SUMMER TRAINING REPORT ON WORKING CAPITAL AT

Working Capital Of Alpha Indus. Ltd.

In partial fulfillment of requirement for the award of degree in

MASTER OF BUSINESS ADMINISTRATION

Submitted to: Ms. Rekha Handa Assistant Professor

Submitted by: Sahil Sareen MBA HONS FS III Roll No. 1021

DEPARTMENT OF COMMERCE AND BUSINESS MANAGEMENT GURU NANAK DEV UNIVERSITY AMRITSAR SESSION 2010-2012

ACKNOWLEDGEMENT
Nothing can be achieved without an optimum combination of inspection & perspiration. I owe a lot to many for the inspiration part. But thanking people who have contributed to project of trainee is little like saying thank you at the academy award. At the very first moment, I am very grateful to the almighty for whatever we have attained in life is due to his blessings. I express my deep regards to Mr. Balwinder Singh, Head of Deptt. Of CBM who has given me an opportunity and encourage me to do this project. I also express my deep regards to my worthy guide and supervisor Ms. Rekha Handa, Assistant-professor for her guidance, encouragement and valuable suggestions to me for completing this project. It would be difficult for me to complete this project without her support and guidance. I am always thankful to Mr. Akash Marwaha (Director) for his valuable suggestion consistent interest and personal help during my project work. I am also thankful to Alpha Indus. Ltd staff for providing me relevant information in completing my project report. . Submitted with regards,

SAHIL SAREEN

INDEX

INTRODUCTION
1.1 COMPANY PROFILE Alfa Machinery Makers is engaged since 1956 in the manufacturing & Export of machines, like Lathe Machine, All geared Lathe Machine, Heavy duty lathe machine, Extra heavy duty lathe machine Radial Drilling machine (Radial Drill), Heavy Roll Turing lathe machine, Vertical Turning Lathe Machine, Shaper machine (Shaping Machine), Planer machine, Plano Miller Machine, Metal Cutting Bandsaw machine, Universal Milling Machine, Vertical Milling Machine, Power press, Surface Grinder machine, Slotting machine, horizontal Boring Machines, Vertical Boring Machines. Their clients include almost all Large and Small Steel rolling mills, Paper Mills, Sugar Mills and other industries across India, Middle East, Africa, South Asia. They also manufacture machines for paper mills i.e. - CI Drying Cylinder, Press Rolls, CI Gears, CI Sole Plates, Stands and allied workshop machinery. Our paper mill machinery is being used in almost all the paper mills of India and various paper mills abroad.

COMPANY HISTORY
A tiny sapling was planted in 1956 by shree s.p marwaha founder of the organisation with industrial background at batala which has grown into a very fine and strong tree over the years. they started with the manufacturing of 6 feet lathe machine at the initial stage. keeping in view the industrial revoliution in india and ever increasing demand of our clients for our range of heavy and extra ordinary type of roll turning and precision lathes. keeping in view the clients requirements for machines other than lathes we expanded our production activities by heading others industrial machinery. their range of products includes all type of machinery viz-; lathe machines upto 50 feet, planner machines, plano miller,shapers,radial drills,hacksaw ,power press,grinders,milling, horizontal and vertical boring,etc. which is used for manufacturing all types of industrial items and maintainence jobs. Their main clients in india and abroad are paper mills, steel rolling mills, mini steel plants, sugar mills, heavy engineering industry and maintainance shops. over the years they setup another 3 industrial units known as s.r.v industries, alfa enterprisesand rajesh engineering industries all based at batala(pb.). besides this they have established a marketing office at mumbai which looks after domestic as well as export demands. at mumbai they are having well stocked warehouse with alfa brand machinery and other gujarat make machines as well as imported machines. alfa machinery makers possess massive resources in manufacturing and the entire production work is carried out under one roof. alfa products are known through the length and breadth of country including overseas market for rigid construction, flawless performance, highly precision and production jobs.

apart from this they also have a team of highly qualified engineers and technical staff to ensure excellent workmanship and after sales services.

COMPANY PRODUCTS

Heavy Duty Lathe Machine Extra Heavy Duty Lathe Machine All Geared Lathe Machine Vertical turning Lathe Machine Shaper Machines Radial Drilling Machines C.I. Drying Cylinders Slotter Machine Planer Machine Plano Miller Machine Vertical Milling Machine Universal Milling Machine Metal Cutting Band Saw Power Press Surface Grinding Machine Horizontal Boring Machine Vertical Boring Machine

COMPANY STRENGHTS
We wish to introduce ourselves as one of the leading and renowned manufacturers of ALFA Brand Machinery which is backed by 54 years of rich technical expertise. The machines manufactured in factory possess exceedingly improved features and these are known for rigid workmanship and flawless performance. They have so far supplied a large number of machines throughout the length and breadth of the country besides Overseas Market. Company possess massive manufacturing facilities viz. Castings, Machining, Grinding, Polishing, Dynamic Balancing, Hydraulic Testing, Teeth Cutting etc. under one roof.

1.2 INRODUCTION TO WORKING CAPITAL MANAGEMENT

The prime objective of any management is to make maximum profit. For attaining maximum profit which enables the organization to accomplish to other objectives of the business firms. Working capital management involves the administration of current assets of a firm namely cash, receivables, and inventory. Administration of fixed assets comes with in the preview of capital budgeting while the management of working capital is a continuing function which involves controlling of every day ebb and flow of financial resources circulating in the bunnies. There fore a business can not survive in the absence of satisfactory ratio between current assets and current liabilities Before going to deal with various aspects of working capital management it is better to under take definition and concepts of working capital. Definitions and concepts of working capital:Working capital is the excess of current assets over current liabilities _____ J. S. Mill Working capital refers to the firms investment in the short term assets like cash, account receivable and inventories _____Western and Brigham. Working capital management is also known as current assets management. Working capital management usually is considered to involve the administration of current assets namely cash and marketable serenities, receivables and inventories and the administration of current liabilities ___ James C. Van Horne Working capital concept can be categorized into two categories. Viz. 1. Net concept According to the gross concept working capital refers to sum total of all current assets ____ R. M. Srivastava

Gross working capital rupees to the firms investments in current assets.Net working capital rupees to the difference between current assets and current liabilities the net working capital indicates (a) liquidity position of the firm (b) suggests the extents to which working capital need may be financed by permanent sours of funds. Types of working capital Working capital is different types. The following are the important types of working capital. 1. Permanent or regular working capital Permanent or regular working capital is the minimum amount which should always be there in minimum current asset like inventory or cash balance in order to carry out the business smoothly. 2. Variable working capital The amount of working capital over and above the permanent working capital is known as variable working capital. The extra working capital need to support the changing production and sales activities is called the fluctuating or variable or temporary working capital. It may be further divided into two types namely (a) Seasonal working capital. (b) Special working capital. Seasonal working capital is a required to meet seasonal demands. Seasonal demands Special working capital is required for meeting the contingencies like fire accidents, strikes and advertisement campaign. Need for working capital The bunnies firm has to invest maximum funds on current assets for the success of sale activity. Current assets are need because when the sale is not converting into cash immediately. There is always an operating cycle involving in the conversion of sales into cash.

Operating Cycle

The times require to complete the sequence of events in the case of manufacturing firm is called operating cycle. Debtors Sales

Cash

Finessed Product

Raw materials

Working programs

Fig: 1.1. Operating Cycle of the Manufacturing firm The operating cycle consist of 3 phases. In the 1st phase cash gets converted into inventory. This includes purchase of raw material, conversion of raw material in to workin-process and working in program to finished product. In the 2nd phase the stock is converted into receivables it credit sales are made. In the 3rd phase the conversion of receivable into cash after certain period. the operating cycles of a non manufacturing firm is Accounts receivables

Cash

Stock finished good Fig: 1.2 operation cycle of non manufacturing firm The operating cycle refers to the length of time necessary to complete the following cycle of events.

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Working Capital Working capital is the excess of current assets over current liabilities. Table no. 1.1 Current Assets 1. Cash 2. Bank balance 3. Short term investment 4. Bills receivable 5. Trade debtors 6. Short term loans & advances 7. Inventories Current Liabilities 1. Bank over draft 2. Bills payable 3. Trade creditors 4. Provision for taxation 5. proposed dividends 6. Unclaimed dividends 7. Advance payments discounts. 8. Prepaid payments 8. Occurred interest on unexpired discounts. 9. Outs trading expenses & unexposed

Operational Definitions of the Concepts

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Working Capital Working Capital may be regarded as that proportion of a firms total capital, which is employed in financing its day-to-day operations. It is the amount of funds, which a firm holds, in the form of current assets to meet its current liabilities. Net Working Capital (NWC) Net Working Capital is the difference between current assets and current liabilities Gross Working Capital (GWC) Gross working Capital refers to the firms total investment in current assets. Current assets Current assets are those assets which can be converted into cash within an accounting year or within the operational cycle, without under going diminution in value of or disrupting operational cycle. They include cash, short-term securities debtors. Bill receivable and stock (inventory). Current liabilities Current liabilities are those of outsides that are expected to mature for payment with in an accounting year (or operating cycle). They include creditors. Bills payable and out standing expenses that are the short-term sources. Cash Cash is the money the firm can disburse immediately without any restriction. It includes coins, currency, cheque held by the firm and balance in bank accounts. Some times mere cash items such as marketable securities or bank time deposits are also included in cash. The basic characteristics of near cash assets are that they readily convertible into cash. Inventories Inventory refers to stock of goods or products of the company. It may be in the firm of raw material, work-in-progress and finished goods.

2.2 Objectives of the study

1. To study the various changes in working capital of Alpha Indus..

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2. To study the working capital management with regards to cash, and inventory of Alpha Indus. 3. To study the liquidity position of Alpha Indus. 4. To study the creditors conversion period of Alpha Indus.

2.3 Scope of the Study

Financial management is that the managerial activity which is concerned with the planning and controlling of the firms financial resources. Though it was a branch of economics till 1890 as a separate activity or discipline, it is of recent origin. Still it has no unique body of knowledge of its own and heavily on economics for its theoretical concepts even today. The present study aims at the following Highlighting the necessity of current and current liabilities. Explain the principle s of current assets, investment and financing. Focus on the proper mix of short term and long term financing for current assets. Emphasis the need and goal of establishing a sound credit policy. Explain the need for holding cash. Highlight the need for and a nature of inventory.

2.4 Limitations
The study will be only a provisional or based on the data collected from the published annual reports during 2008-2011. As our project is based on the data recorded by the company, we face the limitation of extracting that particular data because our access is limited for the sake of confidential information of the company.

3.Research Methodology
The data were collected from secondary sources.

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The secondary data were obtained from the published annual reports of Alpha Indus., from 2008-2009 to 2010-2011. The collecting the data were analyzed by changes in working capital, cash, inventory, liquidity ratio. The cash analysis is done by cash to networking capital ratio. The receivable analysis is done by debtors turnover ratio, average collection period and incremental investment in receivables. The inventory analysis is done by percentage of inventory to total current assets, inventory turnover ratio, holding period of inventory and changes in sales and inventory. The liquidity analysis is done by current ratio, quick ratio and absolute liquid ratio

DATA ANALYSIS AND INTERPRETATION

4.1 WORKING CAPITAL ANALYSIS The goal of working capital management is to manage the firms current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. This is so because if the firm cannot maintain a satisfactory level forced into bankruptcy. The current assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. Each of current assets must be managed efficiently in order to maintain the liquidity of the fir, while not keeping too high level of any of one of them. The interaction between assets and current liabilities is. Therefore the main them of working capital management. Accessing working capital management Working capital management is the life blood and controlling never center of business. No business can successfully run with out an adequate amount of working capital. To avoid the shortage of working capital at once, an estimate of working capital requirements should be made in advance so that arrangement can be made to procure adequate working capital. But estimation of working capital requirements is not an easy task and large number factors have to be taken into consideration while an estimate of working capital requirements Total cost incurred on material, wage and over heads

14

The length of time for which raw material are to remain in store before they are issued for production. The length of production cycle or work in- progress conversion of raw material in to finished goods. The length of sale cycle during which finished goods are to be kept waiting for sale. The average period of credit allowed to customer. The amount of cash required to pay day-to- day expense of the business. The average amount of each cash required making a advance payment, if any The average credit period expected to be allowed by suppliers. Time lag in the payment of wages and other expenses. From the total amount blocked in current assets estimated on the basis of the first even items given above, the total of current liabilities that is the last two items is deducted to find out the requirement of working capital. In order to provide for contingencies, some extra amount generally calculated as fixed percentage of working capital can be aided as a margin of study. Working capital management in Alpha Indus.ltd The working capital in Alpha Indus.ltd., nearly 60% of total capital employed. Hence working capital become an importance portion in the Alpha Indus. ltd., Factors of influencing the working capital requirements in Alpha Indus.ltd., Finance Availability of finance that is, the cash and bank credit affects the working capital requirements of Alpha Indus.Ltd., to considerable extent Period of Credit The period of credit allowed by the suppliers and purchases and period of credit allowed to customers on sale also have their own influence on working capital requirement of Alpha Indus.ltd., Sources of finance of Working capital is, the time taken for

15

The working capital requirements is estimated through the preparation of capital and revenue budgets. The main source form the Alpha Indus.finances is working capital needs are Realization cash Cash credit from bank Cash credit form financial institutions and trade credit

Analysis Changes in working capital in Alpha Indus. ltd.

Components of working capital in Alpha Indus. Limited. The Working capital in Alpha Indus. consists of different components like inventory ,sundry debtors, cash and bank balance , current liabilities etc.,Which are show in the following table along with amount invested in each for the period of three years. The structure of working capitals is presented in the table for the purpose of effective analysis of current assets :current liabilities and net working capital have been calculated. Each component of current assets and current liabilities and expressed as proposition to total assets total liabilities. Table4.1.1 showing the components of working capital and % for 3 years of Alpha Indus. limited:
Particulars Current Assets Inventory Sundry Debtors Cash& Bank Loans Advance Total Current Assets Current Liabilities Sundry Creditor 383956.87 Other liabilities and Advance 225285.04 Dues to Director 120458.75 Provision for 200.00 Tax FBT FCCB interest 52.60 30.87 16.50 0.03 288263.50 341012.52 47232.10 42622.80 40.11 47.39 6.57 5.93 100300.08 390948.83 34586.60 230472.71 6032.87 41714.64 12.47 48.62 4.30 28.66 .75 5.19 2008-09 % (100) 2009-10 % (100) 2010-11 % (100)

11532924.21 464783.19 70893.97 270155.51 12338756.88

93.47 3.77 0.57 2.19

3098611.57 1316779.34 421214.18 610003.77 5442604.86

56.93 24.20 7.74 11.13

3101699.40 2235442.13 6801693.26 5674513.40 47813348.19

17.41 12.54 38.18 31.87

16

provision Total Current liability Net W. Capital Trend of Net working Capital

729901.06 11608856.22 100.00%

718730.88 4723873.98 40.69%

804055.72 17009292.47 146.52%

Note: The trend of net working capital are calculated by Taking the year 2008 as bases as 100%. Analysis: The inventory are 93.47%of total current assets during 2008 - 2009 and 56.93%in 2009 - 2010 and 17.41% in 2010-2011. it shows the levels of inventory gradually increased 2008 05 and decreased from 2009-2010 & 2010-2011. The sundry debtors are 3.77 %, of total current assets during 2008-2009, 24.20% in 2009-2010and 12.54% 2010-2011. It shows that the Amount of sundry debtors has been decreased during the period 2008-2009. The cash and bank balance are 0.57% of total current assets in 2008 2009. and 7.74% in 2009-2010. And 38.18% in 2010-2011 it shows increased from every yearly. Loans and advance there is 2.19% of total current assets in 2008 2009 and 11.13% in 2009-2010 and 31.87% in 200-2011 here we can say that company was taking more loans and advances from the year 2010-2011. The sundry creditors are 52.69 of the total liabilities in 2008-2009 and 40.11% in 2009-2010 And 12.47% in 2010-2011. It shows a gradually decrease in creditors up to 2010-2011.

Graph showing components of Working Capital of Alpha Indus.Ltd., Graph no. 4.1.1

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Work ing Percentage of Capit al

200% 150% 100% 50% 0%

Components of Working Capital

Series1

2008-09 2009-10 2010-11 Years

The above graph showing changes trend percentage of working capital of Alpha Indus.Ltd. Table no. 4.1.2 Showing the Statement of Change in working Capital 2008-2009 Working Capital Current Assets Inventories Sundry Debtors Cash &Bank Loans & Advance Total (A) Current Liabilities Current Liabilities Total (B) AB Net Increase in Working Capital 11608853.21 11608856.21 199676.58 199676.58 2008 11504489.46 373759.24 81563.47 189937.63 12149749.80 571326.21 571326.21 1157842359 30432.62 2009 11532924.21 464783.19 70893.97 270155.51 12338756.88 729901.11 729901.11 1160885621 Increase 28434.75 91023.95 80217.88 -Decrease 11069.50 158574.46 3043262

Source
Annual reports of Alpha Indus. ltd., 2008-2009 Analysis Above table shows statement of changing working capital during 2008-2009 which has net increase working capital in Rs.30432.62.

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Table 4.1.3 Showing the Statement of Change in working Capital 2009-2010 Working Capital Current Assets Inventories Sundry Debtors Cash &Bank Loans & Advance Total (A) Current Liabilities Current Liabilities Total (B) AB Net Decrease in Working Capital 11608856.21 11608856.21 8434316.64 8434316.64 2009 11532924.21 464783.19 70893.97 270155.51 12338756.88 729901.11 729901.11 11608856.21 2010 3098611.57 1316779.34 421214.18 610003.77 5442604.86 718730.88 718730.88 4723873.98 6884982.23 Increase 851996.15 350320.21 335848.26 11169.79 6884982.23 Decrease 8434316.64 -

Source
Annual reports of Alpha Indus. ltd., 2009-2010 Analysis Above table shows statement of changing working capital during 2009-2010 which has net decrease working capital in Rs. 6884982.23.

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Table no. 4.1.4 Showing the Statement of Change in working Capital 2010-2011 Working Capital Current Assets Inventories Sundry Debtors Cash &Bank Loans & Advance Total (A) Current Liabilities Current Liabilities Total (B) AB Net Increase in Working Capital 17009292.47 17009292.47 12371143.33 12371143.33 2010 3098611.57 1316779.34 421214.18 610003.77 5442604.86 718730.88 718730.88 4723873.98 12285418.49 2011 3101699.40 2234442.13 6801693.26 5674513.40 17813348.19 804055.72 801055.72 17009292.47 Increase 3091.83 918662.79 6380479.08 5108509.63 Decrease 85324.84

Source Annual reports of Alpha Indus. ltd., 2010-2011 Analysis Above table shows statement of changing working capital during 2010-2011 which has net increase working capital in Rs. 12285418.49.

4.2 ANALYSIS OF CASH MANAGEMENT Cash is an important component of current assets and is most essential for business operations. Cash is the basic input needed to keep the business running on a continues basis. It is also the ultimate output expected to be realized by selling the service and

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product manufactured by the firm. Cash is both the beginning and the end of the working capital cycles i.e. cash, inventories, receivables and cash ____R.K.Mishra, Its effective management is the key determinates of sufficient working capital management. Cash in the business enterprise may be compared to the blood of the human body. Blood gives life the strength to the human body, and cash imports life and strength, profit and solvency to the business organization. ____ P.V. Kulakarni, Motives for holding cash: There are four motives for main training cash balances. 1. Transaction motive 2. Precautionary motive 3. Speculative motive 4. Compensating motive Objectives of cash management: The basic objectives of cash management are as follows. To meet the payments schedule. 1. Minimizing funds committed to cash balances. Functions of cash management: 1. Cash planning 2. Managing the cash flows 3. Determining optimum cash balance 4. Investing idle cash. Cash Management in Alpha Indus. Limited

CASH MANAGEMENT IN ALPHA INDUS.LTD Sources of Cash The main sources through with Alpha Indus. gets Cash are the collection from debtors, advances on Sales and other sources.

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Payment of Cash The companies main item of expenditure are wages , salaries, bonus , Expenditure salaries , expenditure on development, sales tax, income tax, excise duty , payment to creditors , interest on borrowing. All the payment to creditors is make through cheque and cash even expenses are paid , wages salaries exiles duties is paid monthly . Table no.4.2.1 Showing cash to Networking capital of Alpha Indus. 2008-09 (Amount in Rs) 70893.97 11608856.21 0.61 2009-10 (Amount in Rs) 421214.18 4723873.98 8.9 2010-11 (Amount in Rs) 6801693.26 17009292.47 39.98

Particulars Cash & Bank Balance Net Working Capital Cash to NWC Ratio (Times) Sources

Annual reports of Alpha Indus. ltd 2008-2011. Analysis Table 2.1 portrays the size of cash and bank balance in Alpha Indus. from 20082009 to 2010-2011 as a percentage of net working capital. The cash and bank balance were 0.61(times) of net working capital during 2008-2009, 8.9 (times) during 20092010, 39.98 (times) during 2010-2011.

Graph No.4.2.1 Showing Cash to Net Working Capital Ratio

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Interpretations This ratio indicates the proportion of cash and bank balance maintained by Alpha Indus.. It is assumes per amount importance of the level of cash balance decides the liquidity Profitability, aspects of the company. The lower the cash to networking capital the grater may be the profitability of the concern and vice-versa. It any company holds too low cash and bank balances in the relation to net working capital , it implies the ability of firm to meet day to day requirement of cash in the present study cash to current ration of Alpha Indus. ltd., reveals it was 0.61 in 2008-2009and it was increased to 8.9% in 2009-2010 and 39.98 % in 2010-2011respectively. Practice of holding cash balance in relation to net working capital indicates good cash management in sales

4.3 ANALYSIS OF INVENTORY MANAGEMENT

Cash to NWC
45 40 35 30 25 20 15 10 5 0

Cash to NWC

Series1

2008-09

2009-10 Years

2010-11

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Inventory management involves the control of assets being produced for the purposes of sale in the normal courses of the companys operation. Inventories include raw material, work-in-process and finished good inventory. with holding inventories. The main goal of effective inventory management is to minimize the total costs direct and indirect that are associated How ever the importance of inventory management to the company depends upon the extent of investment in inventory. Meaning The term inventory refers to the stock file of the product which a firm is offering for sale and the components that male the product. Nature of inventories Inventories are 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. 1. Raw materials Raw materials are basic inputs that are converted in to finished product. Raw materials inventories are those units which have been purchased and stored for future productions. 2. Work-in-process Work in process inventories are semi manufactured products. products that need more work before they become finished products for sale. 3. Finished goods Finished goods inventories are those completely manufactured products which are ready for sale. Stocks of raw materials and work-in-process facilitate production, while stock of finished goods is required for smooth maturing operation. Thus inventories serve as a link between the production and consumption of goods. They represent

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A firm also maintains a fourth kind of inventory or stores and spares. This category includes those products which are accessories to the main products produced for the purpose of sale. Ex: bolts, nuts, clamps, screws etc. Purpose of Inventories The purpose of holding inventories is to allow the firm to separate the processes of purchasing, manufacturing and marketing of its primary products. The goal is to achieve efficiencies in are as where costs are involved and to achieve sales at competitive prices in the market place. The main purposes are 1. Avoiding lost sales 2. Gaining quantity discount 3. Reducing order cost 4. Achieving efficient production rum. Avoid losses of sales Purchasing Gain Quantity discounts Firms holding Inventories Producing Reduce Order Costs Selling Achieve efficient production

Fig no. 4.3.1 Purpose of inventory Objectives of Inventory management The main objectives of inventory management as follows 1. Ensure a continuous supply of raw materials to facilitate uninterrupted production.

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2. Maintain sufficient stocks of raw materials in periods of short supply and anticipate price changes. 3. Maintain sufficient finished goods inventory for smooth sales operation, and efficient customer service. 4. Minimize the carrying cost and time. 5. Control investment in inventories and keep it at an optimum level. Inventory control A firm needs an inventory control system to effectively mange its inventory. Inventory control is concerned with the acquisition storage, handling and use of inventories so as to ensure the availability of inventory when ever needed provide adequate cushion for contingency and derive maximum economy and minimize wastage and losses R. K. Ghosh and G. S. Gupta, Objectives of Inventory control To minimize the possibility of delay in production through regular supply of raw materials, stores and spares, tools and other equipment and when required. 1. To avoid unnecessary capital locker up in inventories. 2. To exercise economies in ordering, the obtaining and storing of materials Ordering system of inventories In managing inventories, the firms objective should be in Constance with the share holder wealth maximization principle. To achieve this, the firm should determine the optimum level of inventory. To mange inventories efficiency, answers should be sought to the following two questions like a. How much should be ordered b. When should it be ordered There are three important systems of ordering materials they are 1. Economic order quantity (EOQ) Or

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2. Fixed period order system or periodic re ordering system or periodic review system. 3. Single order and scheduled part-deliveries system. Methods of valuing material issues The stock of given material will, there fore consist of purchases made at different times at different prices, which poses a problems as to what should be the price when the material is issued. There are many methods of pricing material issues the important A. cost price methods I. First in first out ii. Lost in first out iii. Average cost iv. Inflated price v. Specific price vi. Base stock vii. Highest in first out B. Market price method I. Replacement Price II. Realizable Value C. Standard price methods I. Current standard price ii. Basic standard price Role of inventory in working capital management Inventories are components of current assets. Some characteristics are important in the broad context of working capital management including. 1. A current assets 2. Level of liquidity 3. Liquidity lags 4. Circulating activity

Table no. 4.3.1 SHOWING INVENTORY TOTAL CURRENT ASSTES Particular Inventories Total current assets 2008-2009 11532924.21 12338756.88 2009-2010 3098611.57 5442604.86 2010-2011 3101699.40 17813348.19

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% Of inventory to total current assets Sources

93.46

56.93

17.41

Published annual reports on Alpha Indus.ltd., from 2008-2011 Analysis Inventory to total current assets as the percentage of the total current assets in the year 2008-2009 93.46, in the year 2009-2010 56.93%, in the year 2010-2011 17.41%.

Interpretation The total inventory as a percentage of the total current assets as 93.46% in the year 2008-2009 it has gown down to 17.41%, in the year 2010-2011 This percentage of inventories to current assets indicates that the inefficiency of inventory management in Alpha Indus. limited ., gown down from 2009-2010. Since there is decreased in the percentage indicates decreased Inventory Turnover Ratio Inventory turnover Ratio indicates the efficiency of the firm in producing and selling in products Sales Inventory turnover Ratio = --------------------------------Average inventory Table no. 4.3.2 Showing inventory Turnover Ratio of Alpha Indus. Ltd., Particular Sales Average Inventory Inventory Turnover Ratio Sources 2008-2009 288505.21 11518710.84 2.51 2009-2010 1879863.74 7315765.89 0.25 2010-2011 4265637.66 1704388.75 2.50 the efficiency of inventory management has

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Annual report on Alpha Indus.ltd from 2008-2011 Analysis The table shows calculated inventory turnover ratio , it has 2.51% in the year 2008-2009 , in the year 2009-2010 0 .25%, in the year 2010-2011 2.50%. Graph no. 4.3.1
Inventory Turnover Ratio
Times
5 4 3 2 1 0 2008-09 2009-10 Years 2010-11

Interpretation Inventory Turnover ratio measures the velocity and to ;measure the efficiency of the company selling it s products. In the year 2008-2009 it was 2.51%, and 0.25% in the year 2009-2010 decreased .the firm has not to maintain efficient management of Inventory.

Table no. 4.3.3 Showing Holding Period of Inventory Years 2008_2009 2009-2010 2010-2011 Inventory Turnover Ratio 2.51 0.25 2.50 Number of Days 360 360 360 Numberofdays for Inventory 143 Days 120 Days 144 Days

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Sources Annual report of Alpha Indus. ltd., from 2008-2010 Analysis In the year 2008-2009 the holding period was 143 days, 120 days in 2009 2010, 144 days 2010-2011. Graph no. 4.3.2

Holding Period of Inventory

400 350 300 250 200 150 100 50 0 2008-09 2009-10 Years
The above graph showing changes in the holding period of inventories Alpha Indus. ltd., Interpretation Shows the inventory holding period of through out under the study in the 2009-2010 the inventory was sold with in 120 days it is less period compared to other years. Table no. 4.3.4 showing changes in Sales and Inventory: Particular Sales Inventory Changes in Sales Change in Inventory 2008-2009 288505.21 11532924.21 100% 100% 2009-2010 1879863.74 3098611.57 65.81% 2.68% 2010-2011 4265637.66 3101699.40 147.8% 26.89%

Days

2010-11

Sources
Annual report on Alpha Indus. ltd.,2008-2011.

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Note: the percentage in sales and inventory or calculated by taking the year 2009 as basis as 100%. Analysis Depicts the change in sales and inventory over the period under the study, change in inventory was decreased by2.68% in 2009-2010 26.89% and 2010-2011 respectively. Interpretation The study of inventory and change in sales , inventory was not improved and sales are improved. This is because, the sales as increased in the year 2010-2011.

4.4 ANALYSIS OF LIQUIDITY OF ALPHA INDUS. LTD.

Introduction The liquidity position of Alpha Indus. is analyzed by calculating current ratio , quick ration, absolute quick ratio Current ratio Current ratio to measure the firms short term solvency of indicates the availability of current assets in rupees for every one of current liability. A ratio grater than means that the firm as more current assets the current liability Current Assets Current Ratio = Current Liability Table no.4.4.1Showing of Current Ratio of Alpha Indus.ltd: Particular Current Assets Current Liability Current Ratio 2008-2009 12338756.88 729901.11 16.90 2009-2010 5442604.86 718730.88 7.57 2010-2011 17813348.19 804055.72 22.15

Source
Annual report of Alpha Indus.ltd., from 2008-2011.

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The calculated current ration indicates the proportion of current assets to current liabilities in all years is below then the standard ratio. Analysis The calculated current ratios are 16.90 in 2008-2009, 7.57%in 2009- 2010,22.15%in 2010-2011 since the ratio is grater than its standard in all the year the shot term financial position of the company is very good. Interpretation Shows that the firm calculated current ration is grater than standard ratio (2:1) in all years from 2008-2009 to 2010-2011. current ratio indicates sufficient level of investment in current assets in all years.

Liquidity Ratio
Liquidity ration indicate that a relationship between quick or liquid assets and current liabilities. An assets is liquid if it can be converted in to cash immediately of reasonable soon without a loose of values.

Quick (or) Liquid Assets Liquidity Ratio= ----------------------------------Current liabilities Liquid or Quick Assets = Current Assets (Inventory + Prepaid Exp)

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Table no. 4.4.2 Showing of Liquidity Ratio of Alpha Indus. Ltd., Particular Liquid Assets Current Liabilities Liquid Ratio Source Annual report of Alpha Indus. ltd., 2008-2011 Analysis The calculated liquidity ratio is 1.10% in 2008-2009 ,3.26% in 2009-2010, in 18.29% 2010-2011 . 2008-2009 805832.67 729901.11 1.10 2009-2010 2343997.29 718730.88 3.26 2010-2011 14711648.79 804055.72 18.29

Interpretation The liquid ratio 1.10% in 2008-2009,3.26% in 2009-2010, 18.29% in 200-2011 the company liquid ratio is good, it maintain sufficient amount of liquid assets. Absolute liquid Ratio Since cash is most liquid asset a financial analysis may examine the ration of cash and its equivalent to current liabilities . trade investment on marketable secularity are equivalent to cash. There for may be including in computation of its ratio. Absolute liquid Asset Absolute liquid Ratio = -----------------------------Current liabilities Table no. 4.4.3 Showing of Absolute liquid Ratio of Alpha Indus. Ltd., Particulars Absolute Liquid Assets Current Liabilities Absolute Liquid Ratio 2008-2009 570893.97 729901.11 0.097 2009-2010 421214.18 718730.88 0.58 2010-2011 6801693.26 804055.72 8.45

Source
Annual reports of Alpha Indus. ltd.,2008-2011.

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Absolute liquid ratio market cash in hand and at bank and marketable security or temporary investment. The acceptable norm i.e. rate 10/- worth absolute liquid asset or considered adequate to pay 20 Rs Worth . current liabilities in time as all creditors or not expected to demand cash at same time and then as may also be realized from debtors and inventorys Analysis This calculated absolute liquid ratio are 0.097 in 2008-2009, 0.58in 2009-2010 , 8.45in 2010-2011.

Interpretation In the all the years firm calculated cash ratio is higher than the acceptable standard ratio with indicated the firm has been maintain sufficient level cash to meet its data to day obligation.

5) FINDINGS
The following of the findings of the Alpha Indus. Ltd with regards to working capital management 2008-2011. The investment in inventory gradually decreases from 93.47 % to 17.41 % during 2008-11. The amount of sundry debtor has been increased from 3.77% of total current assets to 24.20% during 2009-10 there was a decrease in 2010-11, 12.54% declined in current assets.

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 Sundry Creditors have been decreased during the period under study from 52.60% to 12.47% of the total current liabilities The net increase in working capital during the year 2008-2009 is Rs: 3043262. The net decrease in working capital during the year 2009-2010 is Rs:688498223 The net increase in working capital during the year 2010-2011 is Rs: 1228541849. The calculated current ratio 16.90 in 2008-2009, 7.57 in 2009-2010, 22.15 in 20102011. The liquid ratio is 1.10 in 2008-2009, 3.26 in 2009-2010, 18.29 in 2010-2011. Except 2008-11 the liquid ratio was more than standard ratio, therefore liquidity position of the origination is satisfactory. Cash and bank balance vary between 0.6 (times) and 8.9 (times) in 39.98(times) in Alpha Indus. however the parties of holding cash balance in relation in net working capital indicate good cash management in Alpha Indus. Ltd. The total investment in inventory has been decreased from 2008-2011, it indicates poor performance in inventory management this is due to low investment in raw materials and low production.

6) SUGGESTIONS
The cash ratio is of the company is not satisfactory through the period of under study, because in all the year cash ratio is below the standard. Hence it is suggested to improve cash and bank balance to meet day to day obligations.

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 It is suggested to make investment in inventories and to improve the performance in inventory management.

8)BIBLIOGRAPHY
BOOKS 1) Financial Management I. M. Panday 2) Management Accounting - R. K. Sharma & S.K. Gupta

Annual reports of the company from the year 2008 till 2011. WEBSITES

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http://www.alfamachinery.com/ http://www.alfamachinery.com/about-us.php http://www.alfamachinery.com/director-message.php http://www.alfamachinery.com/products.php

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