A

Project Report on

“WORKING CAPITAL MANAGEMENT OF

RELIANCE INFOCOMM”

Supervisor Submitted By:-

Mrs. Shashi Bala Mr. Kamal Krishan
Lecturer ODM Enrollment No 08061114150
Hissar MBA IVth SEM (Finance)

Session 2008-10
DIRECTORATE OF DISTANCE EDUCATION
GURU JAMBHESHWAR UNIVERSITY
OF SCIENCE & TECHNOLOGY
HISAR - 125001
 ACKNOWLEDGEMENT

Behind every study there stands a myriad of people whose help and contribution make it successful.
Since such a list will be prohibitively long, I may be excused for important omissions.

I would like to express my heart-felt gratitude to Ms Shashi Bala my project guide, for his
invaluable guidance and encouragement.

I would like to pay my heartily gratitude to my friends for their moral support during my project
work.

It was a pleasant feel and unique experience working on this project.

CONTENTS
1. Introduction

2. Objectives of the Study

3. Research Methodology

4. Conceptual Framework

 Working Capital -- Overall View

 Financial of Working Capital

 Cash Management

 Inventory Management

 Debtors Management

 Creditors Management

5. Findings & Analysis

6. Recommendations

7. Bibliography
 INTRODUCTION

RELIANCE INFOCOMM

Few men in history have made as dramatic a contribution to their country’s economic fortunes as did
the founder of Reliance, Sh. Dhirubhai H Ambani. Fewer still have left behind a legacy that is more
enduring and timeless.

As with all great pioneers, there is more than one unique way of describing the true genius of
Dhirubhai: the corporate visionary, the unmatched strategist, the proud patriot, the leader of men, the
architect of India’s capital markets, the champion of shareholder interest.

But the role Dhirubhai cherished most was perhaps that of India’s greatest wealth creator. In one
lifetime, he built, starting from the proverbial scratch, India’s largest private sector enterprise.
Reliance Infocomm is the outcome of late Dhirubhai Ambani’s dream of bringing about a digital
revolution in India that will bring to every Indian’s doorstep an affordable means of information and
communication.

When Dhirubhai embarked on his first business venture, he had a seed capital of barely US$ 300
(around Rs 14,000). Over the next three and a half decades, he converted this fledgling enterprise
into a Rs 60,000 crore colossus—an achievement which earned Reliance a place on the global
Fortune 500 list, the first ever Indian private company to do so.

Dhirubhai is widely regarded as the father of India’s capital markets. In 1977, when Reliance Textile
Industries Limited first went public, the Indian stock market was a place patronized by a small club
of elite investors which dabbled in a handful of stocks.
Undaunted, Dhirubhai managed to convince a large number of first-time retail investors to
participate in the unfolding Reliance story and put their hard-earned money in the Reliance Textile
IPO, promising them, in exchange for their trust, substantial return on their investments. It was to be
the start of one of great stories of mutual respect and reciprocal gain in the Indian markets.

Under Dhirubhai’s extraordinary vision and leadership, Reliance scripted one of the greatest growth
stories in corporate history anywhere in the world, and went on to become India’s largest private
sector enterprise.

Through out this amazing journey, Dhirubhai always kept the interests of the ordinary shareholder
uppermost in mind, in the process making millionaires out of many of the initial investors in the
Reliance stock, and creating one of the world’s largest shareholder families.

"Make the tools of infocomm available to people at an affordable cost. They will overcome the
handicaps of illiteracy and lack of mobility", was how Dhirubhai, as he was fondly called, spelt out
Reliance Infocomm’s mission in late 1999. He firmly believed the country could use information
and communication technology to overcome its backwardness and underdevelopment.
It was with this belief that Reliance Infocomm began laying its 60,000 route kilometers of pan-India
fiber optic backbone in 1999. The backbone was commissioned on December 28, 2002, Dhirubhai’s
70th birth anniversary, first since his sad demise on July 6, 2002.

Late Dhirubhai Ambani built Reliance from scratch and in 25 years got it a place among the world’s
top Fortune 500 corporations. The fact that he took barely a quarter of a century to do that is what
makes this achievement special.
His corporate philosophy was short: "Think big. Think differently. Think fast. Think ahead. Aim for
the best". At Reliance, he inspired all to better the best in the world.
Dhirubhai would often say that if a telephone call could be made cheaper than the post card in India,
it will transform every home, empower every Indian, remove every roadblock to opportunity and
growth, and demolish every barrier that divides our society. He was of the view that Infocomm
(information and communication) would energize enterprises, galvanize governance, make learning
an experience and life, exciting.
Reliance – Anil Dhirubhai Ambani Group, an offshoot of the Reliance Group founded by Shri
Dhirubhai H Ambani (1932-2002), ranks among India’s top three private sector business houses in
terms of net worth. The group has business interests that range from telecommunications (Reliance
Communications Limited) to financial services (Reliance Capital Ltd) and the generation and
distribution of power (Reliance Infrastructure Limited).

Reliance – ADA Group’s flagship company, Reliance Communications, is India's largest private
sector information and communications company, with over 100 million subscribers. It has
established a pan-India, high-capacity, integrated (wireless and wire line), convergent (voice, data
and video) digital network, to offer services spanning the entire infocomm value chain.

Other major group companies — Reliance Capital and Reliance Infrastructure — are widely
acknowledged as the market leaders in their respective areas of operation.
 VISION

"We will leverage our strengths in executing complex global-scale projects to make leading edge
information and communication services affordable by all individual consumers and businesses in
India. We will offer unparalleled value to create customer delight and enhance business productivity.
We will also generate value for our capabilities beyond Indian borders while enabling millions of
India's knowledge workers to deliver their services globally".

By 2015, be amongst the top 3 most valued Indian companies, providing Information,
Communication & Entertainment services, and being the industry benchmark in Customer
Experience, Employee Centricity and Innovation.
 MISSION

We will create world-class benchmarks by:

 Meeting and exceeding Customer expectations with a segmented approach
 Establishing, re-engineering and automating Processes to make them customer centric,
efficient and effective
 Incessant offering of Products and Services that are value for money and excite customers
 Providing a Network experience that is best in the industry
 Building Reliance into an iconic Brand which is benchmarked by others and leads industry in
Intention to Purchase and Loyalty
 Developing a professional Leadership team that inspires, nurtures talent and propagates
RCOM Values by personal example
 Business

Reliance India Mobile

India ’s leading integrated telecom company Reliance Communications is the flagship company of
the Anil Dhirubhai Ambani Group (ADAG) of companies. Listed on the National Stock Exchange
and the Bombay Stock Exchange, it is India’s leading integrated telecommunication company with
over 100 million customers.

Our business encompasses a complete range of telecom services covering mobile and fixed line
telephony. It includes broadband, national and international long distance services and data services
along with an exhaustive range of value-added services and applications. Our constant endeavour is
to provide an enhanced customer experience and achieve customer satisfaction by upscaling the
productivity of the enterprises and individuals we serve.

Reliance Mobile (formerly Reliance India Mobile), launched on 28 December 2002, coinciding with
the joyous occasion of the late Dhirubhai Ambani’s 70th birthday, was among the initial initiatives
of Reliance Communications. It marked the auspicious beginning of Dhirubhai’s dream of ushering
in a digital revolution in India. Today, we can proudly claim that we were instrumental in harnessing
the true power of information and communication, by bestowing it in the hands of the common man
at affordable rates.

We endeavour to further extend our efforts beyond the traditional value chain by developing and
deploying complete telecom solutions for the entire spectrum of society.

Wireless
Reliance Mobile With over 100 million subscribers across India, Reliance Mobile is India’s largest
mobile service brand. Reliance Mobile services now cover over 24,000 towns, 6 lack villages, and
still counting.
We have achieved many milestones in this short journey. In 2003, AC Nielsen voted Reliance
Mobile (formerly Reliance India Mobile) as India’s Most Trusted Telecom Brand. In July 2003, it
created a world record by adding one million subscribers in a matter of just 10 days through its
‘Monsoon Hungama’ offer.

What sets Reliance Mobile apart is the fact that nearly 90 per cent of our handsets are data-enabled,
and can access hundreds of Java applications on Reliance Mobile World.

Reliance Mobile has ushered in a mobile revolution by offering advanced multimedia handsets to the
common man at very affordable rates. This innovative low pricing has increased the number of
mobile phone users and its result is clearly reflected in the meteoric rise in India’s tale-density over
the past four years.

Our pan-India wireless network runs on CDMA2000 1x technology, which has superior voice and
data capabilities compared to other cellular mobile technologies. CDMA2000 1x is more cost-
effective as it utilizes the scarce radio spectrum more efficiently than other technologies do.
Enhanced voice clarity, superior data speed of up to 144 kbps and seamless migration to newer
generations of mobile technologies are some of its key differentiators.

R World

The R World suite of Reliance Mobile is a unique Java-based application. Its uniqueness lies in the
fact that it enables complex Internet application to be introduced in mobile phones effectively and
quickly. R World receives over 1.5 billion page views per month from Reliance Mobile users.
R World offers a wide array of applications that include hourly news updates, high quality headline
video clips, downloadable multi-lingual ring tones, seasonal updates including festival specials, city
and TV specials, exam results, astrology, mobile banking, bill payment.

With over 150 data applications offering varied services - unique to any wireless service in India - R
World is truly a treasure house of knowledge, information, entertainment and commerce.
Wireless ATMs

The CDMA-based Wireless connectivity solution enables quick deployment of ATMs by banks,
apart from the advantage of rolling out a nationwide network of Wireless ATMs that are secure and
cost efficient. Unlike VSAT-based connectivity, which banks traditionally rely on, the CDMA
solution eliminates the need of rooftop rights and the resultant delays. Reliance Infocomm's CDMA-
based Wireless connectivity scores over other ATM connectivity options on counts like speed of
deployment, mobility and cost. Many banks including SBI, ICICI and HDFC banks are rolling out
hundreds of wireless ATMs using Reliance's wireless network.

R-Connect

Reliance offers India's only nationwide wireless Internet connectivity through R Connect service by
leveraging its pan-India high speed CDMA2000 1x wireless network. R Connect is also India's
fastest growing Internet connectivity service with over 300,000 subscribers in less than seven
months. Subscribers can connect to Internet on the move at data speeds of up to 144 Kbps from their
laptops or other mobile computing devices with an R Connect Cable connected to their Reliance
India Mobile phones or by using an R-Connect Card inserted into the PCMIA slot in their laptop.

It was the dream of Late Mr Dhirubhai Ambani, Chairman, Reliance Group, to leapfrog India to the
centre stage of global communication and information technology space. Commensurate with this
dream, over the next 5 years, Reliance will be the key contributor towards enabling India achieves
the targeted tale-density of 15 lines per hundred persons as against the current figure of 3. Reliance
has envisaged an investment of Rs. 25,000 crore towards the realization of this dream - creation of
state-of the-art telecommunications infrastructure allowing convergence of voice, data and video.

Key Features:

• One of the largest CDMA 1x Network outside of North America

• CDMA 1x Wireless Technology

• 673 cities & over 2500 BTS

• Better spectral efficiency vis-à-vis GSM Networks

• Data rates of up to 144 Kbps (shared bandwidth)

• Technology choices make costs lower

• Lower costs – lower prices

Internet
 Broadband

Wired to win

The successful rolling out of real broadband services across the nation marks the second chapter of
Reliance Communications’ commitment to usher in a digital revolution in India. Reliance
Communications is setting new standards for the world to follow through inventive use of cutting-
edge technologies in the field of fiber optics, Ethernet, microwave radios, switching, routing, digital
compression and encoding.

The mass roll out of broadband being carried out by Reliance Communications across the length and
breadth of the country, offering speeds of up to 100 Mbps to millions of users, in itself is a
technological marvel.

The uniqueness of Reliance Communications’ broadband initiative lies in the fact that our entire
nationwide network is being conceptualized and built from ground zero. It is designed to deliver
affordable quality education, drive governance, transform healthcare, enhance efficiency in business
and finally, generate new job opportunities for millions of unemployed Indians.
Reliance Communications’ broadband service is set to revolutionize Indian society by removing the
traditional bottlenecks of development including lack of capital and weak infrastructure, and help
tide over the challenges of distribution in a vast country like India.

E-education

The mission of Reliance Communications’ e-learning initiatives is to bring world-class education to

the doorstep of every Indian home. Utilizing our pan-India optical fiber and retail network,
educational institutions can reach out to large sections of students which otherwise would be very
difficult to contact.

Leveraging our robust broadband infrastructure two top Indian management schools — the Xavier
Institute of Management, Bhubaneshwar and XLRI, Jamshedpur — are imparting fully interactive
real-time courses across 105 cities.

The Indian market possesses tremendous potential yet to be tapped. Utilizing our real broadband
connectivity, educational institutions can source the best educational material from anywhere in the
world. Libraries and laboratories around the world can be cross-linked making way for seamless
exchange of information and expertise.

Digital workplaces

Physical distance or proximity is now a thing of the past. Reliance Communications’ real broadband
connectivity has changed the dynamics of work. Our video conferencing service acts as a virtual
bridge between professionals working at different office locations across the world.

E-healthcare
Reliance broadband is set to offer timely quality healthcare facilities at very affordable rates to large
sections of the Indian population irrespective of their geographical location. Our broadband
connectivity is committed to usher in a new generation of online healthcare delivery system.

Access to advance medical expertise can no longer be constrained by geography. A patient can seek
medical advice sitting in the comforts of home. Doctors can attend to patients anywhere in the world
on real-time basis. At the click of the mouse, medical records and documents can be digitally
dispatched thousands of miles away.

Recently, the Apollo Group of Hospitals joined hands with Reliance Communications to offer its
top-of-the-line healthcare facilities online to the benefits of millions of Indians.

Integrated Enterprise Solution

Reliance Communications’ Integrated Enterprise Solution offering is currently being rolled out in 30
cities across India. It consists of an integrated voice, data and video solution. Our target is to expand
its service to cover the entire country eventually.

For Indian enterprises, our convergent voice-data-video solution framework, delivered through
fiber-to-the-building (FTTB) architecture introduces true broadband connectivity. Our enterprise
broadband is delivered using Metro Ethernet technology. However, based on specific customer
requirement other high-end technologies including Digital Subscriber Line (DSL), Local Multipoint
Distribution Services (LMDS) and Integrated Service Digital Network (ISDN) are also being
deployed.

As per specific requirements of enterprises we provide customized solutions be it a simple voice

solution or complex data solutions that involves nationwide networking of all branches, sales and
field executives, vendors, suppliers and customers at data speeds scalable from 64 Kbps to 100
Mbps. Reliance Communications’ core broadband products include MPLS based VPN, leased lines,
Gigabit Internet connectivity, video conferencing and video telephony.
 W ir e lin e
• P a n In d ia c o v e ra g e (1 8 o u t o f 2 1
W ir e le ss te le c o m c irc le s)
• 3 G w ire le s s n e tw - o rk • F ib e r to 1 .7 m illio n b u ild in g s in
la rg e s t d e p lo y m e n t in 2 0 0 to w n s
In d ia • 1 5 0 0 s e -u
m rib a n a n d ru ra l to w n s
• C o v e ra g e in 6 7 3 to w n s se rv ic e d Cb yo r D E C T

D ata C en ters
• 8 w o rld c la ss D a ta N a tio n a l B a c k b o n e
C e n te r s p la n n e d • 6 0 ,0 0 0 k m n a tio n w id e
w ith o v e r 5 0 0 ,0 0 0 o p tic a l fib e r b a c k b o n e
sq . ft. o f sp a c e c o v e rin g 2 2 6 d is tr ic ts
• E a c h fib e r c a p a b le o f
N e tw o r k O p e r a tin g te ra b it c a p a c ity
C e n te r s
• T w oN o C ps la n n e d • 6 d u c ts la id in b a c k b o n e
I n te r n a tio n a l C a r r ia g e
• C o n n e c tiv ity o n fo r 2 4 /7 m o n ito rin g
F ib e r & S a te llite a n d fa u lt tra c k in g o f
n e tw o rk
• P o P sin U S A , U K ,
H o n g k o na ng d
M id d le E a s t

• L ic en s es fo r IL D , N L D , B as ic teleph o n y
• P lan c o vers 95% o f th e telec o m m arket
(b y reven ue) in th e c o un try

Entertainment IPTV
Reliance IPTV is powered by Microsoft Mediacom, which is the preferred IPTV Platform world
over. Leading IPTV Service Providers like AT&T, BT, DT and SingTel operate on the Mediacom
Platform. Features and functionalities on the Reliance IPTV differentiate us from all the other IPTV
Players in the country. Reliance IPTV is uniquely placed to cater to the growing & varied needs of
consumers and become India’s leading IPTV service provider.
Reliance IPTV comes loaded with unique features and functionalities that are built to provide the
user an amazing TV experience.

Following features differentiate Reliance IPTV from competition:

 Live TV
Reliance IPTV Service has the capability to deliver over 500 Live TV channels and will
carry around 200 Channels at launch – the highest by any Television Service Provider in India. We
are targeting to carry at least 250 channels, including 5-10 HD Channels, within a year of launch.
 Video on Demand
Reliance IPTV can host over 5,000 hours of Video at current capacity. Around 500 Video
Titles will be available at launch and the library will be expanded on an ongoing basis. Within a year
of launch, we intend to carry at least 1500 Titles.
 DVR
Reliance IPTV has functionality to support recording of 3 streams simultaneously while
watching Live TV/VOD.
 Instant Channel Change (ICC)
A unique feature of Reliance IPTV which enables channel changeover in microseconds.
Typical channel change times are at least 2-4 seconds.
 Time-Shift TV

Catch-up TV allows a subscriber to go back in time and watch programs that were screened earlier
in the day or in the week. Reliance IPTV has the capability to allow a subscriber to go back a week
in time.
Reliance IPTV has been tested and is running successfully in more than 200 Homes in Mumbai.
Initially, our services will be launched in Mumbai and Delhi and then expanded to Pune, Bangalore,
Hyderabad and Ahmedabad in the next one year.

Big TV
Entertainment avenues in India today are expanding from mass entertainment to ‘lifestyle
entertainment’. Consumers are looking at the best life has to offer when it comes to enjoyment,
entertainment, expression and creativity. They are seeking products and services that will create a
rich, personalized and social media environment that maximize the limited time available.

Imagine a digital television service that suits you and your family’s interests, passions and busy
schedules. Picture all of your favorite channels, shows, and movies at your fingertips – it’s time to
step into the BIG world of entertainment.

Reliance BIG TV presents the next landmark in entertainment in India. The launch of Reliance BIG
TV brings true digitization and a transformation of the current television viewing experience, and
marks a shift in the controls from the broadcaster to the hand of the consumer. Homes all over the
country will witness a never before digital television viewing experience with unlimited hours of fun
and entertainment for the entire family. Consumers can now experience fantastic features such as
pure digital picture, digital sound, more channel choice, multiple exclusive movie channels, easy
programming guide, interactive services, parental control, superior customer service and lots more.

It has a significant technological advantage over other television platforms in terms of the number of
digital channels it can broadcast, the quality of its audio and video, DVR (Digital Video Recording)
and HD (High Definition) readiness and many more features because it uses MPEG-4 compression
technology. It is also in a superior position to take advantage of the content boom, the synergies with
the BIG Entertainment group, and the Reliance ADA Group retail distribution network, consumer
and investor base.

Reliance Infratel Limited (RITL)

RITL’s business is to build, own and operate telecommunication towers, optic fiber cable assets and
related assets at designated sites, and to provide these passive telecommunication infrastructure
assets on a shared basis to wireless service providers and other communications service providers
under long-term contracts.
 OBJECTIVES OF THE STUDY

The main objective of the study is to have an insight into the current practices of the company with
regards to management of various elements of working capital. An attempt will also be made to find
out whether or not, to what extent, the working capital management is efficient and effective in the
RELIANCE INFOCOMM. Ways and means to improve working capital management would also be
suggested which lead to better productivity and maximization or shareholder’s wealth.
Apart from the above, more specifically the present study is conducted to find out as follows:

The main objectives are:-

• Whether the firm has adequate liquidity throughout the period which leads to risk return trade
off?
• How far has the firm been successful in managing and collection of the receivables in time?
• To study management policies regarding inventory management, whether the management have
applied various inventory control techniques for proper utilization of resources.
• How far have the firm been successful in managing and payments of accounts payables.
• To study the factor affecting the working capital management.
• To study the policies regarding working capital management
.

RESEARCH METHODOLOGY

Research Methodology

Research methodology is the way to systematically solve the research problem. It may be
understood as the science of study how research is done systematically. In it we study the various
steps that are generally adopted by the research methods or techniques and also the methodology.

Research design
The formidable problem that follows the task of defining the research problem is the preparation of
the design of the research project, popularly known as “RESEARCH DESIGN”. Decision regarding
what, where, when, how much, by what means concerning and enquiry or a research study
constitute.
The research design can be exploratory and descriptive designs.

Data collection method:

The data can be collected by two methods:

1. Primary method
2. Secondary method

Primary data

Primary data is the important source of information. Primary data are those, which are collected
first time and thus happens be original in character. So, data directly collected by research is known
as primary data. The primary source of data collection is classified as:
• Observation
• Focus
• Surveys
 • Experiments
Secondary method

The data, which is not collected for the first time & it used already for any other purpose. The
main sources are:
1. Central and state Govt.
2. Magazines & journals.
3. Other published material.
4. Websites.

But in my research data will be collected through secondary source.

Analytical tools
Data will be analyses on the basis of percentage with the help of table and figures.
 CONCEPTUAL FRAMEWORK

WORKING CAPITAL MANAGEMENT – AN INTRODUCTION

Working Capital management is the management of assets that are current in nature.
Current assets, by accounting definition are the assets normally converted in to cash in a
period of one year. Hence working capital management can be considered as the
management of cash, market securities receivable, inventories and current liabilities. In
fact, the management of current assets is similar to that of fixed assets the sense that is
both in cases the firm analyses their effect on its profitability and risk factors, however
differ on three major aspects.
1. In managing fixed assets, time is an important factor discounting and
compounding aspects of time play an important role in capital budgeting and a minor
part in the management of current assets.
2. The large holdings of current assets, especially cash, may strengthen the firm’s
liquidity position, but is bound to reduce profitability of the firm as ideal cash yield
nothing.
3. The level of fixed assets as well as current assets depends upon the expected
sales, but it is only current assets that are adjusted with the fluctuation in the short run in
a business.
To understand working capital better we should have basic knowledge about the
various aspects of working capital. To start with, there are two concepts of working
capital:
- Gross Working Capital
- Net working Capital

Working capital (abbreviated WC) is a financial metric which represents operating

liquidity available to a business, organization, or other entity, including governmental
entity. Along with fixed assets such as plant and equipment, working capital is
considered a part of operating capital. Net working capital is calculated as current assets
minus current liabilities. It is a derivation of working capital, that is commonly used in
valuation techniques such as DCFs (Discounted cash flows). If current assets are less
than current liabilities, an entity has a working capital deficiency, also called a
working capital deficit.

Working Capital = Current Assets

Net Working Capital = Current Assets − Current Liabilities

A company can be endowed with assets and profitability but short of liquidity if its
assets cannot readily be 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.

Gross Working Capital:

Gross working capital, which is also simply known as working capital, refers to the
firm’s investment in current asset. Another aspect of gross working capital points out the
need of arranging funds to finance the current assets. The gross working capital concept
focuses attention on two aspects of current assets management, firstly optimum
investment in current assets and secondly in financing the current assets. These two
aspects will help in remaining away from the two danger points of excessive or
inadequate investment in current assets.
Working Capital = Current Assets

Net Working Capital:

The term net working capital refers to the difference between the current assets and
current liabilities. Net working capital can be positive as well as negative. Positive
working capital refers to the situation where current assets exceed current liabilities and
negative working capital refers to the situation where current liabilities exceed current
assets. The net working capital helps in comparing the liquidity of the same firm over
time. For purposes of the working capital management, therefore, Net Working Capital
can be said to measure the liquidity of the firm.
Net Working Capital = Current Assets − Current Liabilities

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.

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 and / or profitability.

• 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).

Management of working capital

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

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

• Inventory management. Identify the level of inventory which allows for

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

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

• Short term financing. Identify the appropriate source of financing, given the
cash conversion cycle: the inventory is ideally financed by credit granted by the
supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to
"convert debtors to cash" through "factoring".
Importance of working capital management:

Management of working capital is very much important for the success of the business.
It has been emphasized that a business should maintain a sound working capital position
and also there should not be an excessive level of investment in the working capital
components. As pointed out by Ralph Kannedy and Stewart MC muller, “the inadequacy
of mis-management of working capital is few leading causes of business failure.
Current assets, in fact, accounts for a very large portion of the total investment of
the firm. Table clearly shows that in RELIANCE INFOCOMM, the current assets
accounts for 72.52% (average) of total investment in the net assets during the study
period.

Table showing Current assets as percentage of Total assets

Year Percentage
1997-98 75.82
1998-99 73.27
2000-01 71.45
2001-02 74.48
2002-03 67.57
Average: 72.52%

78
75.82
76 74.48
74 73.27
71.45
72
70
67.57
68
66
64
62
1997-98 1998-99 2000-01 2001-02 2002-03
It can be visualized from the table that in the first year of our study 1.e. 1997-98 it was
75.82% which was reduced to 73.27% in the next year and in 2002-03 it is 67.57%
shows decreasing trend.

CIRCULATION SYSTEM OF WORKING CAPITAL

In the beginning the funds are obtained from the issue of shares, often
supplemented by long term borrowings. Much of these collected funds are used in
purchasing fixed assets and remaining funds are used for day to day operation as pay for
raw material, wages overhead expenses. This account of profit is used for paying taxes,
dividend and the balance is ploughed in the business.

Working capital is considered to efficiently circulate when it turns over quickly.

As circulation increases, the investment in current assets will decrease. Current assets
turnover ratio speaks about the efficiency of RELIANCE INFOCOMM in the utilization
of current assets. Fast turnover current assets results in a better rate on investment.

Table showing Current assets turnover ratio

Average: 1.41

2 1.77
1.8
1.6 1.37
1.35 1.28 1.27
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1997-98 1998-99 2000-01 2001-02 2002-03

The ratio average is 1.41 times in the study period of 5 years. In 2000-01 current assets
turnover ratio is highest one i.e. 1.77 during the 5 year study. Reasons being during this
year company has achieved sales growth 33.48% over the previous year and additional
activity needs more funds.
A firm needs fixed assets and current assets to support a particular level of
output. As the firm’s output increases, the need for current assets increases. The level of
current assets can be measured by relating current assets to fixed assets. Other things
assuming constant, conservative policy (i.e. higher current assets/fixed assets ratio)
implies greater liquidity and low risk, which an aggressive policy (i.e. lower current
assets/fixed assets ratio). Indicate toward higher risk between the two extreme policies.

Current Assets to Fixed Assets Ratio

Year Ratio (in times )

1997-98 3.14
1998-99 2.74
2000-01 2.50
2001-02 2.92
2002-03 2.08
Average: 2.68

It can be visualized from the above table that current assets to fixed assets ratio
of five study periods are fluctuating. So we can conclude that investment in fixed assets
(due to increase in production capacity) attracts the investment in current assets.

Analysis of Liquidity position:

The importance of adequate liquidity or the ability of the firm to meet its long
term obligations when they become due for payment can hardly be over emphasized.
The short term creation of the firm are interested in the short term solvency and liquidity
of firm and owners and long term creditors are interested in long term solvency as
profitability of the firm. A proper balance between the two contradictory required for
efficient use of current resources.

The following are the ratios which measure the liquidity of a firm:
Net Working Capital: Though net working capital is not a ratio, it is frequently
employed as a measure of the firm’s liquidity. The greater the amount of net working
capital, the greater is the liquidity of a firm. Following table shows the working capital
position of the company.

Net Working Capital

Year Amount Indices % increase

(Rs. in crores)
1997-98 2032.11 100.00 0
1998-99 2576.33 126.78 26.78
2000-01 2709.35 133.33 33.33
2001-02 3267.20 160.78 60.78
2002-03 3698.12 181.98 81.98

Table shows that net working capital has increasing trend in the period of study.
The working capital increases significantly in the year 2000-01 and 2002-03. So we can
say that as per liquidity point of view there is no problem. But this is an indication only
whereas actual liquidity position will be reviewed by current ratio and quick ratio in the
next paragraphs.

Current Ratio: Current ratio shows that how many times current assets have covered
the current liabilities. Current ratio measures the relative ability of enterprise to pay its
short term obligations and it is also used to reveal how well a firm could meets a sudden
demand to pay of all its short term creditors. The higher the ratio, better in the safety
margin and technical solvency of the firm. Table shows the current ratios of RELIANCE
INFOCOMM
Current ratio

3.5 3.14 3.17

2.76 2.87
3
2.54
2.5
2
1.5
1
0.5
0
1997-98 1998-99 2000-01 2001-02 2002-03

Average: 2.90

A high ratio of current assets to current liabilities may be indicative of slack

management practices as it might signal excessive inventories for the current
requirements and poor credit management in term of over extended accounts receivable.
The firm may not be making full use of its current borrowing capacity.
Quick Ratio: Quick ratio is the relationship between quick assets and current liabilities.
Quick assets is defined as current assets minus inventory since inventory is relatively
less liquid and hence not considered as a part of quick assets. This ratio is often used
supplement the information furnished by current ratio. An Acid test ratio of 1:1 is
considered satisfactory. This norm however should be interpreted with caution. A higher
ratio does not necessarily mean that it is good nor a lower ratio means means that it is
bad. Table shows the quick ratio of VSNL
Quick Ratio
Average :1.50

Year Quick assets Current liabilities Quick ratio

2005 _ _ _
2006 Rs.3158.96 Cr. Rs.4.25 Cr. 742.28
2007 Rs. 20107.04 Cr. Rs. 10732.14 Cr. 1.87
2008 Rs. 18515.29 Cr. Rs. 11238.16 Cr. 1.64
2009 Rs. 25543.01 Cr. Rs. 9365.46 Cr. 2.72

2 1.82
1.8 1.69
1.6 1.37 1.45
1.4 1.19
1.2
1
0.8
0.6
0.4
0.2
0
1997-98 1998-99 2000-01 2001-02 2002-03

Cash Ratio: Cash ratio also called absolute liquidity ratio. It is most rigorous test of
the liquidity position of the business unit. It is calculated as :
cash and marketable securities
Cash ratio = -------------------------------------*100
Current Liabilities

The Table shows the cash ratio of RELIANCE INFOCOMM

 Year Cash Ratio (in Percentage)
1997-98 46.55
1998-99 22.91
2000-01 22.66
2001-02 19.89
2002-03 26.42

Average: 27.69

50
45 46.55
40
35
30
25 26.42
22.91 22.66
20 19.89
15
10
5
0
1997-98 1998-99 2000-01 2001-02 2002-03

Conclusion: In this chapter, practice regarding working capital management has been
examined of the company for the selected period of study and management performance
has been evaluated. The main findings are as follows:
It is witnessed that current assets form an integral part of the total assets i.e.
average 72.52% for the 5 years of study period. Nature and size of the business is
reported to be the most effecting factor of working capital level in the company followed
by growth and expansion, management policy etc. Conservative approach is followed by
the company in financing their working capital requirements. Total current assets
position, current ratio, quick ratio and cash ratio shows that company has very good
position regarding liquidity.
 CASH MANAGEMENT
Cash is the important current asset for the operations of the business. Cash is the
basic input needed to keep the business running on a continuous basis it is also the
ultimate output expected to be realized by selling the service or product manufactured by
the firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will
disrupt the firm’s operations while excessive cash will simply remain idle, without
contributing anything towards the firm’s profitability. Thus a major function of the
Financial Manager is to maintain a sound cash position.
Cash is the money which a firm can disburse immediately without any restriction
the term cash includes currency and cheques held by the firm and balances in its bank
accounts.

Evaluation of cash management performances

To assess the cash management performance this phase is divided as follows:
A) Size of cash:
The quantum of cash held by RELIANCE INFOCOMM during the study period
is presented in the table. The trend percentage are also calculated and shown in the table:

Size of cash balance (Rs. in Crores)

Year Cash Trend
1997-98 442.38 100

1998-99 335.24 -24.22

2000-01 328.40 -25.77
2001-02 421.15 -0.05
2002-03 449.44 1.60
Source: Annual report

500 442.38 449.44

421.15
400
335.24 328.4
300

200
100
100 -24.22
-25.77 -0.05 1.6
0
1997-98 1998-99 2000-01 2001-02 2002-03
-100

Size of sales (Rs. in Lacs)

Year Sales Trend
1997-98 4033.98 100.00
1998-99 5524.90 36.96
2000-01 7350.19 82.21
2001-02 6912.47 71.36
2002-03 6837.08 69.49
Source: Annual Reports

(B) Liquidity and Adequacy of Cash:

One of the most important jobs of the Finance Manager is to maintain sufficient
liquidity to enable the firm to pay off its obligations when they fall due. To test a firm’s
liquidity and solvency we commonly use current and quick ratios. Traditionally 2:1
current ratio and 1:1 quick ratio are taken as satisfactory standards for the purpose. The
former indicates the extent of the soundness of the current financial position of a firm
and the degree of safety provided to the creditors, the later signifies the ability of a firm
to settle all its current obligations on a particular date.
Current ratio and quick ratio
Year Current ratio Quick Ratio
1993-94 3.14 1.82
1994-95 2.76 1.37
1995-96 2.87 1.69
1996-97 2.54 1.19
1997-98 3.17 1.45

Source: Annual Reports

Our analysis clearly shows that the company has very sound position regarding liquidity
and solvency. Further, all the ratio fluctuates throughout the period.

(C) Control of Cash:

One of the major objectives of cash management form the stand point of
increasing return on investment is to economize on the cash holding without impairing
the overall liquidity requirements of the firms. This is possible by effecting tighter
controls over cash flows. The following ratio has applied to assess the efficiency of cash
control:
# Cash to Current Assets ratio
# Cash turnover ratio

Cash to Current assets ratio

Year Cash to CA ratio
1997-98 14.83
1998-99 8.30
2000-01 7.90
2001-02 7.82
2002-03 8.32
Average: 9.43
Source: Annual Reports

Conclusion : It can be inferred from the above table that except the year 1997-98,
cash to current assets ratio is more or less constant, which shows the proper maintenance
of liquidity position, which ultimately affect the operational efficiency of the firm.
Cash Turnover Ratio
Year Ratio
1997-98 9.12
1998-99 16.48
2000-01 22.38
2001-02 16.41
2002-03 15.21

Conclusion: Table shows that cash turnover ratio of the company is very fluctuating.
In 1997-98 it was lowest but in 1998-99 it gets the highest value and in other three years
it remains constant which reveals the poor management of cash in the company.

Overall conclusion: The analysis of financial data reveals that the company has very
sound position regarding liquidity and solvency as shown by the current and quick
ratios. Cash turnover ratio, cash to current liabilities ratio, cash to current assets ratio
indicates the position that the firm is controlling the and managing the cash efficiently
when the cash to current assets ratio is concerned, the ratio is at the minimum level at
last year and also at the optimum level of cash apart of all current assets. There is a
decrease in sales in the year 2001-02 and 2002-03, it has thereby affected the cash
turnover ratio. The cash to current liabilities ratio is nearly on decreasing trend shows
the efficiency of operations.
 MANAGEMENT OF INVENTORY

Inventories are the stock of the product made for sale by the company or semi finished
goods or raw materials. Inventory of finished goods which are ready for sale is required
to maintain smooth marketing operation. These inventories serve as a link between the
production and consumption of goods.
The aspect of management of inventory is especially important in respect to the
fact that in country like India, the capital block in terms of inventory is about 70% of the
current assets. It is therefore, absolutely imperative to manage efficiently and effectively
in order to avoid unnecessary investment in them. Although to maintain low inventories
may prove to be profitable but to maintain very low inventories may prove risky on the
contrary.
A company should maintain adequate stock of materials for a continuous supply
to the factory for an uninterrupted production. It is not possible for a company to procure
raw material instantaneously whenever needed. If a close link is maintained between the
sales and the production department then an organization can do with a small inventory
also. In the process inventory is also necessary because production can not be
instantaneous
Evaluation of Inventory Management:
In this section of this chapter, an attempt has been made to judge the efficiency
of inventory management in RELIANCE INFOCOMM by examine the composition
movement and level of inventory held by the firm.
Composition of Inventory: Composition of inventory generally depends upon the
nature of business. The structure of inventory shows us that which part of the inventory
is more in the organization. Such knowledge helps us in the efficient management of
inventory. Table shows the composite of inventory in RELIANCE INFOCOMM.
Composition of Inventory
Year Raw Material Semi Finished Stores Spares Total
Material Goods & scrap
1997-98 36.80 21.83 30.92 10.45 100.00
1998-99 46.10 13.87 27.61 12.42 100.00
2000-01 19.73 8.98 61.41 10.15 100.00
2001-02 13.26 13.31 56.47 16.96 100.00
2002-03 9.56 14.42 57.85 18.40 100.00
Average 25.09 14.48 46.85 13.68 100.00

70
60
50
40
30
20
10
0
1997-98 1998-99 2000-01 2001-02 2002-03 Average

Raw Material Semi Material

Finished Goods Stores Spares & scrap

Conclusions: Table reveals the proportion of each component of inventory to

total of inventory in percentage terms. On the opposite, the percentage share of finished
goods in the total inventory has increased significantly during last 3 years of the study
period. The percentage share of store/scrap/spares etc. is moving between 10-18%. The
increasing share of finished goods is to be checked and controlled, that shows the
blockage of goods at finished stage.

Inventory Turnover Ratio

Year Ratio In days
 1997-98 3.64 100
1998-99 3.06 119
2000-01 5.15 71
2001-02 2.78 131
2002-03 2.64 138
Average: 112 days
Inventory turnover ratio is generally regarded as indicator of inventory
efficiencies. It establishes a relationship between the total sales during a period and
average inventory hold to meet that quantum of turnover. In the year 2002-03, inventory
turnover ratio is the lowest one at 2.64 times, that signifies the slow moving of
inventory. In other words, the stock held during 2002-03 is for 138 days as comparison
of average at 112 days for the view of five years.

Overall Conclusion: This can be concluded that overall composition includes the
highest factor of finished goods and that is too on increasing trend. Moreover, the
inventory level is maintained for 138 days for the year 2002-03 that is the highest during
the study period. The overall position of inventory is that adequate on following basis:
• The factor of finished goods is the composition of inventory is total is at higher
level and also having an increasing trend.
• The stock is also very slow moving and the stock retention period is on
increasing trend.
The above two factors increases the cost of production and decreases the profitability,
therefore, these should be taken in to consideration for better productivity and efficiency
of operation.

MANAGEMENT OF RECEIVABLES

Trade credit, the tool which as a bridge for movement of goods through
production and distribution stages to customer, is a force in the present day business and
an essential device. Trade credit is granted with a motive of protecting the sale from
ones, competitors and attaching more of the potential customers. Trade credit is said to
be extended to a customer when a firm sell its services or goods and does not receive the
payment for them immediately. Thus trade credit creates receivable which refer to the
amount which a firm is expected to collect in near future.

Goals of Management of Receivables

As all other aspects of management, this also aims at the maximization of wealth
by a beneficial trade off between liquidity risk and profitability. The main aim of
management is not to maximize sales or minimize bad debt risk but in a way it is to
expand sale to the extent that the bad debt risk remained within the limits. So in an effort
to maximize the wealth, the goals of management of receivable are:
• To obtain optimum value of sales
• To control the cost of credit and keep it to the minimum level.
• To maintain investment in debtors at optimum level.

Performance Evaluation of Receivables Management:

Evaluation of the performance of the credit department is a difficult task. There

is no standard yardstick to compare with the actual performance. Yet a successful
receivable management must ensure a comparatively slow growth of receivable as
against sales, as factory collection period and receivable task over minimum bad debts
losses and effective use of capital invested in receivable. Accordingly the following
criterion has been employed to evaluate the performance of receivable management in
RELIANCE INFOCOMM:

Ageing of Debtors: We can have a detailed idea about the quality of accounts
receivable through the ageing and schedule. Ageing, clearly spot the slow paying
accounts and indicate towards the efficiency of the management in collecting the post
due accounts. A firm which fails to recover up its receivable with in time faces bad debts
losses ultimately. RELIANCE INFOCOMM has given information in their annual
reports and accounts for those debts which are due for over six months.
Table Showing the Ageing of Receivable in RELIANCE INFOCOMM
Year Receivable O/S under six months Receivable O/S over
six months
1997-98 0.98 0.02
1998-99 0.97 0.03
2000-01 0.96 0.04
2001-02 0.94 0.06
2002-03 0.96 0.04

Table reveals that receivable outstanding for a period of less than six months have more
or less constant status whereas outstanding more than six months ranges between 0.02 &
0.06 in our five year study.
Composition of Receivable:
.
In the unit under study receivable mainly consist of study debtors and loan and
advances both the segment of receivable have been shown in table:

Composition of Receivable

Year Sundry Debts Loan& Advances Debtors O/S for a

considered goods Considered goods period exceeding six
(in times) months
1997-98 0.88 0.10 0.02
1998-99 0.86 0.12 0.02
2000-01 0.85 0.11 0.04
2001-02 0.80 0.15 0.05
 2002-03 0.83 0.13 0.04

Table reveals that sundry debtors considered goods are having constant base
whereas loans and advances have fluctuating trend.

Average Collection Period: Average collection period explains how many days
of credit, a company is allowing to the customer. A higher collection period indicates
towards a liberal and inefficient credit and collection performances shorter the collection
period the better the credit management and liquidity of accounts receivable.

Average collection period

Year Days
1997-98 116
1998-99 111
2000-01 105
2001-02 111
2002-03 108

Average: 110
Conclusion: The receivable collection period at an average level is for 110 days
during five years of study. The period is more or less constant.

Debtors Turnover Ratio:

This ratio is calculated the effective utilization of funds involved in receivable.
An effective credit management results in a higher turnover of accounts receivable.

Year Debtors Turnover Ratio Average collection period (in days)

1997-98 3.14 116

1998-99 3.30 111
2000-01 3.46 105
2001-02 3.30 111
2002-03 3.38 108

Conclusion: The debtor’s turnover ratio is also more or less constant that signifies the
constant recovery of debtors from operation activities. The average collection period is
at level of 110 days for the five years of study. The collection period of debtors should
be kept at lowest level for the reduction in cost of capital and better productivity.

Overall Conclusions: The overall conclusions of receivable management can be

made on following basis:

1. The factor of debtors considered goods in composition of total receivable is on

decreasing trend.

1. The factor of debtors exceeding the six months in composition of total receivable
trend from 0.02 to 0.06 during study period. Average collection period of receivable and
debtors is more or less constant i.e... Average 110 days whereas lowest 105 days during
1995-96. That shows the constant recovery of debtors and other receivable and also in
1997-98 it is 108 days.

MANAGEMENT OF PAYABLES

A substantial part of purchase of goods and services in business are on credit

terms rather than against cash payment. While the supplier of goods and services tends
to perceive credit as a lever for enhancing sales or as a form of non-price instrument of
competition, the buyer tends to look upon it as a loaning of goods or inventory. The
supplier’s credit is referred to as Accounts payable, Trade Credit, Trade Bill, Trade
Acceptance, commercial drafts of bills payable depending on the nature of the credit.
The extent to which this ‘buy-now, pay- later’ facility is provided will depend upon a
variety of factors such as the nature, quality and volumes of items to be purchased, the
prevalent practices in the trade, the degree of competition and the financial status of the
parties concerned. Trade credits or Payables constitutes a major segment of current
liabilities in many business enterprises. And they primarily finance inventories which
form a major component of current assets in many cases.

Types of trade credits:

Trade credits or Payables could be of three types: Open Accounts, Promissory

notes and Bills Payables.
Open Account or open credit operates as an informal arrangement wherein the
supplier, after satisfying himself about the credit-worthiness of the buyer, dispatches the
goods as required by the buyer and sends the invoice with particulars of quantity
dispatched, the rate and the total price payable and the payment terms. The buyer
records his liability to the supplier in his books of accounts and this is shown as
Payables on open account. The buyer is then expected to meet his obligations on the
due date.
The promissory note is a formal document signed by the buyer promising to pay
the amount to the seller at a fixed or determinable future time. Where the client fails to
meet his obligations as per open credit on the due date, the supplier may require a formal
acknowledgment of debt and a commitment of payment by a fixed date. The promissory
note is thus an instrument of acknowledgment of debt and a promise to pay. The
supplier may even stipulate an interest payment for the delay involved in payment.
Bills payable or commercial drafts are instrument drawn by the seller and
accepted by the buyer for payment on the expiry of the specified duration. The bill or
draft will indicate the banker to whom the amount is to be paid on the due date, and the
goods will be delivered to the buyer against acceptance of the bill.

Evaluation of Payables Management

Creditor’s turnover ratio & Average Payment Period
Year Creditors Turnover Ratio Average payment period
1997-98 2.06 177
1998-99 2.10 174
2000-01 1.92 190
2001-02 1.56 234
2002-03 1.57 232
Source: Annual reports
Average: 201 days
Conclusion: Table shows that the minimum average creditor period is 201 days and
maximum is 234 days. Table reveals the increasing trend in average payment period
which is beneficial for the company.

FINANCING OF WORKING CAPITAL

Any enterprises whether industrial or trading acquire two types of assets to run
its business. It requires fixed assets which are necessary for carrying on the
production/business such as land and building, plant and machinery, furniture and
fixture etc. For a going concern these assets are of permanent nature and are not to be
sold. The other type of assets required for day to day working of a unit are known as
current assets which are floating in nature and are converted into sale. It is these assets
which are generally referred to as “WORKING CAPITAL”.
A set financing pattern is evolved to meet the requirement of a unit for
acquisition of fixed assets and current assets. The total current assets with the firm may
be taken as gross working capital whereas the net working capital with the unit may be
calculated as under:
NET WORKING CAPITAL = CURRENT ASSETS -- CURRENT LIABILITIES

This net working capital is also sometimes referred to as liquid surplus with the firm and
is the margin available for working capital requirement of the unit.
The assessment of working capital may involve two important aspects as under:
* The level of current assets required to be held by any unit which is
adequate for its day to functioning.
* The mode of financing of these current assets.

The banks follow the following methods for fixing the limits of RELIANCE
INFOCOMM on various components of working capital:

1. Raw Materials : Credit to the RELIANCE INFOCOMM is available for

purchase of raw material and the same is deducted from credit limit fixed for raw
material. The margin for raw material is low in comparison to finished goods. The
margin fixed by bank is 15%.

2. Semi-finished Goods: Semi processed goods do not form a good security as its
realizable value is not exactly determined. So bank has insisted on higher margin i.e. 25
%.

3. Finished Goods: The margin on finished goods generally higher than the
margin on raw material and may be lower than the stock in process. That is due to the
fact that the value of finished goods can be realized easily.

4. Bills Receivables: Banks generally prefer to grant facilities against bill

receivables and a very low margin is required for the supply made to government
department. This margin is very high i.e. 40 %.

The RELIANCE INFOCOMM has enjoy the following financing facilities by its
banker i.e. HDFC Bank, ICICI Bank.
WORKING CAPITAL DEMAND LOAN (WCDL):
Under this scheme bank has to finance the working capital loan as the
organization required. This scheme is beneficial to the enterprises in many ways. The
fluctuation in business is the prime factor that can directly effect the organization.

PACKING CREDIT (OR PC) LIMIT: This facility is sanctioned to the

exporter for procuring/manufacturing/ processing/packaging and shipping the goods
meant for export are termed as Pre-shipment Credit.
Packing Credit may be taken as equivalent to “Cash Credit” in domestic business
except that cash credit facility is sanctioned as a continuous running facility whereas
packing credit advance is disbursed for a specific purpose to enable the exporters to
meet a specific export obligation. Every Pre-shipment Advance is considered as a
separate loan account which differs from a domestic advance.

FINDINGS

The study conducted on working capital management of RELIANCE INFOCOMM

shows the evaluation of management performance in this regard. Major findings and
suggestions thereon are narrated as under:

• Current assets comprise a significant portion i.e. 72.52% (average for five years
of study) of total investment in assets of the company. There is decreasing trend of this
ratio during the study period which shows management efficiency in managing working
capital in relation to total investment. Further current assets to fixed assets ratio also
shows on decreasing trend during the study period which substantiate above mentioned
criterion of effectiveness in management of working capital by the company.
• Current assets turnover ratio for the first three years of study shows increasing
trend which is due to significant increase in sales. In 1995-96 current assets turnover
ratio is highest one i.e. 1.77 during the study, reasons being during this year company
has achieved sales growth 33.04% over the previous year.

• The ratio used for analysis of liquidity position is current ratio and quick ratio.
These ratios reveal that company has sound liquidity position throughout the period of
study. Both the ratio shows fluctuating trend within reasonable limit but these ratio are
higher than conventionally accepted norms i.e. 2:1 in case of current ratio & 1:1 in case
of quick ratio, which shows ineffectiveness of the management in managing
current/quick assets in relation to current liabilities.

• The ratios used for cash management are cash to current assets ratio, cash to
current liabilities ratio and cash turnover ratio. Cash to current liabilities and cash
turnover ratio shows fluctuating trend where as cash to current assets ratio shows
decreasing trend except 2002-03. All these ratios reveal that management has no
definite cash policy.

• Inventory turnover ratio depict the decreasing trend except 1995-96 which
indicates the accumulation of inventory in turn which cause loss to the company by way
of deterioration of stock, interest loss on blockage of stock etc. Further composition of
inventory reveals that portion of individual element of inventory has fluctuating trend
which indicates that management has no policy in respect of inventory management.

• Debtors Turnover ratio reveals a constant trend during the period of study and
average collection period ranges from 105 to 116 days. Keeping in view of fastener
industry trend credit period of 3-4 months is quite very higher. It reveals that
management has no specific policy in respect of debtors management.

• Creditors turnover ratio shows an increasing trend in the study period and
average credit period increasing from 177 days (1998-99) to 234 days (2001-02). It
reveals that management is taking maximum credit period benefit from suppliers which
in turn helps in maximizing working capital effectively and management has no specific
purchase policy as far as credit period is concerned.
 RECOMMENDATIONS

Keeping in view of detailed analysis for the 5 years of study and our findings mentioned
in above paragraphs, the following suggestions shall be helpful in increasing the
efficiency in working capital management.
• Company should make a policy in respect of investment of excess cash, if any; in
marketable securities and overall cash policy should be introduced.

• In case of inventory management ABC analysis, FSN technique, VED technique

should be adopted to increase the efficiency of inventory management. Further an
inventory monitoring system should be introduced to avoid holding of excess inventory.

• Management should develop a credit policy and proper self realization system
from customers so that efficient and effective management of accounts receivable can be
ensured. This will significantly improve the profitability and liquidity of the company.

• Purchase policy regarding raw material, consumables, tools and packing

materials etc. should be introduced which ultimately helps improper planning of
inventory, availment of maximum trade/cash discount and availment of maximum credit
period from suppliers.

BIBLIOGRAPHY
Books & Magazines
• Financial Management : Khan M.Y. and Jain P.K
• Financial Management : Rustagi R.P
• Dalal Street Journal
• Reinforce(Reliance in–house monthly journal )
• Business World

Newspapers
• Economic Times
• Times of India
• Hindustan Times

Websites
• http://www.gm.ril.com
• http://www.trai.com
• http://www.moneycontrol.com
• http://www.investopedia.com
• http://www.rcom.co.in
• http://en.wikipedia.org/wiki/Working_capital