1

MANAGEMENT OF WORKING CAPITAL

WITH SPECIAL REGARDS TO

SHREYANS
INDUSTRIES
LIMITED
A
PROJECT REPORT

SUBMITTED TO

In fulfillment of the partial requirements

For the degree of

Submitted by
*********************
 2

STUDENT DECLARATION

I here by
Declare that the study of

MANAGEMENT OF WORKING CAPITAL

In

SHREYANS INDUSTRIES LIMITED

Has been exclusively done by me for
The degree of

And not for any other degree, diploma or fellowship

This is my own study and under the guidance of the

Manager of the company

PLACE: Ahmedgarh *************

 3

ACKNOWLEDGEMENT
In Industry the hard work of students pays but it is quite hopeless without
the help and support of a number of people. I take this opportunity to pay
my due regards and thanks to following persons without whose co-
operation, this project work would not have been possible.

I am highly thankful to Sh. A. K. Goel (Sr.GM) HRD for granting

me permission to obtain training in the Shreyans Paper Ltd.

My sincerest thanks are to Sh. R.P. Gupta (Sr.GM) F & A and

Sh. Surinder Sharma (Sr.MANAGER) F & A who helped me very much in
completing my project. I have been able to draw and complete my report
entitled ‘MANAGEMENT OF WORKING CAPITAL’ with reference to
Shreyans Industries Ltd. (Unit- Shreyans Papers).

I am thankful to Sh. R.P. Gupta (Pulp Dept.), Sh. Rakesh

Saxena (R & D), Sh. D. K. Gautam (GM Raw Material) and Sh. V. C. R.
Pillai (GM SALES), without the help of these people it would not have
been possible to collect the data. I express gratitude to my teachers and
staff members of Shreyans Industries Ltd.

********************************
 4

PREFACE

To manage the complex and sophisticated organizations in the rapidly

changing and competing environment, a manager is supposed to have in
depth knowledge of the latest management techniques. Therefore to
cope up with the various industrial problems in an organization, training
for executive at various hierarchical levels is must. That is why various
universities and institutions are running Commerce courses and
Management courses of which this vocational training is a part.
During my summer training at Shreyans Industries Ltd., Unit- Shreyans
Papers, I concentrated on the project ‘Management of Working Capital in
Shreyans Industries Ltd.’

*****************************
 5

CONTENTS
CHAPTERS –

1 .Introduction to the topic

• Concept of Working Capital
• Kinds of Working Capital
• Sources of Working Capital

2. Introduction to the Organization

• Introduction of the paper industry
• Introduction of Shreyans Industries Ltd.
• Organization Chart
• Paper manufacturing process

3. Study of the Organization

• Significance of the study
• Objectives of the study
• Scope of the study
• Research Methodology
• Limitations of the study

4. Results and Discussions

5. Suggestions and Conclusion

Bibliography

Annexure
 6

CHAPTER 1
INTRODUCTION TO THE TOPIC

WORKING CAPITAL MANAGEMENT

CONCEPT OF WORKING CAPITAL

Every enterprise needs funds for two purposes - its establishment and to carry out its
day-to-day expenses. These funds needs for short term purposes are called working
capital. In simple words, working capital refers to that part of the firm’s capital, which
is required for financing short term or current assets. So management of working
capital refers to the management of Current assets as well as Current liabilities. The
major thrust of course is on the management of Current assets. This is
understandable because Current liabilities arise in the content of Current assets. The
basic goal is to manage the Current assets and Current liabilities of a firm in such a
way that a satisfactory level of working capital is maintained i.e. it is neither
inadequate nor excessive. Working Capital management policies of a firm have a
great effect on its profitability, liquidity, bad structured health. A sound working capital
management policy is one that ensures higher profitability, proper liquidity and sound
structural health of the organization of financial management.
There are two concepts of working capital-
1. Gross Working Capital
2. Net Working Capital

Gross Working Capital

Excessive and inadequate investment in current assets has a great impact on the
profitability of the firm. Excessive investment in current assets should be avoided
because it adversely effect firm’s profitability, as idle investment earns nothing. On
the other hand, inadequate amount of working capital can threaten solvency of the
firm because of its inability to meet its current obligations. Another aspect of the
Gross Working Capital points to the need of arranging funds to finance the current
assets. It suddenly serve surplus funds arise, they should not be allowed to remain
idle, but should be invested in short term securities. Thus the financial managers
should have knowledge of the sources of working capital funds as well as investment
avenues where idle funds may be temporarily invested.
Net Working Capital
 7

Net Working Capital refers to the difference between the current assets and current
liabilities. It is a qualitative concept.

• Indicates the liquidity position of the firm.

• Suggests the extent of working capital need may be financed by permanent sources
of funds.

A weak liquidity position poses a threat to solvency of the company and makes it
unsafe and unsecured. A negative working capital means a negative liquidity and
may prove to be harmful for the company. Net working capital also covers the
question of judicious maximum of long terms funds for financing current assets for
every firm. Therefore a position of the working capital should be financed with the
permanent sources of funds such as owner’s capital, debentures, long term debt etc.

CURRENT ASSETS:

Current Assets are the assets that are easily converted into cash with an accounting
year. The main constituents of Current assets are written as follows:
1. Inventories
• Raw Material & Components
• Work-in-progress
• Finished Goods
2. Sundry Debtors
3. Cash in hand & Bank balances
4. Short term loans & advances
5. Bills Receivables
6. Prepaid Expenses

In the management of working capital two characteristics of Current Assets

Management may be borne in mind

• Short life span

• Swift transformation into other asset

The life span of Current Assets depends upon the time required in the procurement,
production, sales and collection and the degree of synchronization among them.
Cash is used for acquiring the raw material, raw materials are transformed into
finished goods through work-in-progress with progressive increment of labour and
service costs, conversion of finished goods into sales, debtors and receivables and ultimately
realization of cash and this cycle continues again from cash to purchase of raw material and so
on.
Following cycle shows the circular flow concept of working capital
 8

CURRENT LIABILITIES:

Current liabilities are those claims of outsides that are expected to nature for payment
within an accounting year and include:

1. Bills payable
2. Sundry creditors
3. Accrued or outstanding expenses
4. Bank Overdrafts
5. Dividends payable
6. Provision for taxation

Debtors Cash

Raw
Sales Materia
Work- ls
Finishe
in-
d
Progres
Goods
s
 9

KINDS OF WORKING CAPITAL

KINDS OF
WORKING
CAPITAL

On The On The
Basis Of Basis Of
CONCEPT TIME

GROSS NET FIXED VARIABLE

Working Working Working Working
Capital Capital Capital Capital

REGULAR SEASONAL
Working Working
Capital Capital

RESERVE SPECIAL
Working Working
Capital Capital
 1

1).Permanent or Fixed Working Capital:

Permanent or Fixed working capital is the minimum amount which is required to
ensure effective utilization of fixed facilities and for maintaining the circulation of
current assets. There is always a minimum level of current assets which is
continuously required by the enterprise to carry out its normal business operations.
For example, every firm has to maintain a minimum level of raw materials, work-in-
progress, finished goods and cash balance. This minimum level of current assets is
called Permanent or fixed working capital as this part of capital is permanently
blocked in current assets. As the business grows, the requirement of worki8ng capital
also increase due to the increase in working capital and reserve working capital
required to ensure circulation of current assets from cash to inventories, from
inventories to receivables and from receivables to cash and so on. Reserve working
capital is the excess amount over the requirement for the regular working capital
which may be provided for contingencies that may arise at unstated periods such as
strikes, rise in prices, depression etc.

2).Temporary or Variable working capital:

Temporary or Variable working capital is the amount required to meet the seasonal
demands and some special exigencies. Variable working capital can be further
classified as seasonal working capital and special working capital.

Most of the enterprises have to provide additional working capital to meet the
seasonal and special needs. The capital required to meet the seasonal needs of the
enterprise is called the seasonal working capital. Special working capital is that part
of working capital which is required to meet the special exigencies such as launching
of extensive marketing campaign for conducting research etc.

Temporary working capital differs from Permanent working capital in the sense that it
is required for short periods and cannot be permanently employed gainfully in the
business.
 1

SOURCES OF WORKING CAPITAL:

Working capital is an essential requirement for any business activity. Working capital
management does not include mere planning and control of total assets and its
composition. The broader view encompasses the financing aspects also. In other
words, the finance executives have to see answers to the questions “What should be
the composition of working capital?” and “What is the best financing mix to employ?”
An answer to the question leads to the decision making with regard to financing mix
of working capital.

FINANCING OF WORKING CAPITAL

The working capital requirements of a concern can be classified as follows:

1. Permanent or Fixed Working Capital Requirements
2. Temporary or Variable working capital Requirements

The fixed proportion of the working capital should be generally financed from the
fixed capital sources while the variable working capital requirements of a concern
may be met from the short term sources of capital. The various sources for the
financing of the working capital are as follow:

Sources of Working Capital

Permanent or Fixed Temporary or Variable

Shares Indigenous Bankers

Debentures Trade Creditors
Public Deposits Installment Credit
Retained Earnings Advances
Loan from financial Institution Accrued Expenses
Deferred Incomes
Commercial Paper
Commercial Bankers

FINANCING FROM PERMANENT OR FIXED WORKING CAPITAL:

 1

1) Shares:
Issue of shares is the most important source for raising the permanent or long term
capital. A company can issue various types of shares as equity shares, preference
shares and deferred shares. As far as possible, a company should raise the
maximum amount of permanent capital by issue of shares.

2) Debentures:
A debenture is an instrument issued by the company acknowledging its debt to its
holders. It is also an important method of raising long term permanent working
capital. The debenture holders are the creditors of the company. A fixed rate of return
is paid on debentures. The debenture holders are generally given floating charges
over the assets of the company.

3) Public Deposits:
Public deposits are the fixed deposits accepted by a business enterprise directly from
the public. This source is used for raising short-term & medium-term finance. Public
deposits, as a source of finance has a number of advantages such as very simple
and convenient source of finance, taxation benefits, trading on equity, no need of
securities and in excessive source of finance.

4) Retained Earnings:
Retained earnings is a technique of financial management under which all profits of a
company are not distributed among the shareholders as dividends, but a part of it is
retained or reinvested in the company. This process of retaining profits year after
year and their utilization in the business is also known as plugging back of profits. It is
an external source of finance and it is most suitable for an established firm for its
expansion, modernization and replacement etc. This method has number of
advantages, as it is the cheapest source of finance, there is no need to keep
securities.

5) Loan from Financial Institutions:

Financial Institutions such as Commercial Banks, Life Insurance Corporation,
Industrial Finance Corporation of India, State Financial Corporation, State
Development Bank of India etc. also provides short term, medium term and long term
loans. This source of finance is more suitable to meet the medium-term demands of
working capital. Interest is charged on such loans at a fixed rate and the amount of
the loan is to be repaid by way of installments in a number of years.

FINANCING FROM TEMPORARY, VARIABLE OR SHORT-TERM

WORKING CAPITAL:
 1

1). Indigenous Bankers:

Private money lenders and other country bankers used to be the only source of
finance prior to the establishment of Commercial Banks. They used to charge a very
high rate of interest and exploited the customers to the largest extent possible.
Nowadays with the development of Commercial Banks they have lost their monopoly.
But even today some business houses have to depend upon Indigenous Bankers for
obtaining loans to meet their working capital requirements.

2). Trade Credit:

Trade credit refers to the credit extended by the suppliers of goods in the normal
course of business. As present day commerce is built upon credit, the trade credit
arrangement of a firm with its supplier is an important source of short-term finance.
The credit worthiness of a firm and the confidence of its suppliers are the main basis
of securing trade credit. It is mostly granted on an open account basis whereby
suppliers send goods to the buyers for the payment to be recei9ved in future as per
terms of the sales invoice. It may also take the form of bills payable whereby the
buyer’s signs a bill of exchange payable on a specified future date. The biggest
disadvantage of this method of finance is charging of higher price by the suppliers
and loss of cash discount.

3). Installment Credit:

This is another method by which the assets are purchased and the possession of
goods is taken immediately but the payment is made in installments over a
predetermined period of time. Generally, interest is charged on the unpaid price or it
may be adjusted in the price. But in any case, it provides funds for sometimes and is
used as a source of short-term working capital by many business houses that have
difficult fund position.

4).Advances:
Some business houses get advances from their customers and agents against orders
and this source is a short-term source of finance for them. It is a cheap source of
finance and in order to minimize their investment in working capital, some firms
having long production cycle, especially the firms manufacturing industrial products
refer to take advances from their customers.

5). Accrued Expenses:

Accrued expenses are the expenses that have been incurred but yet due and hence
not yet paid also. They simply represent a liability that a firm has to pay for the
services already received by it. Accrued interest and taxes also constitute a short
 1

term source of finance. Taxes are paid after collection and in the intervening period
serve as good source of finance. Even income tax is paid periodically much after the
profits have been earned.

6).Deferred income:
Deferred incomes are incomes received in advance before supplying goods or
services. They represent funds received by a firm for which it has to supply goods or
services in future. These funds increase the liquidity of a firm and constitute an
important source of short term finance.

7).Commercial Paper:
Commercial Paper represents unsecured promissory notes issued by firms to raise
short term funds. It is an important money market instrument in advanced countries
like U.S.A. In India, the Reserve Bank of India introduced commercial paper in the
Indian money market on the recommendations of the Working Group on Money
Market. But only large companies enjoying high credit rating and sound financial
health can issue Commercial Paper to raise short term funds. The Reserve Bank of
India has laid down a number of conditions to determine eligibility of a company for
the issue of Commercial Paper.

8).Commercial Banks:
Commercial banks are the most important source of short term capital. The major
portion of the working capital loans are provided by Commercial Banks. The different
forms in which the banks normally provide loans and advances are as follows:
a) Loans
b) Cash Credits
c) Overdrafts
d) Purchasing and Discounting of Bills
 1

CHAPTER 2

INTRODUCTION TO THE ORGANISATION

INTRODUCTION TO PAPER INDUSTRY

PAPER –

Paper is thin material mainly used for writing upon, printing upon or packaging. It is
produced by pressing together fibers, typically vegetable fibers composed of
cellulose, which are subsequently held together by hydrogen bonding.

APPLICATIONS OF PAPER –

Paper is a versatile material with many uses.

• To write or to on: the piece of paper becomes a document; this may be for
keeping a record (or in case of printing from a computer or copying from
another paper: an additional record) and for communication; see also reading.
Paper can be produced with a wide variety of properties, depending on its intended
use.

• To represent a value: paper money, bank note, cheque, security, voucher and
ticket.
• For entertainment: book, magazine, newspaper, art.
• For packaging: corrugated box, paper bag, envelope, wrapping tissue, wall
paper.
• For cleaning: toilet paper, handkerchief, paper towels, and facial tissue.
• For construction: origami, quelling, paper honeycomb, used as a core material in
composite materials, paper engineering, construction paper and clothing.
• Other uses: emery paper, sand paper, blotting paper, litmus paper, universal
indicator paper, paper chromatography and capacitor Dielectrics (Permittivity 1.5-
3)
 1

Paper Industry in World

The world’s paper and broad production, which was about 15 million tons in 1950,
has grown steadily to reach about 326 million tons in 2001. This accounts for nearly
3.5% of world’s production and 2% of world trade.
The compound annual growth rate of the world paper industry is 2.8%.

The growth of the paper industry region-wise is depicted in the graph below:

7.00%
6.50%
6.00%
5.00%
4.40%
4.00%
3.00% 3.10% 3.10%
2.50%
2.00% 2.10%

1.00%
0.00%
Africa Asia Australia Europe Latin North
America America

Paper in India

Per Capita Consumption 5 kg

Growth Percentage 8%
Energy intensity Rs 1500 million(US $ 300 million)
Energy Costs 25% of manufacturing cost
Energy saving potential Rs 300 million(US $ 6 million)
Investment potential on energy saving
projects Rs 500 million(US $ 10 million)
 1

Paper Industry in India

Paper industry in India is the 15th largest paper industry in the world. It provides
employment to nearly 1.5 million people and contributes Rs. 25 billion to the
government’s kitty. The government regards the paper industry as one of the 35 high
priority industries of the country.

Paper industry is primarily dependent upon wood based raw materials. The first
paper mill in India was set up at Sreerampur, West Bengal, in the year 1812. It was
based on grasses and jute as raw material. Large scale mechanized technology of
paper making was introduced in India in early 1905. Since then the paper industry
has come a long way with presently installed capacity of 5.50 millions tones per year
with an average capacity utilization of 80%. The per capita consumption of paper in
the country is 5.00 kg.

The Indian per capita consumption of paper is 5 kg, in comparison to the Asian
average of 21 kg, world average of 55 kg and US average of 330 kg.

The per capita consumption of paper in the different parts of the world is depicted
graphically below:

350 331.7
300
250 249.9
215.8
200
150
100
50 28.4 34 39.6
5 19
0
India Indonesia China Thailand Brazil Japan USA UK
 1

RAW MATERIAL
The raw material for the paper industry underwent a number of changes and over a
period of time, besides wood and bamboo, other non-conventional raw materials
have been developed for the use in the papermaking. The Indian pulp and paper
industry at present is very well developed and established.

The mills producing various types of papers are located all over India. The Region-
wise break-up of number of mills and capacity is highlighted below:

Region Mills in terms of Mills in terms of

numbers production
Numbers % %
East 44 11.6 23.6
West 128 33.7 29.7
South 65 17.1 25.0
North 143 37.6 21.7

In 1951, there were 17 paper mills, and today there are about 600 units engaged in
the manufacture of paper and paperboards and newsprint in India. These paper mills
are manufacturing industrial grades, cultural grades and other specialty papers.

The paper units can be classified based on the raw material into three broad
categories as:
A).Wood based (Bamboo, Hardware)
B).Agro- based (Bagasse, Rice & Wheat straw, Jute etc.)
C).Waste paper based

The break-up of paper mills based on raw material usage in Indian mills and
International mills are highlighted below:

Raw Material Usage Indian Mills International Mills

% of Total mills % of Total mills
Wood based 37 57
Agro-based 31 4
Waste paper based 32 39

Shreyans is an Agro based industry. It uses agricultural waste as its raw material like:
Wheat straw, Bagasse etc.
 1

SHREYANS INDUSTRIES LIMITED

COMPANY’S PROFILE:
Shreyans industries limited (SIL) an existing assisted company promoted by Late SH.
D.K Oswal, has facilities of manufacturing of 100 tones per day of writing & printing
paper (WPP) at Ahmedgarh, district Sangrur, Punjab (Shreyans Paper) & 85 tpd at
Bannah , District Ropar, Punjab(Shree Rishabh paper).The company also had a
spinning unit with complements of 25,344 spindles for manufacturing of cotton &
cotton blended yarn at Machhiwara, district Ludhiana, Punjab(Shreyans Spinning
Mill) which was sold to Sabina woolen mills ltd in 2000-01 for consideration of Rs 130
million.

SHREYANS PAPER:

Vardhman spinning & general mills ltd & Oswal family (R.C Oswal, D.K Oswal, S.P
Oswal, and A.k Oswal) originally promoted SIL in 1979 for setting up a plant for
manufacturing of paper at Ahmedgarh, District Sangrur, Punjab. SIL commenced
production in May 1982 with the installed capacity of 30 tpd of WPP. Over the years
company has undertaken several balancing, modernization & expansion schemes &
has increased its installed capacity to 100 tpd, improved process efficiencies &
upgraded effluent treatment sections at Ahmedgarh unit.

CAUSTIC RECOVERY:
During 1995, the company implemented a scheme for recovery of caustic soda at an
estimate cost of Rs 113 million. The scheme was to give two-fold benefit
• Reduce the cost of caustic Lyle

• Reduce the pollution level of water being discharged from the unit.

The scheme was completed in 1996. The cost was financed by way of a conditional
grant of Rs 21.8 million from ICICI (test division), concessional loan of Rs 38.5million.
The caustic recovery of the company has been operating satisfactorily. The company
has been utilizing the caustic recovery facilities for production of soda ash as the
company do not possess the required equipment for the extraction of caustic soda
from black liquid (by product of the paper pulp making process) & also because, on
account of current market conditions, the extraction sale of soda ash is more
beneficial than the extraction & captive consumption of caustic soda. The company
has been recovering approximately 85% of soda ash & selling the same in the open
market.
 2

CO- GENERATION:
The SIL has its co-generation plant consisting of four boilers, which are used for
generating power for captive use, primarily in the caustic recovery plant where
uninterrupted power supply is essential. The co-generation plant was to be set up at
an estimate cost of Rs 44.4million. The scheme was implemented at the cost of Rs
48 million (over run of Rs 3.6 million) & was financed by rupee term loan of Rs
30million from ICICI & internal accruals of Rs 18 millions. The company is at present
generating about 3.0MW of power with the above.

ACQUASITION OF SHREE RISHABH:

During 1994, the company acquired the paper unit of Zenith limited at village Bannah,
District Ropar, Punjab. Zenith had been referred to BIFR & as per the operating
agency (OA) reports prepared by ICICI. ZENITH ‘S paper & steel unit were a drag on
the company’s operations & were to be hived off. Accordingly, bids were invited for
the same & SIL offered to take over the fixed assets of the paper unit for
consideration of Rs 147.5 million. This scheme was approved by BIFR vide its order
dated July 28, 1994. SIL named the unit Shree Rishabh paper (Rishabh) .The
Company had financed the total consideration of Rs 147.5 million for acquisition of
the unit by internal accruals of Rs 47.5 million & term loan of Rs 100 million from
ICICI. After undertaking balancing scheme SIL, has been able le to improve the
operations & the unit has been earning gross profits since 1995.

PAPER EXPANSION:]

In 1995, the company has proposed to undertake & expansion cum modernization
scheme at Shree Rishabh to increase the capacity of writing & printing paper from 45
tpd to 85 tpd. The cost of above scheme aggregating to Rs 278.5 million was
proposed to be financed by equity share capital of Rs 60.6 million, internal accruals of
Rs 27.9 million & rupee term loan of Rs 190 million from ICICI. The company had
proposed to come out with a right issue in ratio of 1:1 at a premium of Rs 20 per
share aggregating Rs 182.1 million, of which Rs 60.6 million was to be used to part
finance the cost of the scheme & the balance of Rs 121.5 million was proposed to
meet the long term working requirement of the company .the company could not
complete the scheme, as it could not conclude the proposed right issue. The
company incurred a sum of Rs 136.3 million on the scheme till March 21, 2000. This
was by term loan financed from ICICI of Rs 92.5 million, interest accruals / advance
against equity of Rs 26.7 Million & Interest Over dues of Rs 17.1 million towards
building, procurement of some machinery & preliminary & pre-operative expenses. It
proposed to install a caustic recovery system at Rishabh unit & install co-generation
facilities with an installed capacity of 1.5 MW. The cost of the scheme estimated at
118.3 million, internal accruals of Rs 28.5 million & undisbursed terms loans from
ICICI of Rs 87.5 million.
 2

MANAGEMENT PROFILE
SHREYANS INDUSTRIES LIMITED

BOARD OF DIRECTORS
SH. RAJNEESH OSWAL, Chairman and Managing Director
SH. VISHAL OSWAL, Vice Chairman and Managing Director
SH. ANIL KUMAR, Executive Director and C.E.O.
SH. KUNAL OSWAL
SH. A.K. CHAKRABORTY, Nominee of ICICI Bank
DR. (MRS.) H.K. BAL
SH. R.C. SINGAL
SH. M.L. GUPTA
DR. N.J. RAO

COMPANY SECRETARY
MR. VIPIN KUMAR BHATIA

BANKERS
STATE BANK OF PATIALA
BANK OF INDIA
STATE BANK OF MAURITIUS

STATUTORY AUDITORS
M/s. S.C. VASUDEVA & CO., NEW DELHI

WORKS
1. SHREYANS PAPERS, AHMEDGARH, DISTT. SANGRUR (PB.)
2. SHREE RISHABH PAPERS, VILLAGE BANAH, DISTT. NAWANSHAHAR
(PB.)
 2

SHREYANS PAPERS

PRODUCT PROFILE
In the range of 50 GSM to 200 GSM

Cream wove
Colored paper
Duplicating paper
Surface sized printing paper
Azure laid paper
Map litho paper
Stamp paper
Inland letter paper
Postal envelope paper
Offset paper
Cover paper
Super calendared paper
Rail ticket paper
Super printing paper
 2

BRIEF HIGHLIGHTS OF SHREYANS

PAPERS,AHMEDGARH
• An agro based paper plant using rice straw, wheat straw and sugarcane residue.
• Annual production capacity of 33000 M.T.
• Installed Asia’s first soda recovery plant with US aid test assistance with captive
power generation of 2.5 mw
• One of the largest Agro based paper mill in north India
• Excellent technological inputs and parameters in the industry.
• Operating at a high capacity of over 100% utilization.
• Leading supplier to Indian Railways, Postal Department, Universities and
Education Boards throughout India.
• State of the art automation system Val met QXD 9000 installed from Val met
(Canada) to keep strict control on ash content, Gram mage variation, and moisture
percentage to produce quality paper.
• National productivity awards won by the company for the years 1986 to 1991 (5
consecutive years).
• R $ D lab equipped with Lab Digester, Lab Valley Beater Brightness, Opacity and
Gloss Testing Machine, Burst Strength Tester, Double Folding Endurance Tester,
Gurley Porosity, Smoothness Tester, and Cobb Tester.
• Future plans to increase capacity by 100%.
• A continuous digester plant developed in house has been set up to improve the
quality of pulp and also to reduce the consumption of various chemicals.
• Encouraged by the performance we have also exported a continuous digester
plant to a neighboring country making a modest foray towards the company’s start
of technological exports.
• Company's products have also been exported to South Asian & Middle East
countries.
 2

ORGANIZATION CHART

CMD

VCMD

ED & CEO

DIRECTOR
TECHNICAL
 2

SWOT ANALYSIS OF SIL –

Strengths -
• Excellent operating parameters.
• Highly qualified, motivated and professionally competent workforce.
• Easy accessibility and proximity to raw material sources.
• Both units fully compliant to environmental laws.
• Adequate marketing network and large presence in institutional and
international market.
• Good acceptability in market place.

Weaknesses –
• Paper industry highly cyclic in nature.
• Limited product range in lower end of paper market.
• Prices and availability of basic raw materials, highly dependent on vagaries of
nature.
• Lower level of technology vis-à-vis competition in nearby regions.

Opportunities –
• Increase in demand of paper on account of increase in per capita consumption
due to increase in GDP and literacy levels.
• Price competitiveness, which can cater to growing educational sector
requirements.
• Opportunities in export market in nearby countries on account of price advantage
vis-à-vis distant suppliers.
• Production of better quality paper will bring in newer segments of market under
the fold of the Company.

Threats –
• Adverse changes in Government Policies.
• Continuous fall in import tariff creating tough competition from international
suppliers.
• Build-up of ‘State of Art’ technology in nearby regions, which will lower the pricing
of imports into the country.
• Continuing strengthening of Indian currency to make imports cheaper and limited
scope of export of paper.
 2

Paper Manufacturing Process

Wheat Straw –

Shreyans is an Agro based paper mill. So, here raw material used for making is
agricultural waste. Various types of raw materials can be used in these kinds of
industries like Wheat straw, Baggase, Sarkanda, Kahi grass, Sabai grass etc. In
Shreyans, 95% of raw material is obtained from wheat straw and the rest 5% from
imported wood pulp or imported waste paper to increase the strength of the paper.
Raw material is stored for 15 days.

1. Washing – (Biogas plant)

The raw material i.e. wheat straw is washed with water to remove the dust and
impurities which are present in the raw material. 10cm³ of water is consumed for
washing per tone of raw material. The wheat straw wash liquor is used for producing
Biogas.
 2

Biogas Plant –

The gas produced here goes to Boiler House to generate power.

Wheat Straw Wash Liquor

Decker- to remove
Waste particles

Clarifier

Buffer Tank –to

maintain the pH

Digester – gas generation

Gas Holder

2).Cooking –
The raw material is cooked in ‘Continuous Digester’. This process is fully automatic.
In Continuous Digester raw material and water are cooked in Caustic Soda and
Steam under required pressure. The pulp here made is called cooked pulp or
unbleached pulp.

3).Washing –
This cooked pulp is allowed for washing. Caustic Soda is removed in the form of
Black Liquor by the process of washing.
This black liquor is subjected for recovery in ‘Recovery Plant’ where caustic soda is
recovered in the form of soda ash passing through evaporators, venture & scrubber
and fluidized Bed Reactor System.
 2

2. Bleaching –
The unbleached washed pulp remaining behind after separation of black liquor is
processed in bleaching plant having sequence of chlorination stage, caustic
extraction stage and two Hypo stages. The pulp made is called bleached pulp.

3. Stock Preparation –
The various pulps mainly Straw pulp, long fiber pulp and wood pulp/waste paper
pulps are pumped into mixing chests in the required proportion. Here various
chemicals like Alkynes ketodimer, Poly TC, Ranipal are added to reach at the
required strength and brightness of the paper. This pulp is then fed into the paper
machine for making the paper.

4. Paper Machine –
The pulp while passing over a paper machine wire forms a layer of paper as a long
running of the wire and at Sanction roll, water content to a large extent are drained
out. The paper layer so formed is then forwarded to press part and the dryers where
the paper is dried up with the help of steam which heats up the dryers. The paper so
formed is then reeled at the pop reel in the form of rolls

5. Finishing house-
The percent rolls of paper are either cut into reels at rewinder or into sheets at sheet
cutter as per the requirements. The paper is then stored, counted and packed into
bundles and transferred to sales department.
 2

Quality Control –

The mill maintains a quality control laboratory. Testing is done at all the stages.
 Raw Material – Dust, Moisture, Quality
 Chemicals – Purity, Concentration
 Pulp – Brightness, Strength
Strength Properties – Bursting strength, Tensile strength, tearing strength,
Double strength, Cobb value
 Paper – GSM, Brightness, Opacity, Smoothness
 Finishing House – finishing size

Effluent Treatment Plant –

From the point of view of pollution a paper industry is labeled as the most water
pollution causing industry and due to this, to reduce water pollution ‘Effluent
Treatment Plant’ have to set up for treatment of water before discharging it outside
the factory.
The waste water releasing from the different sections of process is treated in waste
water treatment plant where biological treatment system is being performed and the
treated water is partially utilizing in plantation and the rest being discharged.
 3

ETP Plant Process –

Waste Water

Equalization Tank

Settling Tank or Clarifier

Aeration Tank

Settling Tank

Aeration Tank

Settling Tank

The water released from settling tank is discharged.

 3

CHAPTER 3

STUDY OF THE ORGANISATION

SIGNIFICANCE OF THE STUDY -

Working capital is must for a business enterprise, but quantum of its requirements
may vary from enterprise to enterprise. A business enterprise carries out its
operations to earn profit there from. The current assets are required because the
operations do not convert into cash. Working capital is also required to meet the
future exigencies. The stocks of raw materials are kept to ensure smooth production
and against the risk of their unavailability. Similarly the stocks of finished goods have
to be carried out to meet the demand of customers on continuous basis against the
abrupt size in their demands. However in a dynamic economy, perfect
synchronization with zero working capital is not possible. Therefore management
attempts to maintain an adequate balance of working capital at all time. An efficient
working capital to a great extent enhances the rate of profit to be earned by a
business enterprise. The enterprises profitability may be raised in case the working
capital is continuously supplemented till the fixed capital is fully used up i.e. up to its
100% capacity. If the capital is not maintained at that level, the rate of return as fixed
assets is reduced. On the other hand, if the firm maintained working capital in excess
of the amount required, profit declines since excess is idle. It also induces the
management to enter into speculative activities. Same times, Directors exploit the
situation of excess working capital for their personal benefit by giving liberal dividends
which otherwise are not justified.

OBJECTIVE OF THE STUDY

The main objectives of the study are:

1. To find the current assets and current liabilities of the company.
2. To judge the liquidity position of the company.
3. To find the working capital of the company.

SCOPE OF THE STUDY

The scope of my study is limited to only Shreyans Industries Ltd. The data covered is
only related to working capital. No other conditions which may affect the financial
condition of the company are not being considered.

Research Methodology
 3

Research in common parlance refers to a search for knowledge. One can also define
research as a scientific and systematic search for pertinent information on a specific
topic. In fact, research is an art of scientific investigation. This inquisitiveness is the
mother of all knowledge and the method, which man employs for obtaining the
knowledge of whatever the unknown, can be termed as research.

Objectives of Research

The purpose of research is to discover answers to questions through the application

of scientific procedures. The main aim of research is to find out the truth which is
hidden and which has not been discovered as yet.

• To gain familiarity with a phenomenon or to achieve new insights into it.

• The portray accurately the characteristics of an particular individual, situation or a
group
• To determine the frequency with which something occurs or with which it is
associated with something else.
• To test a hypothesis of a casual relationship between variables.

Types of research –
The basic types of research are as follows:-

• Descriptive: - Descriptive research includes surveys and fact finding enquires of

different kinds. The major purpose of descriptive research is description at the state
of affairs as it exists at present.

• Analytical: - In this research has to use facts or information already available

analyzes these to make a critical evaluation of the material.

• Applied: - Research can either be applied or fundamental research. Applied

research aimed at finding a solution for immediate problems facing a society or
industries or business organization.

• Fundamental Research: - This research is mainly concerned with

generalizations and with the formation of a theory. Research concerning some
natural phenomenon or relating to pure mathematics are examples of
fundamental research.

• Empirical Research: - Empirical research relies on experience or observation

 3

alone, often without due regard for system and theory. Empirical research is
appropriate when proof is sought that certain variables affect other variables in
some way.

• Qualitative Research: - Qualitative research is especially important in the

behavioral science where the aim is to discover the underlying motives of human
behavior which make people like or dislike a particular thing.

SIGNIFICANCE OF RESEARCH
The increasingly complex nature of business and government has focused attention
on the use of research in solving operation problem. Significance of research is as
follows:
1) Research has its special significance in solving various operational and
planning problems of business and industry.
2) Research provides the basis for nearly all government policies in our economic
system.
3) Research is equally important for social scientists in studying social relations
answer to various social problems.
4) Research may mean the generalizations of new theories.
 3

RESEARCH DESIGN
Decisions regarding what, where, how, much, by what mean concerning an enquiry
or a research study constitute a research design. A research design is the
arrangement of conditions for collection and analysis of data in a manner that aims to
combine relevance to the research purpose with economy’s procedure.

The design decision happens to be in respect of:-

• What is the study about?

• What is the study being made?

• What type of data is required?

• What period of time will the study include?

• What will be the sample design?

• What techniques of data collecting will be used?

• How will the data be analyzed?

• In what style will be the report is prepared?

LIMITATIONS OF THE STUDY –

Limitations of the study are all those limitations which a student has to face while
completing such project. However following are the main limitations:

• The study is only related to Shreyans Industries Ltd.

• Limitations of time and resources may have shadow the study.
• Time for training period was too small to study the organization in detail.
• The other factors which affect the liquidity position of the company are not
being considered.
• It is the policy of all the companies that they cannot tell the trainees the
accurate figures of the company. So the project made by the student does not
show the accurate position of the company as they have to rely upon the
information provided to them by the company.
 3

• In spite of my best efforts this report may be suffering from some personal
errors.

STATEMENT OF CHANGES IN WORKING CAPITAL:

PARTICULARS 2008-2009 2007-2008

Current Assets
Inventories 2116.16 1827.08
Sundry Debtors 2041.22 2813.55
Cash and Bank 238.93 520.89
Loans and Advances 2223.76 1453.67
Gross Working Capital 6620.07 6615.19
Less:
Current Liabilities 3537.17 3644.01
Net Working Capital 3082.9 2971.17

DISTRIBUTION OF GROSS WORKING CAPITAL (%)

Year Inventories Sundry Cash & Loans and

Debtors Bank Advances
2008-2009 31.96 30.83 3.60 33.59
2007-2008 27.62 42.53 7.87 21.97
AVERAGE 29.79 36.68 5.73 27.78

ANALYSIS:

Sundry Debtors constitute about 42% of the gross working capital. It means debtor
collection became poorer in 2008-2009. The second item that has the major share in
gross working capital is Inventory. It increases during the year. The share of cash
remains very different during the two years and the average is 5.73 in total Current
Assets.
 3

COMPONENTS OF WORKING CAPITAL:

There are three main components of Working Capital Management. The study of
these components is very necessary because without these components the study of
Working Capital Management remains half. So following are the components of the
Working Capital Management:-
1) Cash Management
2) Receivables Management
3) Inventories Management

CASH MANAGEMENT:

Cash is one of the current assets of a business. It is needed at all times to keep the
business going. A business concern should always keep sufficient cash for meeting
the obligations. Any shortage of cash will hamper the operations of the concern and
any excess of it will be unprotected. It is in this context the Cash Management has
assumed much importance.

Cash Management is one of the key areas of Working Capital Management. Apart
from the fact it is the most liquid current asset, it is the ultimate output expected to be
realized by selling the services as product manufactured by a company. Cash
shortage will disrupt the firm’s manufacturing operations while excess cash will simply
remain idle. Thus the major function of Financial Manager is to maintain a sound
cash position.

The term cash covers Currency and General Accepted Cash Equivalents of cash.
Such as Cheques, Demand Drafts and deposits in Banks. “Near Cash” is any asset
that can be readily converted into cash, such as Marketable Securities and Time
Deposits. The investment in Marketable Securities contributed some profit to the firm.
So Cash Management is concerned with the managing of:

1. Cash flows into and out of the firm “Inflows and Outflows”
2. Cash flows within firm
3. Cash balances held by the firm at a point of time by financing deficit or investing
surplus cash.

Cash Management Cycle represents it in following figures:

 3

Collection
Information Borrows
and Control and
Payments Invests

Cash Management seeks to accomplish this cycle at a minimum cost. It also seeks to
achieve liquidity and control. This management of cash is important because cash
constitute the smallest portion of the total current assets yet management’s
considerable time is devoted in managing it.

The reason for holding cash here traditionally being divided into four categories as
postulated by ‘Keynes’:
• The Transaction Motive
• The Precautionary Motive
• The Speculative Motive
• The Compensatory Motive The Transaction Motive is to meet the routine cash
requirements to finance the transactions which are found carry on in the
ordinary course of business.
The Precautionary Motive for holding cash relates to the need for creating readily
available to meet the unexpected circumstances.
The Speculative Motive refers to the desires of a firm to take advantages of
opportunities which presents themselves at unexpected movements and which are
typically outside the normal course of the business.
The Compensatory Motive refers to hold cash balances is to compensate banks for
providing certain services and loans to be compensated for their services indirectly in
this form, they required the clients to always keep a bank balance sufficient to earn a
return equal to the cost of services. Such balances are called Compensative
balances.

OBJECTIVES OF CASH MANAGEMENT

1. To meet the cash disbursement needs

2. To minimize funds committed to cash balances

a) Meeting the Cash Disbursement Needs:

 3

In the normal course of a business, firms have to make a payment of cash on a

continuous and regular basis to suppliers of goods, employees and so on. Cash is
therefore amply described as the “Oil to Lubricants”, “Ever turning wheels of a
Business”. Without it the process begins to a stop. The basic objective of cash
management is to meet the payment schedule; it leads to strong credit rating that
enables the firms to purchase the goods on favorable terms and to maintain its line of
credit with banks and other sources of credit.

b) Minimizing Funds Committed To Cash Balances:

In minimizing the cash balances, two conflicting aspects have to be reconciled. A

high level of cash balances will insure a prompt payment together with all the
advantages.
But it also implies that large funds will remain idle, as cash is non-earning asset and
the firm will have to forego the profits. The aim of cash management should be to
have an optimal amount of cash balances.
A firm has to maintain a minimum amount of cash for settling the dues in time. The
cash is needed to purchase raw-material, to pay creditors to meet day-to-day
expenses and to pay dividends etc. The test of the liquidity of the firms is that it is
able to meet the various obligations in time. Some cash will be needed for transaction
needs and amount may be kept as a safety stock. An appropriate amount of cash
balances to be maintained should be determined on the basis of past experience and
future expectations. If a firm maintains less cash balances then its liquidity position
will be weak. If higher cash balances is maintained then
Opportunity to earn is lost. Thus, a firm should maintain an optimal cash balance,
neither a small nor a large cash balance. For this purpose the transaction costs and
risks of too smaller balances should be matched with the opportunity cost of too large
a balance.

There are basically two approaches to determine an optimal cash balance namely:

a) Minimizing Cost Modules

b) Preparing Cash Budgets

Cash budget is the important tool in Cash Management. A cash budget is an estimate
of cash receipts and disbursements of cash during the future period of time. In the
words of Solo man Ezra “a cash budget is an analysis of flow of cash in business
over a future, short or long period of time. It is a forecast of expected cash intake and
outlay.” It is a device to plan and control the use of cash. The cash budget pinpoints
the period when there is likely to be excess or shortage of cash. Thus a firm by
preparing the cash budget can plan the use of excess cash and make arrangements
for necessary cash as and when required.
 3

The cash budget should be coordinated with other activities of the business. The
functional budgets may be adjusted according to the cash budgets. The available
funds should be fruitfully used and the concern should not suffer for want of funds.

EVALUATION OF CASH MANAGEMENT

The following ratios have been calculated to check the liquidity position of the
company.

1) CURRENT RATIO
Current Ratio = Current Assets
Current Liabilities

2) QUICK RATIO
Quick Ratio = Quick Assets
Current Liabilities

Quick Assets = Current Assets – Inventories – Prepaid Expenses

3) ABSOLUTE LIQUID RATIO OR CASH RATIO

Absolute Liquid Ratio = Absolute Liquid Assets
Current Liability
Absolute Liquid Assets = Cash + Marketable Securities

CURENT RATIO-

YEAR 2008-2009 2007-2008

Current Assets 6620.07 6615.19
Current Liabilities 3537.17 3644.01
CURRENT RATIO 1.8 1.87
ANALYSIS:

The Current Ratio is the measure of the firm’s short term solvency. It indicates the
availability of current assets in rupees for every one rupee of current liability. A ratio
of greater than 1 means that the firm has more current assets than current claims
against them.
As the current ratio in 2007-08 is 1.36 & in 2008-09, it increased to1.87.
 4

QUICK RATIO-

YEAR 2008-2009 2007-2008

Quick Assets 4503.91 4788.11
Current Liabilities 3537.17 3644.01
QUICK RATIO 1.27 1.31

ANALYSIS:

Quick ratio establishes a relationship between quick or liquid assets and current
liabilities. An asset is a liquid if it can be converted into cash immediately or
reasonably soon without a loss of value. Cash is the most liquid asset. Inventories
are considered to be less liquid. Inventories normally require sometime for realizing
into cash, their value has a tendency to fluctuate..
As, quick ratio in 2007-08 is 1.31 & in 2008-09 it decreases to 1.27.

ABSOLUTE LIQUID RATIO-

YEAR 2008-2009 2007-2008

Absolute liquid Assets 238.93 520.89
Current Liabilities 3537.17 3644.01
QUICK RATIO 0.0675 0.14

ANALYSIS:

Since cash is the most liquid asset we may take cash ratio and its equivalent to current
liability. Trade investment or marketable securities are equivalent of cash; therefore, they
may be included in the computation of cash ratio.
Absolute liquid ratio in 2007-08 0.14 & in 2008-09 is 0.0675 .
 4

RECEIVABLES MANAGEMENT:
Receivables constitute a substantial portion of current assets of several firms. For
example in India, Trade Debtors and Inventories are the major component of current
assets. They form about one-third of current assets in India. Granting credit and
creating debtors amount to the blocking of the firm’s funds. The interval between the
date of sale and the date of payment has to be financed out of working capital. This
necessitates the firm’s to get funds from banks or other sources. Thus, Trade Debtors
represent investment. As substantial amounts are tied-up in trade debtors, it needs
careful analysis and proper arrangement.
Trade credit creates receivables or book debt that the firm is expected to collect in
the near future. The term receivable is defined as “debt owed to firm by customers
arising from sales of goods or services in ordinary course of business.” Receivables
Management is also called ‘Trade Credit Management.’ Thus accounts receivable
represents the expansion of credit to customers, allowing them a reasonable period
of time to pay for the goods that they have received. So the purpose of Receivable
Management is to know the way in which the receivable may be managed efficiently
and investment in them may be kept at the optimum level. The basic objective of
Receivable Management is to attain maximum sales with a minimum cost of credit
and collection. The level of trade credit is influenced by various factors that can be
grouped as external and internal factors, depending upon the span of control of
management.

Credit-granting Decision:

Once a firm has assessed the credit worthiness of a customer, it has to decide
whether or not credit should be granted. The firm should use the NPV rule to make
the decision. If the NPV is positive, credit should be granted.
 4

CREDIT GRANTING DECISION:

Credit Granting
Decision

No Credit Grant Credit

Payment Payment not

Received Received

Benefit- PV of Cost - PV
Future Net of Lost
Cash Flow Investment

Net Payoff –PV

of Benefit-Cost
 4

DIMENSIONS OF RECEIVABLES MANGEMENT;

Receivables Management involves the careful consideration of the following aspects:

1) Forming of Credit Policy
2) Executing the Credit Policy
3) Formulating and Executing Collection Policy

1) Forming of Credit Policy:

For efficient management of receivables, a concern must adopt a Credit Policy. A

credit policy should be related to decisions:
a) Credit Standards or Quality of Trade Accounts – The volume of sales will be
influenced by the credit policy of a concern. By liberalizing credit policy the volume
of sales will be increased resulting into increased profits. The increased volume of
sales is associated with certain risk too. It will result in enhanced costs and risks
of bad debts and delayed receipts.
The credit should be liberalized only to the level where incremental revenue matches
the additional costs. The quality of trade accounts should be decided so that credit
facilities are extended only up to that level. The optimum level of investment in
receivables should be where there is a trade off between the costs and profitability.
The increased investment in receivables also adversely affects the liquidity of a firm.
On the other hand, a tight credit policy increases the liquidity of the firm.
b) Length of Credit Period – Credit terms or length of credit period means the
period allowed to the customers for making the payment. The customers paying
well in time may also be allowed certain cash discount. There is no binding on
fixing the terms of credit. A concern fixes its own terms of credit depending upon
its customers and the volume of sales.
c) Cash Discount – Cash Discount is allowed to expedite the collection of
receivables. The funds tied up in receivables are released. The concern will be
able to use the additional funds released from expedited collections due to cash
discount. The discount allowed involves cost. The financial manager should
compare the earnings resulting from released funds and the cost of discount. The
discount should be allowed only if its cost is less than the earnings from additional
funds. If the funds cannot be profitably employed then discount should not be
allowed.

d) Discount Period – The collection of receivables is influenced by the period

allowed for availing the discounts. The additional period allowed for this facility
 4

may prompt some more customers to avail discount and make payments. This will
mean additional funds released from receivables which may be alternatively used

2). Executing the credit

After formulating the credit policy, its proper execution is very important. The
evaluation of credit applications and finding out the credit worthiness of customers
should be undertaken
.
α ) Collecting Credit Information and its Analysis - As credit involves most, it is
but natural that adequate credit information is collected and credit worthiness of
potential customer is investigated and analyzed. If the firm fails to collect its
receivables, there is a great loss to the firm- loss of bad debts and cost of
investment. Therefore credit should be granted to those customers who have the
ability to make the payment on time. A combination of the following sources may
be employed to collect the information- financial statement, bank, and references,
trade references.
There are some institutions in advanced countries such as Credit Beauro
Organization that specializes in providing credit information. For instance, National
Association of Credit Management in U.S.A. In India, various trade associations and
chambers of commerce can be developed to provide the useful credit information to
their members.
β ) Credit Decision – After analyzing the credit worthiness of the customer, the
financial manager has to take a decision whether the credit has to be extended
and if yes then up to what level. He will match the credit worthiness of the
customer with the credit standards of the company. If customer’s credit worthiness
is above the credit standards then there is no problem in taking a decision. In
case the customers are below the company’s credit standards then credit should
not be allowed.
χ ) Credit Limit - Once the firm has taken a decision to extend credit to the
prospective customers, the next thing to decide is the limit of credit and its
duration. The decision on the magnitude of credit will depend upon the amount of
contemplated sale and its customer’s financial position. A credit limit is a
maximum amount of credit, which the firm will extend at a point of time. It
indicated the extent of risk taken by the firm by supplying the goods on credit to
the customer.
δ ) Financing Investments in Receivables and Factoring – Accounts receivables
block a part of working capital. Efforts should be made that funds are not tied up
in receivables for longer periods. The finance manager should make efforts to get
receivables financed so that working capital needs are met in time.
The bank allows raising of loans against security of receivables. Generally, bank
supply between 60-80% of the amount of receivables as loans against their security.
The quality of receivables will determine the amount of loan. The banks will accept
receivables of dependable parties only. Another method of getting funds against
receivables is their outright sale to the bank. The bank will credit the amount to the
party after deducting discount and will collect the money from the customer later.
Here too, the bank will insist on quality receivables only. Besides, there may be other
 4

agencies which can buy receivables and pay cash for them. This facility is known as
factoring.

3).Formulating and Executing Collection Policy; –

The collection of amounts due to the customers is very important. The concern
should devise procedures to be followed when accounts become due after the expiry
of credit period. The collection policy is termed as strict and lenient. A strict policy of
collection will involve more efforts on collection. Such a policy has both plus and
negative effects. The policy will enable early collection of dues and will reduce bad
debt losses. The money collected will be used for other purposes and the profits of
the concern will go up. On the other hand a rigorous collection policy will involve
increased collection costs. It may also reduce the volume of sales. Some customers
may not appreciate the efforts of the concern thus causing reduced sales and profits.
A lenient policy may increase the debt collection period and more debt losses.

EVALUATION OF RECEIVABLES MANAGEMENT

1) DEBTOR TURNOVER RATIO

Debtor Turnover Ratio = Credit Sales

Average Debtors

Average debtors = opening debtors + closing debtors

2
( no provision of doubtful debts)

2) AVERAGE COLLECTION PERIOD

Average collection period = 365(days)

Debtor turnover ratio

DEBTOR TURNOVER RATIO;

YEAR 2008-2009 2007-2008

Credit Sales 25837.99 21857.73
Average Debtors 2931.28 3126.635
Debtor turnover ratio 8.82 6.99

ANALYSIS;
The ratio indicates that how many times the debtors are converted into cash. In 2007-
08, it is 6.99 & in 2008-09, it increases to 8.82. This situation is good for the
company.
 4

AVERAGE COLLECTION PERIOD:

YEAR 2008-2009 2007-2008
Days in a year 365 365
Debtor turnover ratio 8.82 6.99
Average collection period 41 52

ANALYSIS;

This ratio indicates that in how much time, the debtors are converted into cash. In
2007-2008 it takes 52 days to collect the payment from the debtors & in 2008-2009; it
decreases to 41 days which is a good sign for the company

INVENTORY MANAGEMENT

INTRODUCTION:
Inventory is the most important segment of working capital. Inventory Management is
a part of Production Management. Inventory Management helps to the financial
manager in planning and budgeting inventory. It is a technique of controlling the
purchase, use and transformation of material in optimal manner. The phrase “optimal”
signifies minimal waste and cost of holding inventory. The management of inventory
requires stocking of raw materials, components, consumables, packing material,
work-in-progress and finished goods, so that production and marketing line are fed
regularly. While on the other hand, he has to reduce the idle capital tied up in an
inventory.

NATURE OF INVENTORIES:
Inventories are the stock of the product a company is manufacturing for sale and
components that make up the product. The various forms in which inventories exist in
a manufacturing company are: raw material, work-in-progress and finished goods.

• Raw materials are those basic inputs that are converted into finished product
through the manufacturing process. Raw materials inventories are those units
which have been purchased and stored for future productions.
 4

• Work-in-progress inventories are semi-manufactured products. They

represent products that need more work before they become finished products
for sale.

• Finished goods inventories are those completely manufactured which are

ready for sale. Stocks of raw material and work-in-progress facilitate
production, while a stock of finished goods is required for smooth marketing
operations. Thus, inventories serve as a link between the production and
consumption of goods.
The level of three kinds of inventories for a firm depends on the nature of its
business. A manufacturing firm will have substantially high levels of all three kinds of
inventories, while a resale or wholesale firm will have a very high level of finished
goods inventories as compared to raw materials and work-in-progress inventories.
Within manufacturing firms, there will be differences. Large heavy engineering
companies produce long production cycle products; therefore, they carry large
inventories. On the other hand, inventories of a consumer product company will not
be large because of short production cycle and fast turnover.

NEED TO HOLD INVENTORIES:

There are three general motives for holding inventories:

• Transactions motive: Transactions motive emphasizes the need to maintain

inventories to facilitate smooth production and sales operations.
• Precautionary motive: Precautionary motive necessitates holding of
inventories to guard against the risk of unpredictable changes in demand and
supply forces and other factors.
• Speculative motive: Speculative motive influences the decision to increase
or reduce inventory levels to take advantage of price fluctuations.

A company should remain 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 materials whenever it is needed. A time lag exists between demand for materials
and its supply. Therefore, the firm should maintain sufficient stock of raw materials at
a given time to streamline production. Other factors which may necessitate
purchasing and holding of raw material inventories are quantity discounts and
anticipated price increase. The firm may purchase large quantities of raw materials
that are needed for the desired production and sales levels, to obtain quantity
discounts of bulk purchasing. At times, the firm would like to accumulate raw
materials in anticipation of price rise.
Work-in-progress inventory builds up because of the production cycle. Production
cycle is the time span between introduction of raw material into production and
emergence of finished product at the completion of production cycle.
Stock of finished goods has to be held because production and sales are not
instantaneous. A firm cannot produce immediately when goods are demanded by
customers. Therefore, to supply finished goods on a regular basis, their stock has to
 4

be maintained. Stock of finished goods has also to be maintained for sudden

demands from customers.

OBJECTIVE OF INVENTORY MANAGEMENT:

In the context of inventory management, the firm is faced with the problem of meeting
two conflicting needs:
• To maintain a large size of inventory for efficient and smooth production and
sales operations.
• To maintain a minimum investment in inventories to maximize profitability.

Both excessive and inadequate inventories are not desirable. These are two danger
points within which the firm should operate. The optimum level of inventory will lie
between the two danger points of excessive and inadequate inventories.
The firm should always avoid a situation of over-investment or under-investment in
inventories. The major dangers of over investment are:
a) Unnecessary tie-up of the firm’s funds and loss of profits.
b) Excessive carrying cost
c) Risk of liquidity.
The excessive level of inventories consumed funds of the firm, which cannot be used
for any other purpose, and thus, it involves an opportunity cost.
An effective inventory management should
a) Ensure a continuous supply of raw materials to facilitate uninterrupted production.
b) Maintain sufficient finished goods inventory for smooth sales operation, and
efficient customer service.
c) Maintain sufficient stocks of raw materials in periods of short supply and anticipate
price changes.
d) Minimize the carrying cost and time.
e) Control investment in inventories and keep it at an optimum level
 4

EVALUATION OF INVENTORY MANAGEMENT

1) INVENTORY TURNOVER RATIO

Inventory Turnover Ratio = Cost of Goods Sold

Average Inventory

2) INVENTORY CONVERSION PERIOD

Inventory Conversion period = Days in a year

Inventory Turnover Ratio

These ratios are calculated to indicate whether inventories have been used efficiently
or not.

Year 2008-2009 2007-2008

Inventory
Turnover
Ratio 10.70 10.93
Inventory
Conversion
Period(days) 35 34

Turnover of inventory directly affects the profitability of a company. It is in year 2008-

2009 10.70
In 2008-2009, the Inventory Conversion Period has increased, which shows the bad
condition of the business.
 5

FORM II ASSESSMENT OF WORKING CAPITAL REQUIREMENTS

PART A OPERATING STATEMENT
COMPANY AS A WHOLE (Rs. In Lacs)

AS Per Profit and Loss Account actual estimates for the year
ended/ending
PERIOD ENDING 31-3-2009 31-03-2008
Audited Audited
1. Gross Sales- Paper 22994.20 22004.43
Others 75.00 228.08
Soda Ash 2157.84 1631.95
2. Less excise duty 1852.98 2006.73
3. Net Sales (Item 1-2) 23374.06 21857.73
4. Cost of Sales
• Raw Material
- Imported 1004.77 931.39
- Fibrous 3222.40 3161.98
- Indigenous 0.00 11.56
- Chemicals 5753.39 5384.48
• Store Consumption
146.00 136.72
- felts & wires
427.74 407.86
- packing expenses
649.60 596.67
- other spares
4350.57 5050.52
• Power and Fuel 1762.20 1678.29
• Labour 47.30 45.00
• Repairs and Maintenance 125.00 103.93
• Other manufacturing Expenses 728.87 588.93
• Depreciation 19717.85 18097.33
• Sub Total 181.70 110.72
• Add: Operating stock-in-process
Sub Total 19899.55 18208.05
• Deduct: closing stock-in-process 272.60 181.70
• Sub Total 19626.95 18026.35
• Add: opening stock of finished 114.32 96.48
goods 0.00 318.74
Add: purchase of paper 19741.27 18441.57
Sub Total 408.90 114.32
• Deduct: closing stock of finished 19332.37 18327.25
goods
• Sub Total (total cost of sales)
 5

PERIOD ENDING 31-3-2009 31-03-2008

Audited Audited
5. Gross Profit ( Item 3-4) 4041.69 3530.40
6. Interest 767.71 695.13
7. Selling, General & Administrative Exps. 875.00 347.82
8. Operating profit 23.98 1987.53
9. Other Income/Expenses
Add: Income
15.00 14.06
• Other income
0.00 3.80
• Insurance Claims received
0.00 8.59
• Dividend/Interest received 0.00 40.83
• Exchange rate difference 0.00 28.86
• Profit on sale of asset 0.00 44.26
• Provision no longer required W/B 0.00 331.45
• Financial charges waived off 0.00
Deduct: Expenses
• Recompose on exit from CDR 0.00 369.29
• Transitional provision AS (15) Gratuity 0.00 211.34
• Deferred Revenue expense W/O 0.00 0.00
• Loss on Fixed Assets 0.00 25.73
• Provision for doubtful debts 0.00 17.91
0.00 0.00
• Provision for fall in value of investment
0.00 34.06
• Interest capitalized earlier years W/O
15.0 - 186.48
Sub Total (+/-)
2413.98 1801.05
10. Profit before tax/loss (Item 8+9) 0.00 371.35
11. Deferred tax liability 273.50 224.85
12. Provision for taxes 4140.47 1204.85
13. Net Profit (Item 10-11-12) 3142.84 2688.96
14. Cash Accruals
 5

FORM III
SHREYANS INDUSTRIES LIMITED
BALANCE SHEET
(COMPANY AS A WHOLE)

PARTICULARS AS AT 31-3-2009 31-03-2008

Audited Audited
CURRENT LAIBILITIES:
1. Short term borrowing from banks
(including bills purchased and discounted
and the excess borrowing placed on
repayment) 1065.00 620.29
From applicant bank 510.00 413.53
From other banks 1575.00 1033.82
Sub Total (A) 0.00 0.00
2. Short term borrowing from others 0.00 0.00
3. Deposits (maturing within one year) 1619.00 1422.14
4. Sundry Creditors 0.00 0.00
5. Unsecured Loans
6. Advances/Progress payment from 75.00 119.52
customers
7. Interest and other charges accrued but 20.00 21.50
not due for payment 0.00 44.72
8. Tax Payable 0.00 0.00
9. Dividend Payable
10. Other statutory liabilities (due within one 50.00 45.31
year)
11. Installments of term loans/deferred
payments creditors / debentures/
redeemable preference share (due within 1520.52 1170.17
one year)
12. Other Current liabilities and provisions 550.00 504.84
(due within one year) 3524.20 3524.20
Sub Total (B) 4558.02 4558.02
13. Total Current liabilities
 5

PARTICULARS AS AT 31-3-2009 31-03-2008

Audited Audited
TERM LIABILITIES
14. Debentures(not maturing within one 368.30 486.64
year) 300.93 421.31
15. External commercial borrowings
16. Term Loans (exclusive of installments 5165.76 5207.59
within one year) 5834.99 6115.54
Sub Total 1520.52 1170.17
Less: Treated as Current liabilities 4314.47 4945.37
Balance
17. Sundry Creditors Capital (not maturing 50.00 160.22
within one year) 100.00 181.91
17a. Sy. Creditors Spinning Division 1062.00 1062.00
17b. Deferred Tax Liability 228.19 228.19
18. Term Deposited (repayable after one 222.72 220.89
year) 26.48 26.48
Customer’s Security 750.00 727.52
Promoter Loan 6753.86 7552.58
19. Other term liabilities 12165.38 12110.60
20. Total term liabilities (Item 14 to 19)
21. Total outside liabilities (Item 13 to 20)
1382.47 1107.47
NET WORTH 0.00 164.40
22. Ordinary share capital 2011.50 2011.50
23. Equity Warrants
24. General Reserves 66.59 666.59
25. Other reserve (excluding provisions) 1923.75 1305.00
- Capital reserves 308.50 308.50
- Share premium account 232.45 - 1908.02
- Debentures Redemption reserve
26. Surplus (+) or Deficit (-) 5925.26 3055.44
in profit and loss account 18090.64 15166.04
27. Net Worth (Total of Items 23 to 25)
28. Total liabilities (Item 22+27)
 5

PARTICULARS AS AT 31-3-2008 31-03-2008

Audited Audited
CURRENT ASSETS
29. Cash & Bank balances 790.40 520.89
30. Investments (other than long term
investments and sinking fund gratuity fund)
- Govt. and other trustees securities 10.00 6.55
- Fixed deposits with banks 0.00 0.00
31. Receivables 3144.00 2813.55
32. Installments of deferred receivables
(due within one year) 0.00 0.00
33. Inventory
- Raw material (including stores &
other items used in the process of
manufacture)
Imported 334.92 359.63
Indigenous 1260.40 801.59
- Stock-in-process 272.60 181.70
- Finished goods 408.90 114.32
- Other consumable spares 407.78 369.85
- Advances to suppliers of raw material
& stores spares consumable 175.00 174.97
34. Advance payment of taxes 0.00 0.00
35. Other Current Assets (recoverable in
cash or other kind) 800.00 865.58
36. Total Current Assets (Total Item 31 to 7604.00 6208.63
36)

FIXED ASSETS
37. Gross Block (land & building machinery 17293.71 14793.71
construction in progress etc.) 6972.32 6243.45
38. Depreciation to date 10321.39 8550.26
39. Net Block (Item 38- 39)
 5

PARTICULARS AS AT 31-3-2009 31-03-2008

Audited Audited
OTHER NON-CURRENT ASSETS
40. Investments/book advances deposits
which are not current assets
- Others 0.59 0.59
- Advances to suppliers of capital
goods/spares & constructions for capital
expenses 0.00 255.32
- Plan Assets 120.00 106.58
- Others (Security Deposit) 44.66 44.66
41. Non-consumable stores & spares 0.00 0.00
42. Other miscellaneous assets including
dues from Directors 0.00 0.00
43. Total other Non-current Assets (Total of
Item 43 to45) 165.25 407.15
44. Intangible Assets (patents, goodwill,
preliminary & formation expenses,
bad/doubtful debts not provided for etc. 0.00 0.00
45. Total Assets ( Total of Item 37,40,44,45) 18090.64 15166.04
46. Tangible Net Worth ( Item 28- 45) 5925.26 3055.44
47. Net Working Capital (Item 37- 13) 2190.48 1650.61
 5

CHAPTER 4

RESULTS

1. The company’s future prospects are looking very bright. The company’s sales
are increasing at very fast rate from last five years.

2. In 2002 when company sold off its spinning mill at a huge lose; this company
went into financial crises but now with great efforts it has recovered a lot, but
still unabsorbed losses are in existence. It will take 2 years more to write-off its
unabsorbed losses.

3. Both short term and long term financial position has improved and is
satisfactory.

4. The company’s profitability position has improved over last years. In coming
years its profitability position will be more bright.

5. Overall it is a growing company and overall financial position has appreciably

improved than its previous year.

6. Inventory management policy is very good in Shreyans Industries Limited.

 5

CHAPTER 5

SUGGESTIONS
1) There is need of JIT system. JIT system can be used for packing material, oil
& lubricant, small bearings & electrical items which are available in very short
period of time.
2) All the employees and staff members should be made aware about the
management of working capital and they should be encouraged to provide
creative ideas to the management of working capital.
3) As a non – monetary incentive to employees, company should run a public
school for company’s employees it will help in building trust between
management & staff and union.
4) Proper dress for labour and white collar staff with the logo of ‘Shreyans Group’
5) An appointment of qualified MBA’s in various departments.
6) Plant expansion at Ahmedgarh unit.

CONCLUSION

At the end it is conclude that SIL is a progressive unit applying the necessary
techniques and sources to control the working of whole industry.

After a long discussion, we can say that Shreyans Company has many Strengths &
weaknesses. In strengths, we can count its efficiency in many fields. Because
Shreyans never face strike since last few years. It is its success in our personal.
Employees are fully motivated that is why? Mill is producing more paper than its
capacity. Its financial position is also very sound.

In weaknesses company should try to adopt new technology so that it may increase
its production, decrease production costs, accidents, chemical consumption.

Moreover to the study the Management of Working Capital in SIL is good

experience in my life.. I learned a lot from SIL. At the end I can say company is
continuously upgrading its technology, operating parameters and efficiencies to face
the competition.
 5

BIBLIOGRAPHY:

BOOKS: –

• Shashi K. Gupta & R.K. Sharma, Financial Management, Kalyani Publications

• I.M. Pandey, Financial Management, Vishal Publicating House Pvt. Ltd.
• M.Y. Khan, Financial Management, Tata Mc Graw Hill publications Co. Ltd.

Annual reports of SIL

Internal files related to Working Capital Management

Websites:
www.google.com
www.shreyanspaper.com