collection. The focused of this project
is to analyze how the company manages his working capital on the basis of cash, inventory period,
receivable period and payable period management and how it influence the profitability of an organization.
This projects starts with the objectives of the study and the methodology. The project contains the analysis
of five years data of Sanvijay Rolling and Engineering Pvt Ltd from the year 2014 to 2018. The objective of
this report is to analyze the previous studies and relate them with this project.

Working capital is the life-blood of all types of enterprises, manufacturing and trading both. It is constantly
required to buy raw materials for payment of wages and other day-to-day expenses. Without adequate
working capital, manufacturing operations will be crippled. It is a base on which all the activities of business
enterprise depend. The working capital management refers to the management of working capital, or
precisely to the management of current assets. A firm’s working capital consists of its investments in current
assets, which includes short-term assets, cash and bank  balance, inventories, receivable and marketable
securities.

Through this project tries to evaluate how the management of working capital is done in Sanvijay Rolling
and Engineering Pvt Ltd through inventory ratio, working capital ratio, debtors turnover ratio, creditors
turnover ratio.
 INDEX

CHAPTER
NO.
TOPIC PAGE NO.

EXECUTIVE SUMMERY

1 INTRODUCTION

2 OBJECTIVES

3 SCOPES

4 COMPANY PROFILE

5 THEROTICAL BACKGROUND

6 RESEARCH METHODOLOGY

7 DATA ANALYSIS AND INTERPRETATION

8 OBSERVATIONS AND FINDINGS

9 SUGGESTIONS/ RECOMENDATION

10 CONCLUSION

APPENDICES

BIBLIOGRAPHY

CHAPTER NO TOPIC PAGE NO

7 7.1 NET WORKING CAPITAL

7 7.2 INVENTORY ANALYSIS

7 7.3 SUNDRY DEBTORS ANALYSIS

7 7.4 SUNDRY CREDITORS ANALYSIS

7 7.5 INVENTORY TURNOVER RATIO

7 7.6 DEBTORS TURNOVER RATIO

7 7.7 CREDITORS TURNOVER RATIO

7 7.8 WORKING CAPITAL RATIO

7 7.9 OPERATING CYCLE PERIOD

 CHAPTER-1
INTRODUCTION
 INTRODUCTION

The project undertakes is on “A STUDY OF WORKING CAPITAL MANAGEMENT IN SANVIJAY

ROLLING AND ENGINEERING PVT LTD”. It describes about how the company manages its working
capital and the various steps that are required in the management of working capital. The goal of working
capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability
to satisfy both maturing short-term debt and upcoming operational expenses. The management of working
capital involves managing inventories, accounts receivable and payable, and cash.

Working capital is made up of current assets minus current liabilities. Current assets include any assets that
can be easily converted into cash within the following twelve month period. In other words, they are
highly liquid assets. Some current assets include cash, accounts receivable, inventory, and short-term
investments. Current liabilities include any obligations due within the following twelve month period, such
as operating expenses and the current portion of long-term debt.

Working capital management commonly involves monitoring cash flow, current assets, and current
liabilities through the ratio analysis of key elements of operating expenses, including the working capital
ratio, collection ratio, and the inventory turnover ratio. Efficient working capital management helps maintain
the smooth operation of the net operating cycle, also known as the cash conversion cycle (CCC)—the
minimum amount of time required to convert net current assets and liabilities into cash.

Working capital management can also help to improve the company's earnings and profitability through
efficient use of company resources. Management of working capital includes inventory management as well
as management of accounts receivables and accounts payables. The main objectives of working capital
management include ensuring the company will have enough cash to cover current expenses and debt
obligations, minimizing the cost of capital spent on working capital, and maximizing the return on current
asset investments.

The working capital is an important yardstick to measure the company’s 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 Sanvijay Rolling and
Engineering Pvt Ltd.
CHAPTER-2
OBJECTIVES
 OBJECTIVES

1. To study the Working Capital Management of the company “Sanvijay Rolling and Engineering Pvt
Ltd”
2. To determine gross and net operating cycle of the company.
3. To analyze the components of working capital management i.e. analysis of creditor’s payment
period, Debtor’s collection period and inventory management.
CHAPTER-3
SCOPE
 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.
 COMPANY PROFILE

GENERAL PROFILE:-

Sanvijay Rolling & Engineering Limited (SREL)

1.1 Name of the borrower
PAN NO. AACCS0217J
1.2 Constitution Limited Company (Closely Held, Unlisted)
1.3 Date of incorporation 1987
1.4 Sector / (public / private/ jt.) Private
1.5 Group / House Sanvijay (Not Recognised)
Manufacture of :
1] Structural Steel Long Products Of Mild Steel, High Tensile Steel
And Closed Chemistry Steel To Be Used Mainly In Transmission,
1.6 Nature of industry / activity Line Tower (Tlt) For Power & Telecommunication Engineering
Projects, Infrastructure Projects , And Housing Etc , And
2] Manufacturing Of Steel Billets O Different Chemistry (both Ms &
Alloy Grade)
1.7 Location
Regd. Office 9, Imamwada Road, Napur.
Controlling office 9, Imamwada Road, Napur.
Branch office Shop no. 312/ A, shyamsquare ,pandri, Raipur.

1] Unit 1 , Plot Nos. B-203, B- 204 ,B-205, And B-206 In The

factory (existing)
BUTIBORI INDUSTRIAL AREA DISTRICT – NAGPUR.
2] Unit 2 , Plot No. B-202, In The BUTIBORI INDUSTRIAL AREA,
DISTRICT- NAGPUR
3] Unit 3, Plot No. S-88/1 &S- 88/2, In The HingnaIndustrial Area
District – Nagpur .
4] Unit 4 , Plot No. Plot No. -6 In The Hingna Industrial Area District-
Nagpur
5] Unit 5, Plot No. -16, In The Industrial Area District – Nagpur.
6] Unit 6, Plot No. 41 & 43 In The Hingna Industrial Area District –
Nagpur

DIRECTORS:-
 %
Other directorship/
Name Age Designation DIN Share
partnerships
holding
Director :
Sunrise Structural
&Engineering Pvt. Ltd
Shri Sanjay Agrawal 50 Director 00308722 19.50
Grace industries limited.
Proprietorship
Prakash Traders
Director :
Sunrise Structural &
Shri Ajay Agrawal 36 Director 00084840 19.03
Engineering Pvt. Ltd
Grace industries ltd
Shri Suyash Bajoria 21 Director 06805605 -
Shri Jignesh Kurani 29 Director 06905130 -
Smt Kavita Agrawal 49 Director 00085004 19.50 -

DEFAULT DETAILS:-

 The company and its directors has not defaulted in payments of interest and loan amount in any bank/
financial institution. Its name is not appearing in any list of the RBI

Asset classification Standard

CARE BBB+ or long term loan, carrying moderate degree of safety or
timely servicing of Debt with moderate credit risk.
External credit rating
CARE A 3 + or short term facilities carrying moderate degree of
By CARE
safety.
(As per CARE Rating dated 31.3.2016, valid upto 31.3.2017)

BRIEF HISTORY:-

Establishment :Sanvijay rolling & engineering limited (SREL) is a public ltd company (closely held by
promoters) it is into manufacturing o along steel product such as angles , channels , beams etc. it
manufactures more than 200 types of section in various size range wise. It is only company in India which
manufactures all kind of long steel product required or transmission tower. Company has very good presence
in manufacturing o structural steel to be used mainly in TLT or power, infrastructure and trading o steel. It
also has steel billets manufacturing facility at butibori, Nagpur .it is able to manufacture steel billets of
chemistry and alloy grade also.

Sanvijay is promoted by Late Shri. Puranlalji Agrawal it is controlled and managed by his two sons Shri
Sanjay Agrawal director and Shri Ajay Agrawal director. Directors are assisted by team and professionals.

Group has also interest in steel trading (prakash traders pvt ltd.) TLT manufacturing sunrise structural pt.
ltd.), sponge iron and power generation activity (grace industries limited.) TLT manufacturing , fabrication
and galvanizing activity (Sanvijay infrastructure pvt. ltd) steel trading and activities in sunrise structural pt.
ltd. is minimal. Company is concentrating more on activities of SREL, Grace Industries ltd, and newly
commissioned tower manufacturing company Sanvijay infrastructures pvt.ltd. (SPIL)

OWNERSHIP:-

SREL is closely held public limited company 92.31% of total shares are held by promoters and their family
members and balance 7.69% are held by friend and relatives.

BUSINESS:-
Company manufactures long steel structural such as Angles, channels, and beams & flats etc..of different
size, length, and dimensions.

Products are made from MS Billets, HT Billets and controlled chemistry Billets. TATA , SAIL, RINL,
JINDAL , M/S Prakash industries , adhunik Steel , Bhushan Steel etc.. are major producers of these Billets.
Purchase are made either by advance payments or against cash , as practice prevailing in the market.

PRESENT MARKET STATUS:-

Company is market leader in their products segment and perhaps has the largest manufacturing facility in
India in private sector. The market is fragmented and hence, it is not possible to assess exact market share.

Company has good standing in the market. it is due to its commitment to supply , quality o product,
availability of all types of long products under one roof and necessary material handling infrastructure
available with company.

Tower generally requires long product p 80 to 100 types , size and dimension company can produce 12 type
of steel simultaneously in its 6 manufacturing units , which no other competitors can do it gives company
inbuilt competitive edge over their competitors. One more advantage, company enjoys is its large capacity.
Due to this reason the company is preferred choice of buyers.

NATURE OF INDUSTRY:-
The long steel product manufacturing is basically a processing activity. Billets, blooms o steel are processed
into structural steel. Cost of raw material and expenses or manufacturing decides selling price. No major
technology is involved and there are no entry barriers. Company manufactures long steel product structure
made of mild steel, high tensile steel and controlled chemistry steels. Over a period, company has developed
in – house expertise and is now manufacturing these items which are being used in assembly of transmission
line tower, heavy engineering and wind mills.

One tower structure requires up to 80-100 types of steel structural products of different size and dimension.
Because of high degree of precision, quality and range of the product, company is able to charge premium
on its product.

Main user industry is transmission line tower (TLT) manufacture or power sector. Their operating cycle is
between 4.50 months to 6 months. Longer operating cycle is due to nature of the work i.e. selection on site,
survey, execution, charging o the line, certification from the nodal agency and receipt of payment. Steel
costs approximately 50% of their total cost 50% goes to steel and aluminium wires, registers, transformer
civil work, labour etc...These various item services are rendered by different agency often resulting in delay
of the project. Delay is also occurred due to different terrains like valleys, mountains, forests etc… all these
factors contribute to higher operating cycle for long steel product manufactures like SREL

Company with range of products, superior technology and ability to supply goods within short time are able
to retain and manage clients and funds. Key to growth and profitability is low production cost with profile of
good consumers.

DOMENSTIC SCENARIO:-

Domestic demand or TLT is very high. However, company is engaged is these work are acing liquidity
issues due to delay in commissioning o new power plant, delay in allotment o TLT line work by power grid
corporation of India and delay in various approvals and clearances from various government departments.

However, long term industrial scenario is very bright. The company being largest player in the sector having
multiple manufacturing capabilities is well placed to take the benefits.
DEMAND AND SUPPLY:-
Global Market:

Products are not supplied to overseas market. However, some of the customers are purchasing from us and
executing overseas projects.

DEMAND \ GROWTH DRIVERS:-

Government Policies:

These policies of government are very conductive for overall development of industries infrastructure and
housing. Due to sanctioning of many projects for power and housing demand or transmission tower and steel
in other will increase.

MAJOR CONSTRAINTS AND COMPETITION:-

The major constraints are increasing prices of energy and cost of production. Considering large size of
market, many small players have entered. However, markets of such a big size, that there is space or
everybody, due to large volume and execution capacity, profitability would be maintained or at least or 8-10
years. There will be competition from new and existing players. But as small players manufacture only few
types of section in small quantity, their cost of production s always more than company. Company is able to
face competition because of volume, quantity and less cost of overhead.

FUTURE OUTLOOK/ POTENTIAL:-

With opening of power sector and rural orientation or growth, supply of power and demand o it will be
increasing. Lot of infrastructure development is taking place. Already installed power and telecom towers
are becoming due or replacement. Company being one of the largest players with raw material
manufacturing facility also is in better position to encase opportunity.
PRODUCTS & SERVICES:-
1. Angles

2. Broad Flange Beams

3. Joists / Beams

4. Flats

5. Squares
6. Rounds

7. Billets

8. Ss Product
CLIENTS:-

Transmission Sector

Communication Sector
 CHAPTER-5
THEORETICAL BACKGROUND
AND
REVIEW OF LITERATURE
 THEROTICAL BACKGROUND

TITLE OF THE PROJECT- AWORKING CAPITAL MANAGEMENT

Working Capital is basically an indicator of the short-term financial position of an organization and is also a
measure of its overall efficiency. Working Capital is obtained by subtracting the current liabilities from the
current assets. This ratio indicates whether the company possesses sufficient assets to cover its short-term
debt.

Working Capital indicates the liquidity levels of companies for managing day-to-day expenses and covers
inventory, cash, accounts payable, accounts receivable and short-term debt that is due. Working capital is
derived from several company operations such as debt and inventory management, supplier payments and
collection of revenues.

A company can be endowed with assets and profitability but may fall short of liquidity if its assets cannot be
readily converted into cash. Positive working capital is required to ensure that a firm is able to continue its
operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational
expenses. The management of working capital involves managing inventories, accounts receivable and
payable, and cash.

SOURCES OF WORKING CAPITAL:-

The sources for working capital can either be long term, short term or even spontaneous. Spontaneous
working capital are majorly derived from trade credit including notes payable and bills payable while short
term working capital sources include dividend or tax provisions, cash credit, public deposits, trade deposits,
short-term loans, bills discounting, inter-corporate loans and also commercial paper.

For the long-term, working capital sources include long-term loans, provision for depreciation, retained
profits, debentures and share capital. These are major working capital sources for organizations based on
their requirements.

CALCULATION:-

Working capital is the difference between current assets and current liabilities. It is not to be confused with
trade working capital (the latter excluding cash).

The basic calculation of working capital is based on the entity’s gross current assets.

Working Capital= Current Assets – Current Liabilities

WORKING CAPITAL CYCLE:-

DEFINITION:-

Working capital is computed as the sum of: Inventories (+) Trade receivables (+) Cash (-) Trade payables.
The working capital cycle (WCC), also known as the cash conversion cycle, is the amount of time it takes to
turn the net current assets and current liabilities into cash. The longer this cycle, the longer a business is
tying up capital in its working capital without earning a return on it. Companies strive to reduce their
working capital cycle by collecting receivables quicker or sometimes stretching accounts payable. Under
certain conditions, minimizing working capital might adversely affect the company's ability to realize
profitability, e.g. when unforeseen hikes in demand exceed inventories, or when a shortfall in cash restricts
the company's ability to acquire trade or production inputs.

MEANING:-

A positive working capital cycle balances incoming and outgoing payments to minimize net working capital
and maximize free cash flow. For example, a company that pays its suppliers in 30 days but takes 60 days to
collect its receivables has a working capital cycle of 30 days. This 30-day cycle usually needs to be funded
through a bank operating line, and the interest on this financing is a carrying cost that reduces the company's
profitability. Growing businesses require cash, and being able to free up cash by shortening the working
capital cycle is the most inexpensive way to grow. Sophisticated buyers review closely a target's working
capital cycle because it provides them with an idea of the management's effectiveness at managing their
balance sheet and generating free cash flows.

In case of a manufacturing company, the operating cycle is the length of time necessary to complete the
following cycle of event-

 Conversion of cash into raw materials

 Conversion of raw material into work-in-progress
 Conversion of work-in-progress into finished goods
 Conversion of finished goods into accounts receivables
 Conversion of accounts receivable into cash
OPERATING CYCLE OF MANUFACTURING BUSINESS:-

Purchase

Cash Raw Material

Production
Realization

Debt Collection/
Work in progress
Credit Payment

Sale Production
Finished Goods
CONCEPT OF WORKING CAPITAL:-

CONCEPT OF WORKING
CAPITAL

GROSS WORKING NET WORKING

CAPITAL CAPITAL

Generally there are two concepts of working capital. They are gross working capital and net working capital.
But they are defined by different names. They are explained below:

 In Broad Sense :- Working capital refers to gross working capital. It is also defined as financial
concept or going concern concept. It means the capital invested in the current assets of the firm.
Current assets mean the assets which can be converted into cash easily or within one accounting
period. It helps in determining the return on investment in working capital and providing correct
amount of working capital at right time.
 In Narrow Sense:- Working capital refers to net working capital. It is also defined as accounting
concept. It means excess of current assets over current liabilities. It helps in finding out firm’s
capability to meet short term liabilities as well as indicates the financial soundness of the enterprise.

NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES

Net working capital can be +ve or –ve. When current assets are more than the current liabilities than working
capital is +ve and when current assets are less than the current liabilities than working capital is –ve.

At the end we can say, that both the working capital are important but according to the suitability gross
working capital is suitable for companies having separate ownership or management while net working
capital is suitable for sole trader companies or partnership firms.
WORKING CAPITAL MANAGEMENT:-

Decisions relating to working capital and short-term financing are referred to as working capital
management. These involve managing the relationship between a firm's short-term assets and its short-term
liabilities. The goal of working capital management is to ensure that the firm is able to continue its
operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming
operational expenses.

A managerial accounting strategy focusing on maintaining efficient levels of both components of working
capital, current assets, and current liabilities, in respect to each other. Working capital management ensures a
company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses.

DECISION CRITERIA:-

By definition, working capital management entails short-term decisions—generally, relating to the next one-
year period—which are "reversible". These decisions are therefore not taken on the same basis as capital-
investment decisions (NPV or related, as above); rather, they will be based on cash flows, or profitability, or
both.

 One measure of cash flow is provided by the cash conversion cycle—the net number of days from
the outlay of cash for raw material to receiving payment from the customer. As a management tool,
this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts
receivable and payable, and cash. Because this number effectively corresponds to the time that the
firm's cash is tied up in operations and unavailable for other activities, management generally aims at
a low net count.
 In this context, the most useful measure of profitability is return on capital (ROC). The result is
shown as a percentage, determined by dividing relevant income for the 12 months by capital
employed; return on equity (ROE) shows this result for the firm's shareholders. Firm value is
enhanced when, and if, the return on capital, which results from working-capital management,
exceeds the cost of capital, which results from capital investment decisions as above. ROC measures
are therefore useful as a management tool, in that they link short-term policy with long-term decision
making. See economic value added (EVA).
 Credit policy of the firm: Another factor affecting working capital management is credit policy of the
firm. It includes buying of raw material and selling of finished goods either in cash or on credit. This
affects the cash conversion cycle.
OBJECTIVES:-

The primary objective of working capital management is to ensure smooth operating cycle of the business.
Secondary objectives are to optimize the level of working capital and minimize the cost of such funds.

The superior objective of financial management is wealth maximization and that can be gained by profit
maximization accompanied with sustainable growth and development. For sustainable growth and
development, the objectives of all the stakeholders including customers, suppliers, employees, etc. should be
aligned to the growth of the organization.

It means raw material should be present on the requirement and it should not be a cause to stoppages of
production.

 All other requirements of production should be in place before time.

 The finished goods should be sold as early as possible once they are produced and inventoried.
 The accounts receivable should be collected on time.
 Accounts payable should be paid when due without any delay.
 Cash should be available as and when required along with some cushion.

It’s foremost important to set business goals and management strategic, techniques and methods to manage
working capital of business. Few of the importance objectives of working capital management are listed
below:

 Optimization of Working Capital Operating Cycle: In simple terms, working capital cycle starts from
the day raw materials are acquired and completes when the finished products are sold. One of the
major objectives of working capital management is to ensure that there is no hindrance during the
above mentioned process. It includes collecting and processing raw materials and other initial
investment in time, placing all the essentials for production beforehand, selling finished products as
soon as possible, collecting account receivables on time and clearing all the account payable’s in
time.
 Balance Working Capital: The good net working capital is required to stay in a stable equilibrium.
The ratio of current assets and current liabilities should be optimized. Because the lower value of this
ratio implies that company is not financially stable to clear its current debts, higher value is also not
an indication of prosperity, it suggests that company has too many inventories and they are not
investing in excess cash.
 Minimize Cost of Capital: Working capital management focuses on minimizing cost of capital, rate
of interest in some special cases. It is only when the cost of capital will be lesser than revenue, one
can earn profit. Utilization of long-term funds (in proper mix) is one way of minimizing capital cost.
The fundamental principle of financial management should be followed sincerely while deciding the
finance mix, always. The principle states that long term sources should finance fixed assets and
 permanent assets. Also, the short-term or temporary assets should be financed by short-term sources
of finance.
 Assists the Business to Avoid Over-borrowing: Over-borrowing is among the quickest techniques
towards business growth as well as business failure. The objectives of working capital management
out of over-borrowing leads to mismanagement of finance as well as assets. Their business goes far
beyond their financial goals which leads towards financial failure for a business. A proper working
capital management will definitely give you a warning sign where you can put your control towards
business expansion.
 Optimal Return on Current Asset Investment: The return on the investment infused on short term
assets must exceed the average cost of capital to ensure wealth maximization. In other words, the rate
of return earned from the investment in short term assets should exceed the rate of interest or cost of
capital. Objectives of working capital management aims to extract maximum from an investment in
current assets to ensure higher profitability.
 Expansion of Company’s Investment: Money you saved from effective working capital management
tactics is being an inexpensive source of finance that can be used for your business expansion, funds
for existing projects or company’s investment toward expansion of their idea and vision towards
growth of an organization.
 Healthy Relation with Suppliers / Providers: When a business has defined objectives of working
capital and engaging its best management concerning its working capital along with other financial
indicators. Then lenders, suppliers, non-trade creditors as well as provides will be more interested in
carrying a business with you. Their understanding of the business, management setup will definitely
boost confidence within the business as well as in the transactions of a company.
IMPORTANCE:-

Working capital is a vital part of a business and can provide the following advantages to a business:

 Higher Return On Capital:- Firms with lower working capital will post a higher return on capital.
Therefore, shareholders will benefit from a higher return for every dollar invested in the business.
 Improved Credit Profile And Solvency:- The ability to meet short-term obligations is a pre-requisite
to long-term solvency. And it is often a good indication of counterparty’s credit risk. Adequate
working capital management will allow a business to pay on time its short-term obligations. This
could include payment for a purchase of raw materials, payment of salaries, and other operating
expenses.
 Higher Profitability:- According to research the management of account payables and receivables is
an important driver of small businesses’ profitability.
 Higher Liquidity:- A large amount of cash can be tied up in working capital, so a company managing
it efficiently could benefit from additional liquidity and be less dependent on external financing. This
is especially important for smaller businesses as they typically have limited access to external
funding sources. Also, small businesses often pay their bills in cash from earnings so efficient
working capital management will allow a business to better allocate its resources and improve its
cash management.
 Increased Business Value:- Firms with more efficient working capital management will generate
more free cash flows which will result in higher business valuation and enterprise value.
 Favourable Financing Conditions:- A firm with a good relationship with its trade partners and paying
its suppliers on time will benefit from favourable financing terms such as discount payments from its
suppliers and banking partners.
 Uninterrupted Production:- A firm paying its suppliers on time will also benefit from a regular flow
of raw materials, ensuring that the production remains uninterrupted and clients receive their goods
on time.
 Ability To Face Shocks And Peak Demand:- Efficient working capital management will help a firm
to survive through a crisis or ramp up production in case of an unexpectedly large order.
 Competitive Advantage:- Firms with an efficient supply chain will often be able to sell their products
at a discount versus similar firms with inefficient sourcing.
WORKING CAPITAL ANALYSIS:-

 Current Assets:- Current assets are those which can be converted into cash as and when needed i.e.
those assets which can be turn to cash as per the requirement of the business within the accounting
period.
 Sundry Debtors:- Debtors are those to who products are supplied on credit basis. These amount are
collected within the accounting period. Therefore they are converted into cash as per requirement,
hence they are considered under current assets.
 Inventories:- Closing stock and inventories include raw material, work in progress and finished
goods, which are needed for the smooth running of the organization. Generally inventory is
maintained by every organization, which is bound to meet its demand in the market. The amount of
inventory maintained by the first represents its profitability position. The quality must not be in
excess of inadequate, it must be accounting to the requirement. The quality stores must be able to
meet the market demand.
 Cash And Banks:- Every organization or firm maintains cash reserve in their accounts. This is the
major key on which working of the entire organization is dependent upon. This is required in every
aspect of production, marketing, financing, etc. In other words, it can be said that it plays a vital role
in functioning of any organization.
 Loans And Advances:- Advance to staff are those advances, which are given to the employees as
festival advance. These advances are treated as current assets as they are given advance to the
employees and are collected within the accounting year. It doesn’t result in any default payment as
the amount is deducted from their salaries directly during their payment. Their advances are prepared
and are collected in the accounting year. These are the loans and advances amount that are given by
the organization in procuring of raw materials. Amount is given in advance to its supplier in
supplying the raw materials required and this is adjusted after receiving the raw material. The final
settlement take place only after deducting the advances amount from total amount.
 Current Liabilities:- Current liabilities are those which are payable during an accounting year.
These are paid out of current assets like cash. When current assets availability is present there exist
the current liabilities but current assets must always be in excess to current liabilities. This provides
the organization to be in a good position.
 Sundry Creditors:- Creditors are those from whom products are purchased on credit basis. These
amounts are paid within the accounting period. If the creditors number increase the amount payable
also increase which further increase the liquidity.
 Line Of Credit:- Banks to new business do not often give lines of credit. However, if your new
business is well capitalized by equity and you have good collateral your business might quality for
one. A line to credit allow you to borrow funds for short term needs when they arise. The funds are
rapid once you collect the accounts receivable that resulted from the short-term sale peaks. Line of
 credit typically are made for one year at a time and expected to be paid off for 30 to 60 consecutive
days sometime during the year to ensure that the funds are used for short-terms needs only.
 Short Term Loans:- While your new business may not qualify for a line of credit from a bank, you
might have success in obtaining a one-time short-term loans (less than one year) to finance your
temporary working capital needs. If you have established a good banking relationships with a banker,
he or she might be willing to provide a short-terms note for one order or for a seasonal inventory and/
or accounts receivable build-up. In addition to analysing the average number of days it takes to make
product (inventory days) and collect on an account (account receivable days) vs. the number of days
finance by account payable, the operating cycle analysis provides one other important analysis. From
the operating cycle, a computation can be made of the dollar provided by a day of accounts payable.
Working capital has a different impact on cash flow in s business.
INVENTORY MANAGEMENT

Inventory management refers to the process of ordering, storing, and using a company's inventory. These
include the management of raw materials, components, and finished products, as well as warehousing and
processing such items.
For companies with complex supply chains and manufacturing processes, balancing the risks of inventory
gluts and shortages is especially difficult. To achieve these balances, firms have developed two major
methods for inventory management: just-in-time and materials requirement planning: just-in-time (JIT) and
materials requirement planning (MRP).

NATURE OF INVENTORIES

Raw Materials Inventory:

This consists of basic materials that have not yet been committed to production in a manufacturing firm.
Raw materials that are purchased from firms to be used in the firm’s production operations. The aim of
maintaining raw material inventory is to uncouple the production function from the purchasing function so
that delays in shipment of raw materials do not cause production delays.

Works in Process Inventory:

This includes those materials that have been committed to the production process but have not been
completed. The more complex and lengthy the production process, the larger will be the investment in work
in process inventory.

Finished Goods Inventory:

These are completed products awaiting sale. The purpose of finished goods inventory is to uncouple the
production and sale functions so that it is no longer necessary to produce the goods before a sale can occur.

INVENTORY MANAGEMENT TECHNIQUES:-

The following are the common techniques of inventory control:

1. Determination of various levels of materials

2. Economic Order Quantity

3. ABC Analysis

1. Determination of Various Levels of Materials

The store-keeper plays an important role in deciding upon the various levels materials. In order to ensure
that the optimum quantity of materials is purchased stocked neither less nor more, the store keeper applies
scientific techniques of material management. Fixing of certain levels for each item of materials in one of
techniques.
These levels are not permanent but require revision according to the change in the factors which determine
these levels. The following levels are generally fixed.

(a) Re-order Level: It can be calculated by the following formula

Re-order level = Minimum level + consumption during period required to get fresh delivery

(b) Maximum Level: It can be calculated by the following formula

Maximum Level = Re-order level + Re-order Quantity – (Minimum consumption x Minimum Re-order
period)

(c) Minimum Level: It can be calculated by the following formula

Minimum level = Re-order level – (Normal consumption x Normal Re-order period)

(d) Average Level: Average level can be calculated by applying the following formula:

(Maximum level + Minimum level) / 2

(d) Danger Level: It can be calculated by the following formula

Danger Level = Average consumption x Maximum Re-order period for emergency purchases

2. Economic Order Quantity (EOQ)

The economic order quantity, known as EOQ, represents the most favorable quantity to be ordered each time
fresh orders are placed.

The quantity to be ordered is called economic order quantity because the purchase of this size of material is
most economical. It is helpful to determine in advance as to how much should one buy when the stock level
reaches the re-order level. If large quantities arc purchased, the carrying costs would be large.

3. ABC Analysis

This technique of inventory control is also known as Always Better Control technique. ABC analysis is an
analytical method of control which aims at concentrating efforts on those areas where attention is needed
most.

This is a principle of selective control. The emphasis of ABC analysis technique is that the management
should concentrate its energy in controlling those items that mostly affect the organizational objects.
Manufacturing concerns find it useful to group the materials into three classes on the basis of investment
involved.
Following are the advantages of ABC analysis

 Close and strict control of costly items is ensured.

 Investment in inventory can be regulated and funds can be utilized in the, best possible way.
 Economy is achieved in respect of stock carrying cost.
 It helps to keep enough safely stock for ‘C’ category items.
 Clerical cost can be reduced and inventory is maintained at optimum level.
 Scientific and selective control helps in maintenance of high stock turnover rate.

 CASH MANAGEMENT

SOURCES OF ADDITIONAL WORKING CAPITAL INCLUDE THE FOLLOWING:-

 Existing cash reserves

 Profits (when you secure it as cash)
 Payables (credit from suppliers)
 New equity or loans from shareholders
 Bank overdrafts or line of credit
 Long-term loans

If there is insufficient working capital and company trying to increase sale, it can easily over-stretch the
financial resources of the business, This is called overtrading.

EARLY WARNING SIGNS INCLUDE:

 Pressure on existing cash

 Exception cash generating activities e.g. offering high discounts for early cash payment
 Bank overdraft exceeds authorized limit
 Seeking greater overdrafts or line of credit
 Part-paying suppliers or other creditors
 Paying bill in cash to secure additional supplies
 Management pre-occupation with surviving rather than managing
 Frequent short-term emergency request to the bank (to help pay wages, pending receipt of a cheques)
CASH MANAGEMENT IN SANVIJAY ROLLING AND ENGINEERING PVT LTD

The cash management system followed by the SANVIJAY ROLLING AND ENGINEERING PVT LTD is
mainly lock box system

Cash Management System involves the following steps:

The branch offices of the

company at various locations
hold the
collection of cheques of the
customers.
2. Those cheques are either
handed over to the CMS
agencies or bank
of the particular location take
charge of whole collection.
3. These CMS agencies or
bank send those cheques to the
clearing
house to make them
realized. These cheques
can be local or
outstation.
4. The CMS agencies or bank
send information to the central
hub of
the company regarding
realization/cheque bounced.
5. The central hub passes on
the realized funds to the
company as per
the agreed agreements.
6. The CMS agencies or
concerned bank provides the
necessary MIS
to the company as per
requirement.
The branch offices of the
company at various locations
hold the
collection of cheques of the
customers.
2. Those cheques are either
handed over to the CMS
agencies or bank
of the particular location take
charge of whole collection.
3. These CMS agencies or
bank send those cheques to the
clearing
house to make them
realized. These cheques
can be local or
outstation.
4. The CMS agencies or bank
send information to the central
hub of
the company regarding
realization/cheque bounced.
5. The central hub passes on
the realized funds to the
company as per
the agreed agreements.
6. The CMS agencies or
concerned bank provides the
necessary MIS
to the company as per
requirement.
The branch offices of the
company at various locations
hold the
collection of cheques of the
customers.
2. Those cheques are either
handed over to the CMS
agencies or bank
of the particular location take
charge of whole collection.
3. These CMS agencies or
bank send those cheques to the
clearing
house to make them
realized. These cheques
can be local or
outstation.
4. The CMS agencies or bank
send information to the central
hub of
the company regarding
realization/cheque bounced.
5. The central hub passes on
the realized funds to the
company as per
the agreed agreements.
6. The CMS agencies or
concerned bank provides the
necessary MIS
to the company as per
requirement.
The branch offices of the
company at various locations
hold the
collection of cheques of the
customers.
The branch offices of the
company at various locations
hold the
collection of cheques of the
customers.
The branch offices of the
company at various locations
hold the
collection of cheques of the
customers.
The branch offices of the
company at various locations
hold the
collection of cheques of the
customers.
1. The branch offices of the company at various locations hold the collection of cheques of the
customers.
2. Those cheques are either handed over to the CMS agencies or bank of the particular location take
charge of whole collection.
3. These CMS agencies or bank send those cheques to the clearing house to make them realized.
These cheques can be local or outstation.
4. The CMS agencies or bank send information to the central hub of the company regarding
realization/cheque bounced.
5. The central hub passes on the realized funds to the company as per the agreed agreements.
6. The CMS agencies or concerned bank provides the necessary MIS to the company as per
requirements.

7. In cash management the

collect float taken for the
cheques to be realized
8. into cash is irrelevant and
non-interfering because
banks such as Standard
9. Chartered, HDFC and
CitiBank who give credit on
the basis of these
10.cheques after charging a
very small amount. These
credits are given to
11.immediately and the
maximum time taken
might be just a day.
The
12.amount they charge is
very low and this might
cover the threat of the
13.cheque sent in by two or
three customers bouncing.
Even otherwise the
14.time taken for the cheques
to be processed is
instantaneous. Their Cash
15.Management System is
quite efficient.
16.In cash management the
collect float taken for the
cheques to be realized
17.into cash is irrelevant and
non-interfering because
banks such as Standard
18.Chartered, HDFC and
CitiBank who give credit on
the basis of these
19.cheques after charging a
very small amount. These
credits are given to
20.immediately and the
maximum time taken
might be just a day.
The
21.amount they charge is
very low and this might
cover the threat of the
22.cheque sent in by two or
three customers bouncing.
Even otherwise the
 23.time taken for the cheques
to be processed is
instantaneous. Their Cash
24.Management System is
quite efficient.
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, UCO and Axis 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.
 RECEIVABLE MANAGEMENT
Cash flow can be significantly enhanced if the amounts owing to a business are collected faster. Every
business needs to know-
Who owes them money?
How much is owed?
How long it in owing?
For what it is owed?

LATE PAYMENTS DESTROY PROFITS AND CAN LEAD TO BAD DEBTS

Slow payment has a crippling effect on business; in particular on small businesses whom can least afford it.
If you don't manage debtors, they will begin to manage your business as you will gradually lose control due
to reduced cash flow and, of course, you could experience an increased incidence of bad debt.

The following measures will help manage your debtors:

1. Have the right mental attitude to the control of credit and make sure that it gets the priority it
deserves.
2. Establish clear credit practices as a matter of company policy.
3. Make sure that these practices are clearly understood by staff, suppliers and customers.
4. Be professional when accepting new accounts, and especially larger ones.
5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank references,
industry sources etc.
6. Establish credit limits for each customer and stick to them.
7. Continuously review these limits when you suspect tough times are coming or if operating in a
volatile sector.
8. Keep very close to your larger customers.
9. Invoice promptly and clearly.
10. Consider charging penalties on overdue accounts.
11. Consider accepting credit /debit cards as a payment option.
12. Monitor your debtor balances and aging schedules, and don't let any debts get too old.
HERE ARE FEW WAYS IN COLLECTING MONEY FROM DEBTORS: -

 Develop appropriate procedures for handling late payments.

 Track and pursue late payers
 Get external help if you own efforts fail.
 Don’t feel guilty asking for money it’s yours and you are entitled to it.
 Make that call now. And keep asking until you get some satisfaction.
 In difficult circumstances, take what you can now and agree terms for the remainder, it lessens the
problem.
 When asking for your money, be hard on the issue – but soft on the person. Don’t give the debtor any
excuses for not paying.
 Make that your objective is to get the money, not to score points or get even.
 MANAGING PAYABLES (CREDITORS)

Creditors are a vital part of effective cash management and should be managed carefully to enhance
the cash position.

Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems.

Consider the following:-

 Who authorizes purchasing in your company – is it tightly managed or spread among a number of
(junior) people?
 Are purchase quantities geared to demand forecasts?
 Do you use order quantities, which take account of stock holding and purchasing costs?
 Do you know the cost to the company of carrying stock?
 Do you have alternative sources of supply? If not, get quotes from major suppliers and shop around
for the best discounts, credit terms as it reduces dependence on a single supplier.
 How many of your suppliers have a return policy?
 Are you in a position to pass on cost increases quickly through price increases to your customers?
 If a supplier of goods or services lets you down can you charge back the cost of the delay?
 Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in-time basis?

There is an old adage in business that "if you can buy well then you can sell well". Management of your
creditors and suppliers is just as important as the management of your debtors. It is important to look after
your creditors- slow payment by you may create ill feeling and can signal that your company is inefficient
(or in trouble!). Remember that a good supplier is someone who will work with you to enhance the future
viability and profitability of your company.
 FINANCING CURRENT ASSETS

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.

Spontaneous financing:-

It refers to automatic sources of short-term funds arising in normal course of business. There is no explicit
cost associated with it. For example, Trade Credit and Outstanding Expenses 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 tradable securities to conserve liquidity. In this the firm has less risk of facing the problem of
shortage of funds.
 LITERATURE REVIEW

A literature review is an essay or is part of the introduction to an essay, research report, or thesis. It
provides an overview and critical analysis of relevant published scholarly articles, research report, books,
etc. on the topic or issue to be investigated. A detailed guide to the literature review is available on the
language and learning services websites. Literature search: A systematic exhaustive search for published
material on a specific topic.

1. Gill Amarjit, Biger Nahum and Mathur Neil (2010) examine the relationship between working
capital management and profitability. For the study, 88 American firms listed on New York Stock
Exchange for a period of three years from 2005 to 2007 were selected as a sample. They found
statistically significant relationship between the cash conversion cycle and profitability, measured
through gross operating profits. It also showed that managers could create profits for their companies
by handling correctly the cash conversion cycle and by keeping accounts receivable at an optimal
level. The study concludes with the observation that profitability can be enhanced if firms manage
their working capital in a more efficient way.

2. Rosenbluth Frances (2010) makes a close study of the role that networks can play in boosting
women's representation in the personal, professional and political arenas. It has been found that
women lag behind men in their access to professional networks. At the end of the study the author
concludes with the observation that gender equality will remain out of reach until women and men
have a statistically equal shot at being productive, which at the top of the career ladder invariably
includes the difficult-to-quantify but real value of network power.

3. Haq Ikram Ul, Sohail Muhammad, Zaman Khalid and Alam Zaheer, (2011) examine the relationship
between working capital management and profitability. The main purpose of the study was to find
out whether financial ratios affect the performance of the firms in the special context of the cement
industry in Pakistan. For the purpose of analyzing the data, the techniques of co-relation, co-efficient
and multiple regression analysis were used. We can deduce from the result that there is a moderate
relationship between working capital management and the firm’s profitability.

4. Dr Arbab Ahmed and Dr Matarneh Bashar (2011) are of the view that the registration technique is a
very useful statistical technique of working capital forecasting. In the sphere of working capital
management, it helps in making projection after establishing the average relationship in the past
between sales 109 and working capital, and its various components. The analysis can be done with
the help of graphic portrayals or mathematical formula.
5. Ramadu Janaki P. and Parasuraman N. R. (2012) focus on the growth and sales compared with the
changes in profitability and in working capital of Indian Pharmaceutical Industries. The study
revealed that the growth rate in profits was disproportional to the sales and working capital
components like inventory and debtors. The study ends with the view that there was no rationale or
relationship between the sales growth and other components like net working capital, inventory
turnover and debtors turnover. Further, it can be deduced that growth rate in sales need not reflect the
growth rate in profitability and inventory turnover, and debtors turnover also need not exercise any
impact on profitability of the firms.

6. Song Zhen, Liu Duan and Chen Shou (2012) study the two aspects - turnover capacity and liquidity,
and have analyzed the effects of working capital on engineering product market completion
performance in the manufacture industry. The study discovers that enterprise working capital
turnover ability has positive effect on product market competition performance while enterprise
working capital liquidity has a negative relationship with market competition performance. But
according to regression equation to predict the competition effects of working capital, exists larger
error because the actual impact of working capital on competition performance may be non-linear so
the authors have used B P Neural Network Model to predict the competition performance and the
results show that the overall prediction effect is good.

7. Ray Sarbapriya (2012) studies the relationship between liquidity and profitability in the
manufacturing industry. The writer has taken as a sample 311 manufacturing firms for a period of 14
years, and studied the effect of different variables of working capital management. In this study
strong adverse relationship between measures of working capital management and corporate
profitability have been observed. In the end insignificant negative relationship between firm size and
its net operating profit ratio was detected.

8. Joshi Lalitkumar and Ghosh Sudipta (2012) study the working capital performance of Cipla Ltd
during the period 2004-05 to 2008-09. Financial ratios have been applied in measuring the working
capital performance, and statistical as well as econometric techniques have been used. It was
observed that the selected ratios show satisfactory performance, and significant negative relationship
between liquidity and profitability is found to exist.

9. Kaur Harsh V. and Singh Sukhdev (2013) analyse empirically BSE 200 manufacturing companies
spread over 19 industries for the period 2000 to 2010. The study explores scope to increase the
efficiency and profitability of 145 companies by improving the parameters of analysis. The study
tests the relationship between the working capital score and profitability measured by income to
 current assets and income to average total assets. This article concentrates on cash conversion
efficiency and planning the operating cycle days. At the end, the study emphasizes that efficient
management of working capital significantly affects profitability.

10. Akoto Richard K., Vitor Dadson A. and Angmor Peter L. (2013) closely study the relationship
between working capital management policies and profitability of the thirteen listed manufacturing
firms in Ghana. At the end of the study, a significantly negative relationship between profitability
and accounts receivable days is found to exist. Profitability is significantly positively influenced by
the firm‟s cash conversion cycle (CCC), current assets ratio and current asset turnover. It is also
suggested that managers can create value for the shareholders by creating incentives to reduce their
accounts receivable to 30 days.

11. Joseph Jisha (2014) closely examines the study of working capital management in Ashok Leyland
and points out that the liquidity and profitability position of the company is not satisfactory, and
needed to be strengthened in order to be able to meet its obligations in time.

12. Madhavi K. (2014) makes an empirical study of the co-relation between liquidity position and
profitability of the paper mills in Andhra Pradesh. It has been observed that inefficient working
capital management makes a negative impact on profitability and liquidity position of the paper
mills.
 CHAPTER-6

RESEARCH METHODOLOGY
 RESEARCH METHODOLOGY

WHAT IS RESEARCH…?

Research is defined as a careful consideration of study regarding a particular concern or a problem using
scientific methods. According to the American sociologist Earl Robert Babbie, “Research is a systematic
inquiry to describe, explain, predict and control the observed phenomenon. Research involves inductive and
deductive methods.”

Inductive research methods are used to analyse the observed phenomenon whereas, deductive methods are
used to verify the observed phenomenon. Inductive approaches are associated with qualitative research and
deductive methods are more commonly associated with quantitative research.

One of the most important aspects of research is the statistics associated with it, conclusion or result. It is
about the “thought” that goes behind the research. Research is conducted with a purpose to understand:

 What do organizations or businesses really want to find out?

 What are the processes that need to be followed to chase the idea?
 What are the arguments that need to be built around a concept?
 What is the evidence that will be required that people believe in the idea or concept?

RESEARCH DESIGN:-

A research design is a systematic approach that a researcher uses to conduct a scientific study. It is
the overall synchronization of identified components and data resulting in a plausible outcome. To
conclusively come with an authentic and accurate result, the research design should follow a strategic
methodology, in line with the type of research chosen. To have a better understanding of which research
paper topic, to begin with, it is imperative to first identify the types of research.

Type of Research Design

There are four types of research design which are:-

1. Exploratory Research: Just as the word implies, it explores, that is to find out about something by
answering the question in “what” or “how” manner.
2. Descriptive Research: This is more in depth Research, that answered the question what and how.
3. Explanatory Research: This seeks to explain the subject matter being researched and tries to answer
the question what, how, and why.
4. Evaluation Research: This is quite extensive as it measures the effectiveness of program.
Types of research used in my project:-

This project “A Study of Working Capital Management of Sanvijay Rolling And Engineering Pvt Ltd”
is considered Descriptive and Analytical type of research.

 Descriptive Research
In descriptive research design a researcher is interested in describing a particular situation or
phenomena under his study. It is a theoretical type of researcher design based on the collection
designing and presentation of the collected data. Descriptive research design covers the
characteristics of people, materials, Scio-economics characteristics such as their age, education,
marital status and income etc. The qualitative nature data is mostly collected like knowledge,
attitude, beliefs and opinion of the people. Examples of such designs are the newspaper articles,
films, dramas, and documentary etc.
 Analytical Research:-
Analytical Research is defined as the research in which, researcher has to use facts or information
already available and analyze these to make a critical evaluation of the facts, figures, data or
material.

RESEARCH METHODOLOGY:-

Research methodology is a systematic way to solve problem. It is a science of studying how

research is to be carried out. Essentially, the procedures by which researchers go about their work of
describing, explaining and predicting phenomena are called research methodology. It is also defined as the
study of methods by which knowledge is gained. Its aim is to give the work plan of research.

Data Collection:-

Data collection is a standout amongst the most essential stages in carrying on a research. You can
have the best research plan in the world; however, in the event that you can’t gather the necessary data you
will not have the capacity to complete your venture. Data collection is an extremely challenging work which
needs exhaustive planning, diligent work, understanding, determination and more to have the capacity to
complete the assignment effectively. Data collection begins with figuring out what sort of data is needed,
followed by the collection of a sample from a certain section of the population. Next, you have to utilize a
certain tool to gather the data from the chosen sample.
Source of Data Collection:-

Normally we can gather data from two sources namely primary and secondary. Data gathered
through perception or questionnaire review in a characteristic setting are illustration of data obtained in an
uncontrolled situation. Secondary data is the data acquired from optional source like magazines, books,
documents, journals, reports, the web and more.

Primary Data

Primary data means original data that has been collected specially for the purpose in mind. It means
someone collected the data from the original source first hand. Data collected this way is called primary
data. The people who gather primary data may be an authorized organization, investigator, enumerator or
they may be just someone with a clipboard. Those who gather primary data may have knowledge of the
study and may be motivated to make the study success. These people are acting as a witness so primary data
is only considered as reliable as the people who gathered it.

Secondary Data

Secondary data is the data that has been collected for another purpose. When we use statistical
method with primary data from another purpose for our purpose we refer to it as secondary data. It means
that one purpose’s primary data is another purpose’s secondary data. Secondary data that is being reused,
usually in a different context.

To get clear vision of the ideas, the source like previous projects from the college library, annual
reports, internet was also being used as a source to get the secondary data, etc. Data collected for this project
from Sanvijay Rolling and Engineering Pvt Ltd:

 Statement of Working Capital

Sampling design:-

Sampling unit- Balance sheet and profit and loss account

Sampling size- 2 years data

Tools used for calculation- ms-excel , ratios, graph, charts.

Tools Used:-

I used different tools to analyze the Working Capital Management of Sanvijay Rolling and
Engineering Pvt Ltd.

 Analysis through Working Capital Ratio.

 Analysis through various components of Working capital.

 Analysis through Net Operating cycle

LIMITATIONS OF THE STUDY:-

 The latest financial data

could not be reported as the
company’s
 websites have not been
updated.
 The latest financial data
could not be reported as the
company’s
 websites have not been
updated.
 The latest financial data
could not be reported as the
company’s
 websites have not been
updated.
 The latest financial data could not be reported as the company’s website have not been updated.

 Limited interaction with the concerned heads due to their busy schedules.

 Due to short period of time it is not possible to cover all the factors and detailed regarding the study.

 Future plans of the company will not be disclosed to the trainees.

 CHAPTER-7

DATA INTERPRETATION
 ANALYSIS OF WORKING CAPITAL AND ITS COMPONENTS

NET WORKING CAPITAL= CURRENT ASSETS – CURRENT LIABILITIES

(RS. IN LACS)

PARTICULARS 2013-14 2014-15 2015-16 2016-17 2017-18

A.CURRENT ASSETS          

INVENTORIES 254.09 278.64 244.14 247.07 249.3

TRADE RECEIVABLES 279.48 217.37 234.28 185 193.63

CASH AND BANK BALANCE 1.82 1.08 1.96 2.63 20.63

OTHER CURRENT ASSETS 89.2 217.2 126.99 127.58 121.41

TOTAL CURRENT ASSETS 624.59 714.29 607.37 562.28 584.97

B.CURRENT LIABILITIES          

SHORT TERM BORROWINGS 324.75 382 366.41 350 350

TRADE PAYABLES 33.26 30.04 18.66 18.31 16.39

OTHER CURRENT LIABILITIES 45.2 97.18 58.38 39.31 29.74

TOTAL CURRENT LIABILITIES 403.21 509.22 443.45 407.62 396.13

NET WORKING CAPITAL(A-B) 221.38 205.07 163.92 154.66 188.84

TABLE NO. 7.1

GRAPHICAL REPRESENTATION:-

NET WORKING CAPITAL (Rs. In Lacs)

250 221.38
205.07
200
163.92 188.84
150 154.66 NET
RS. IN LACS

WORKING
100 CAPITAL
50 (Rs In Lacs)

0
2013-14
2014-15
2015-16
2016-17
2017-18
YEARS

GRAPH NO 7.1

DATA INTERPRETATION:-

During the time period 2014 to 2018 company has experienced decreased and increased in working capital.
From the year 2015 to 2017 working capital decreased continuously but in the year 2018 it is increased as
compare to previous year. By analysing the data we can say that positive working capital indicates that the
Sanvijay Rolling And Engineering Pvt Ltd is able to pay off its current liabilities.
 INVENTORY ANALYSIS

POSITION OF INVENTORY IN SANVIJAY ROLLING AND ENGINEERING PVT LTD

(RS. IN LACS)

PARTICULAR 2016 2017 2018

RAW MATERIAL 157.22 156.98 165.37

FINISHED GOODS 76.65 81.72 74.47

STORE,SPARES PART,ETC 10.27 8.37 9.46

TOTAL 244.14 247.07 249.3

TABLE NO. 7.2

GRAPHICAL REPRESENTATION:-

Inventory Analysis (Rs. In Lacs)

250
249.3
248 247.07
Inventory
RS.IN LACS

246 244.14 Analysis

244 (Rs. In
Lacs)
242
240
2016
2017
2018
YEAR

GRAPH NO 7.2

DATA INTERPRETATION:-

By analysing three years data, it is observe that there is increasing pattern in inventory. We can see that
inventories are increased from 244.14lacs to 247.07lacs in the year 2017 and it again increased from
247.07lacs to 249.30lacs in the year 2018. By seeing this pattern we can say that company has a great
demand for their products in the year 2018 as compare to year 2016 that is the biggest reason for increase in
inventories.
 SUNDRY DEBTORS ANALYSIS

Debtors or an account receivable is an important component of working capital and fall under current assets.
Debtors will arise when credit sale are made.

POSITION OF SUNDRY DEBTORS IN SANVIAJY ROLLING AND ENGINEERING PVT LTD

(RS. IN LACS)

PARTICULARS 2016 2017 2018

TOTAL SUNDRY DEBTORS 234.28 185 193.63

TABLE NO. 7.2

GRAPHICAL REPRESENTATION:-

SUNDRY DEBTORS (Rs. In Lacs)

234.28
250
200 185 193.63
SUNDRY
RS. IN LACS

150 DEBTORS
100 (RS IN LACS)
50
0
2016
2017
2018
YEARS

GRAPH NO 7.3

DATA INTERPRETATION:-

By analysing debtors there is fall and rise in debtors. Debtors are increase or decrease when sales are
increase or decrease. In the year 2017 debtors are decreased due to decreased in sales and in the year 2018 it
is increased because of increased in sales. So we can say that when sales are increases then profit also
increases.
 SUNDRY CREDITORS ANALYSIS

Creditors or an account payable is an important component of working capital and fall under current
liability. Creditors will arise only when credit purchase are made.

POSITION OF SUNDRY CREDITORS IN SANVIAJY ROLLING AND ENGINEERING PVT LTD

(RS. IN LACS)

PARTICULARS 2016 2017 2018

TOTAL SUNDRY CREDITORS 18.66 18.31 16.39

TABLE NO. 7.3

GRAPHICAL REPRESENTATION:-

SUNDRY CREDITORS (Rs. In Lacs)

18.66
19
18.33
18
RS. IN LACS

SUNDRY
17 CREDITORS
(RS IN LACS)
16.39
16

15
2016
2017
2018
YEARS

GRAPH NO 7.4

DATA INTERPRETATION:-

By analysing the creditors we can see that there is continuous fall in creditors which is good sign for
company growth. A creditor decreases that means company does not purchase material on credit basis. This
liability of the company so this should be less. When company has minimum liabilities it creates better
goodwill in market.
WORKING CAPITAL RATIOS

AND

IT’S INTERPRETATION
 INVENTORY TURNOVER RATIO (IN DAYS)

AVERAGE STOCK

STOCK TURNOVER RATIO IN DAYS = * 365

COST OF GOODS SOLD

PARTICULARS 2016 2017 2018

INVENTORY 244.14 247.07 249.3

COST OF GOODS SOLD 893.23 717.32 830.36

INVENTORY TURNOVER RATIO 99.76277 125.7187 109.5844

TABLE NO. 7.5

GRAPHICAL INTERPRETATION:-

Inventory Turnover Ratio (In Days)

140 125.72
120 99.76
109.58
NO OF DAYS

100
Inventory
80
Turnover
60 Rtio (In
40 Days)
20
0
2016
2017
2018

YEARS

GRAPH NO 7.5

DATA INTERPRETATION:-

Inventory turnover ratio is nothing but how much days company holds inventory before selling. By
analysing the data inventory holding days are less in the year 2018 as compare to the previous year which
means company effectively uses its inventory.
 DEBTORS TURNOVER RATIO (IN DAYS)

DEBTORS

DEBTORS TUROVER RATIO= * 365

SALES

PARTICULARS 2016 2017 2018

DEBTORS 234.38 185 193.63

SALES 927.28 751.76 874.24

DEBTORS TURNOVER RATIO 92.25768 89.82255 80.84159

TABLE NO. 7.6

GRAPHICAL INTERPRETATION:-

Debtors Turnover Ratio (In Days)

95 92.26
89.82
90 Debtors
NO OF DAYS

Turnover
85 Ratio (In
80 80.84 Days)

75
2016
2017
2018
YRARS

GRAPH NO 7.6

DATA INTERPRETATION:-

The debtors turnover ratio in days shows that average number of days required the company to collect the
payment from customers. By analysing the data company takes less days for collection of payment as
compare to previous year which means company effectively convert its credit sales into cash in the year
2018 as compared to year 2016 and 2017.
 CREDITORS TURNOVER RATIO (IN DAYS)

CREDITORS

CREDITORS TURNOVER RATIO = * 365

PARTICULARS 2016 2017 2018

CREDITORS 18.66 18.31 16.39

COST OF GOODS SOLD 893.23 717.32 830.36

CREDITORS TURNOVER RATIO 7.625024 9.31 7.20

COST OF GOODS SOLD

TABLE NO. 7.7

GRAPHICAL INTERPRETATION:-

Creditors Turnover Ratio (In Days)

9.32
10 7.63 7.2
NO OF DAYS

Creditors
8 Turnover
6 Ratio (In
4 Days)
2
0
2016 2017 2018
YEARS

GRAPH NO 7.7

DATA INTERPRETATION:-

By analysing three years data we can see that decreased in debtors turnover ratio(in days) in the year 2018 as
compared to previous two years which means company making a payment of supplier as faster rate to
getting a benefits means to getting a discounting price of raw material.
 WORKING CAPITAL RATIO (IN DAYS)

INVENTORY CONVERSION PERIOD+

RECEIVABLE CONVERION PERIOD

-DEFFERAL PERIOD/SALES

WORKING CAPITAL RATIO = * 365

SALES

PARTICULAR 2016 2017 2018

INVENTORY CONVERSION PERIOD 99.76 125.71 109.58

RECEIVABLE CONVERSION PERIOD 92.29 89.82 80.84

DEFFERAL PERIOD 7.63 9.32 7.2

SALES 927.28 751.76 874.24

WORKING CAPITAL RATIO 72.59 100.12 76.49

TABLE NO. 7.8

GRAPHICAL INTERPRETATION:-

Working Capital Ratio (In Days)

120
100.12
100
72.59
80
NO OF DAYS

76.5 Working
60 Capital Ratio
40 (In Days)
20
0
2016
2017
2018
YEARS

GRAPH NO 7.8

DATA INTERPRETATION:-

Day’s working capital refers to how much day’s company taken to convert to working capital into revenue.
By analysing the data we can see that days working capital ratio is increased in the year 2017 and it is
decreased in the year 2018. Increase and decrease in working capital days is due to increase and decrease in
sales and collecting payment of debtors.
 OPERATING CYCLE PERIOD (IN DAYS)

OPERATING CYCLE = INVENTORY CONVERSION PERIOD+RECEIVABLE CONVERSION

PERIOD-DEFFERAL PERIOD

PARTICULAR 2016 2017 2018

INVENTORY CONVERSION PERIOD 99.76 125.71 109.58

RECEIVABLE CONVERSION PERIOD 92.29 89.82 80.84

DEFFERAL PERIOD 7.63 9.32 7.2

OPERATING CYCLE PERIOD 184.42 206.21 183.22

TABLE NO. 7.9

GRAPHICAL INTERPRETATION:-

Operating Cycle Period (In Days)

206.21
210
205
NO OF DAYS

200 Operating
Cycle
195
184.42 Period (In
190 183.22 Days)
185
180
175
170
2016 2017 2018
YEARS

GRAPH NO 7.9

DATA INTERPRETATION:-

Operating cycle is the time taken in selling inventories plus the time taken in recovering cash from trade
receivables. Company recovers the cash within 180 to 210 days which means company tied up cash for long
period.
 CHAPTER-8

OBSERVATIONS AND FINDINGS

 OBSERVATIONS AND FINDINGS

1. The net working capital for company is positive means company has enough current assets and
money left after paying is current liabilities.
2. Inventory increased by 1% in the FY-2017 as compare to FY-2016 and it is again increased in the
FY-2018 as compare to FY-2018.
3. By analysing the debtor there is fall and rise in debtors. In the FY-2017 debtors decreased because of
decreased in sale and in the FY-2018 debtors increased because of increased in sales. So we can say
that there is the direct relationship between debtors and sales.
4. By analysing the creditors we can see that there is continue decrease in creditors in the company.
Creditors decreases that means company does not purchase material on credit basis which is good
sign for growth.
5. As compare to year wise data company taken less days in the FY-2018 as compare to previous year
for operating cycle this is because the good receivable policy and payment of supplier earlier.
 CHAPTER-9

SUGGESTIONS/RECOMMENTATIONS
 SUGGESTIONS/RECOMMENDATION

Sanvijay Rolling and Engineering Pvt Ltd is managing its working capital in a good manner, but still there is
some scope for improvement in its management. This can be help the company in raising its profit level by
making less investment in accounts receivables and enjoying the credit period offered by suppliers. This will
ultimately improve the efficiency of its operations. Following are few recommendations-

 Since three years inventory days and receivable days are more than payable days which should be
less. So they should work on it.
 Company should keep reminding the customer about outstanding amount on a regular basis.
 Holding of excessive and insufficient stock should be avoided as it creates a burden on the cash
resources of a business and results in lost sales and delays for customers.
CHAPTER-10

CONCLUSION
 CONCLUSION

By conducting the study about Working Capital Management it is find out that Working Capital
Management of Sanvijay Rolling And Engineering Pvt Ltd is good. The net working capital of the company
is positive that means company has enough current assets and money left after paying its current liabilities.
Company making a payment of creditors earlier than offered period which is good sign for the company
growth. Operating Cycle of the company becomes good in current year as compare to previous year.
 BIBLIOGRAPHY

Following source have been sought for the preparation of the report:

Reference books:

 Dr. S.N.Maheshwari “Financial Management”, Nitin edition, 2006 sultan chand, New Delhi
 Prasanna Chandra, ‘Financial Management”, 4th editin 1999, Tata Mc.Graw hill publishing company
ltd. New Delhi
 Kothari C. R. “Research Methodology”, Wishva Prakashan, New Delhi

Financial Statements (Annual Reports):

 Working Capital of the company

Internet Sites:

 https://www.sanvijay.com
 https://www.zaubacorp.com
 http://studyfinance.com