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In Partial Fulfillment of the Requirements for the degree of Master of Business Administration SUBMITTED TO Late Smt. Shardaben Ghanshyambhai Patel Institute of Management Studies DHARMAJ Year: 2010-2012
Affiliated to GUJARAT TECHNOLOGICAL UNIVERSITY, AHMEDABAD Faculty Guide: Ms.Zarna Patel Madam
CERTIFICATE
This is to certify that Mr. Shirish B. Patel, student of MBA (2010-2012 batch) at Post Graduate Centre of Gujarat Technological University MBA, SGPIMS has prepared a summer project report on Working Capital Management in partial fulfillment of two years full-time MBA Degree program of Gujarat Technological University. This research work has been done under the guidance of Miss Zarna Patel Madam, Faculty MBA Program, SGPIMS, Dharmaj. It is also to ascertain that this summer project report has been prepared only for the award of MBA degree and has not been submitted for any other purpose. Date: Place: SGPIMS, Dharmaj. Miss Zarna Patel Madam Faculty (Project Guide)
DECLARATION
I do hereby declare this piece of project report entitled A study on Working Capital Management practices in Elecon Engineering Company Ltd for partial fulfillment of the requirements for the award of the degree of Master Of Business Administration Is a record of original work done by me under the supervision and guidance of Ms. Zarna Patel, Madam, Late Smt. Shardaben Ghanshyambhai Patel Institute of Management Studies. This project work is my own and has neither been submitted nor published elsewhere.
PLACE:-Dharmaj DATE:-15/07/2011
PREFACE
M.B.A. is one of the professional courses available after graduation. Its abbreviation is master of business administration. This degree has its own peculiarity, which makes it different from other degree. We are accountable to the rules of Gujarat Technological University (G.T.U.) As our college is affiliated to G.T.U. After the semester II, University Exams, We are supposed to undergo summer training in the company for 6 week. I have takes my summer training at ELECON ENGINEERING COMPANY LIMITED. I have to select the specialization, under which particular Topic is selected and on which data is gathered and analyzed. And so i have taken Working Capital Management as my primary study for the Elecon Engineering. It was very interesting to get acquainted with Working Capital Management, Inventory Management, Operating Cycle, ratio, the challenges faced by Company in the society. I also collected generate information, of Elecon Engineering Company. i.e. related to industry functional department etc. Yes because of this summer training only, I get the chance to stay in large scale company Elecon Engineering Company, for few weeks and it enhanced my knowledge very much.
ACKNOWLEDGEMENT
A work is never a work of an individual. I owe a sense of gratitude to the intelligence and co-operation of those people who had been so easy to let me understand what i needed from time to time for completion of this exclusive project. I am also grateful to Mr. Romesh Prajapati And Nirmal Patel , Director of Late Smt. Shardaben Ghanshyambhai Patel Institute of Management, for permitting me to undertake this study. Last but not the least, I would like to forward my gratitude to my friends & other faculty member who always endured me and stood with me and without whom I could not have completed the project. I am greatly indebted to my guides Ms. Zarna Patel Madam, over faculty guide for Finance (summer internship), Finance Department, corporate, office, Elecon Engineering Company Ltd, Vallabh Vidyanagar for their constant guidance, advice and help which enabled me to finish this project report properly in time.
EXECUTIVE SUMMARY
The report consists of the details on Elecon Engineering Company Ltd. The project report is divided in seventh chapters. The first chapter of the report is for the information about the company. The second chapter is department introduction. Thread chapter is literature review. Fourth chapter is Objective of study. Fifth chapter is Research Methodology. Six chapters are working capital management of the report is about the project study. The chapter one of this report is done from the basic information of the company which includes General information about the company which consists of its history and development and the information about its all functional areas. The second chapter entire functional department consists of HR Department, Finance Department Marketing department, Production Department. Third chapter in Literature review of working capital management. Fourth chapter in objectives of the study in working capital management. The fifth chapters in company research and secondary data collection use. The six chapters of the specialization area. This part starts with back ground of the study and importance of the study to the working capital. Now the important on working capital is the specialization area of the company Inventory Management, Operating cycle, Ratio Analysis in that chapters seventh is that how Company makes order from the client and to finished goods.
Index
Chapter No.
1
Particulars
Introduction of Company 1.1 Company Profile 1.2 History of Engineering Company of India 1.3 History of Elecon Engineering Company 1.4 Mission & Vision 1.5 Quality Policy 1.6 Overview of Company 1.7 Group Company Department Introduction 2.1 Finance department 2.2 Production department 2.3 Human Resource department 2.4 Marketing department Literature Review Objective 4.1 Objectives of study Research Methodology 5.1 Introduction 5.2 Types of Data Collection Working Capital Management 6.1 Introduction 6.2 Inventory Management 6.3 Operating Cycle 6.4 Ratio Analysis Finding, Conclusion & Limitation 7.1 Finding 7.2 Conclusion 7.3 Limitation Bibliography Annexure
Page No.
9 10 11 14 16 17 18 20 22 23 26 29 30 32 34 35 36 37 38 39 40 43 50 57 60 61 62 63 64 65
3 4 5
A B
Engineering profession in India is still evolving. Though Indian engineers are often considered the best in their mathematical abilities, R&D and high level engineering work still lags in India. The Indian industry recognizes this and is fast catching- up. They offer India as a low-cost destination for multinationals looking to reduce cost for high level work as Research and Development. India has been especially successful in putting her engineers to work in several back office functions. Many of them are employed in technical support. A lot of Indian companies also send their engineers on assignments to Europe and North America because they provide low-age alternative to local engineers. This helps the Indian companies to win contracts due to the price differential. This advantage has helped the software industry in carrying out a niche for itself as a low cost, quality provider of technical work. Civil engineering is also gaining ground in India because of the impetus on infrastructure; civil engineers are well in demand. However this demand is domestic only. Another emerging area is bio-medical engineering that is being pushed by the government. However, some other fields of engineering are not developed such as offshore, nuclear etc. The reason is a lack of private participation in these industries. The 21st century has seen a different trend. With the onset of technical outsourcing to India and other cheap foreign destination from the USA and Europe, engineering degrees and careers have taken a whole new meaning in India. The last ten years has seen a lot of low skilled as well as software testing work shift to destinations like India due to the lower cost of labor. Several engineers of Indian origin in the USA are electing to go back as more and more opportunities emerge in India due to rapid globalization and shifting of technology related work to low cost destination such as India.
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Engineering in India picked up momentum in 1947 after Indias independence from British rule. Engineering was considered a well-respected and stable profession. It was heavily dominated by men. The eighties saw a steady increase in women that took it up as a profession. The nineties saw a steady increase in computer engineering as more and more venues opened for Indian engineers in India and North America in the field of software programming. Current state of Engineering in India
With the high economic growth rate in India and rapid globalization of technical services worldwide, engineering in India is poised to climb to the next level. Plans are under way to revamp the engineering education system and make it more answerable to emerging global demands. Engineering Education
Engineering education in India has long been dominated by the Indian Institutes of Technology and the Regional Engineering Collages. The Indian institute of Technology has earned a reputation for graduating outstanding engineers who have risen to the top of their profession globally. However, critics call it more a phenomena of admitting the best and not necessarily the institutes having top-notch professors. Other engineering collages such as the regional Engineering collages have also made huge strides. But the majority of the Engineering collages in India rely on rote as the teaching methodology. There is an increasing awareness that the Engineering education system has to be revamped. Reports reveal that only 25% of the engineering graduates are employable. Several companies have set-up their own training institutes to fill the gap between what the education system delivers and what is needed in the market place. Also there is a dearth of engineers in areas other than software engineering. Because of opportunities and prevailing trends, most engineers gravitate towards computer engineering. This has exposed a gap in engineering skills for other professions some that are just emerging as competitive areas.
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Several challenges face engineers in India. The most important is access to state of the art engineering education that adheres to the international best practices. The other is the availability of well paying jobs in the field of Research and Development that help to propel innovations. Also as become more global, Indian engineers have to figure out a way in which to respond to challenges thrown by global economy and become accustomed to project management on global scale.
Opportunities for engineers are increasing at exponential rate. Besides opportunities in software and civil engineering, demands are being felt in other engineering fields such as biomedical, petroleum and automotive engineering. As industries related to these fields evolve and grow. So people are giving more interest that field.
Major industries of India include automobile, cement, chemicals, electronics, food processing, machinery, mining, petroleum, pharmaceuticals, steel, transportation equipments and textiles are developing and some are developed. Such industries decide the future of engineering companies.
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After dawn of its Silver Jubilee Year in 1976, Elecon set up a separate Gear Division, having an area, spread 1, 73,098 sq. meters, equipped with state of the art manufacturing infrastructure. The Gear Division today provides a total solution to industries for power transmission equipments by designing, supplying and servicing products like Worm Gears, Helical Gears, Sprial Bevel Helical Gears and different types of Couplings. While MHE division have an area of 117,000 sq. meter Equipped with a modern infrastructure. A team of experts is geared up to serve customers for Specialized Gear requirement for various applications like Steel Rolling Mills, Marine application for Coast Guard, Space Applications etc. This Division has recently specialized in developing speed increasing application for Windmills as well. Elecon has also set up an Alternate Energy Division in the year 1995 for manufacturing and supply of Wind Turbine Generators a non conventional source of producing energy. Under the technical know-how obtained from a Belgium Company Elecon is the first industrial gear manufacturer in India to achive ISO 9001 in 1994 and again first to achieve ISO9001:2000 in 2001
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Vision
Create global presence in power transmission by innovating and developing products to enhance value and satisfaction of our Customers. We adapt to the changes and meet the challenges by creative entrepreneurship, empowered teamwork, continuous improvements, and environment friendly practices and optimize profits to delight our stakeholders.
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It will be our endeavor to continuously improve and exceed customer expectations through engineering excellence so that we are benchmarked amongst the very best. We will ensure that, while we excel in our business operation, we also comply with all applicable standards & norms.
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2004 Elecon Engineering produces gear boxes for Stealth Frigate battle ships 2005 Elecon Engineering gets Rs 26 cr order from APGen co 2007 Elecon Engineering Company Ltd has signed a Memorandum of Understanding (MOU) with the Government of Gujarat(GOG) at the Vibrant Global Investors' Summit 2007 held on January 13, 2007.Elecon Engineering Company Ltd has informed that the Company has been awarded a contract worth Rs 229.09Crores for supply and installation of Coal Handling Plant Package for National Capital Thermal Power Project (NCTPP); Dadri , Stage II (2 x 490MW) from NTPC Ltd. Elecon Engineering receives order of Rs 57.70 crores from BHEL. The Company has issued Bonus Shares in the Ratio of 2:1. 2008 Elecon Engineering Company Ltd has informed that the Board of Directors of the Company at its meeting held on July 29, 2008, Shri. Prashant C Amin appointed as Additional Director of the Company. Elecon Engineering Company Ltd has bagged three orders worth Rs51.74 crore from Techpro Systems, Chennai and SAIL-Durgapur Steel Plant, Durgapur.
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1. EIMCO ELECON.
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Benzlers
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Sr. Manager
Company Secretary
Manager {Imports}
Manager
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2. BANK FINANCE
Cash credit Short term secured loan from banks Short term unsecured loan from banks Letter of credit Working capital demand loan Export packing credit
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PRODUCTION PROCESS
Manufacturing operation convent input like material, labor & capital into some tangible outputs production process is a process of producing goods & service by combining of utilizing the service of factor of production. Production process is continues which has been going on since the drawn of economic history of will continue till this world last. Production process is a continuous process of activity which enables flow of the service & their use for satisfaction of human wants. Human needs are unlimited & go on multiplying & are recurring in nature. The nature of human race changes occurs in change in production. The process has different concept in traditional economics & modern economy. In ELECON the production process consist of several stages like: Receiving production Making & machining billets & blanks. Making components Assembling unit Separate articles Painting. Packing Shipment
The success of each step depends upon its organization & also on an uninterrupted supply of materials. The proper tools efficient maintain & accrete stock taking.
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2.
PULLY
3.
SHIP LOADERS
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OBJECTIVES
Plan the human resource requirement for the company. Selection of effective and efficient employees for the company. Deciding proper remuneration for the employees. Giving appropriate tanning, motivation and development to increase the efficiency of the employees. To facilitate proper coordination and co-operation between employees within the organization. To ensure the welfare of employees, organization and whole society as well. To ensure smooth relationship between trade unions and management.
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3 Literature Review
1. Profit maximization is the ultimate objective of firms as well as protecting liquidity is an important objective too. The difficulty of working capital management is to achieve the two objectives optimally within an operating period. If profit is increased at the cost of liquidity, this may create serious problem to firms. Therefore, to solve such problem, there must be some compromise between these two objectives of firms. Amit, Mallik, Debashish and Debdas (2005) in their study regarding the relationship between working capital and profitability of Indian pharmaceutical industry have found no clear relationship between liquidity and profitability. 2. Vishananiand Shah (2007) have studied the impact of working capital management policies on corporate performance of Indian consumer electronic industry by implementing simple correlation and regression models. They have found that there is no established relationship between liquidity and profitability for the industry as a whole; but various companies of the industry depict different types of relationship between liquidity and profitability. However, majority of the companies revealed positive association between liquidity and profitability. 3. Rehemanand Naser (2007) have found in their study negative relationship between profitability and liquidity of firms, Ganesan (2007) have studied working capital management efficiency in Telecommunication equipment industry, and their study revealed significant statistical evidence and negative relationship between profitability and liquidity. Lyroudi and Lazardis (2000) investigate the cash conversion cycle and liquidity position of the food industry in Greece. They have used cash conversion cycle as a liquidity level indicator of the food industry in Greece and tried to determine its relationship with the traditional liquidity measurement and profitability measurement of return on investment, return on equity and net profit margin. In addition, the study reveals differences between the concept of cash conversion cycle in manufacturing, retail, wholesale and service industries. The advantage of modern liquidity measurement technique helps to evaluate working capital change. In addition, it facilitates the monitoring and controlling of its components, receivables, inventories and payables.
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4. Lyroudis and Lazardis (2000). Mukhopadhyay (2004) has stated that firms are badly constrained to smoothly run the day to day operations if there is negative working capital and also difficult to settle short term obligations. Singh (2004) states that the liquidity position of any firm mainly depends upon accounts receivable collection and payables deferred policy as well as inventories conversion period of firms.
5. Kim, Mauer and Sherman (1998) have examined the determinants of corporate liquidity of 915 US industrial firms for the period of 1975 to 1994 by using panel data and different model. They have found that firms with large market to book ratio have significantly larger position in liquid assets. In addition, firm size tends to be negatively related to liquidity. Their finding revealed that positive relationship between liquidity and cost of external financing to the extent that market to book ratio and firm size are reasonable proxies for the cost of external financing.
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4.1 Objectives
Study of the working capital management is important because unless the working capital is managed effectively, monitored efficiently planed properly and reviewed periodically at regular intervals to remove bottlenecks if any the company cannot earn profits and increase its turnover. With this primary objective of the study, the following further objectives are framed for a depth analysis. 1. 2. 3. 4. 5. 6. To study the working capital management of Elecon Engineering Ltd. To study the optimum level of current assets and current liabilities of the company. To study the liquidity position through various working capital related ratios. To study the working capital components such as receivables accounts, cash management, Inventory position To estimate the working capital requirement of Elecon To study the operating and cash cycle of the company.
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5.1 INTRODUCTIO
Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying now research is done systematically. In that various steps, those are generally adopted by a researcher in studying his problem along with the logic behind them. It is important for research to know not only the research method but also know methodology. The procedures by which researcher goes about their work of describing, explaining and predicting phenomenon is called methodology. Methods comprise the procedures used for generating, collecting and evaluating data. All this means that it is necessary for the researcher to design his methodology for his problem as the same may differ from problem to problem. Data collection is important step in any project and success of any project will be largely depend upon now much accurate you will be able to collect and how much time, money and effort will be required to collect that necessary data, this is also important step. Data collection plays an important role in research work. Without proper data available for analysis you cannot do the research work accurately.
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6.1 INTRODUCION
More business fails for lack of cash than for want of profit Efficient management of working capital is one of the pre-conditions for the success of an enterprise. Efficient management of working capital means management of various components of working capital in such a way that an adequate amount of working capital is maintained for smooth running of a firm and for fulfillment of twin objectives of liquidity and profitability. While inadequate amount of working capital impairs the firms liquidity. Holding of excess working capital results in the reduction of the profitability. But the proper estimation of working capital actually required, is a difficult task for the management because the amount of working capital varies across firms over the periods depending upon the nature of business, production cycle, credit policy, availability of raw material, etc. Thus efficient management of working capital is an important indicator of sound health of an organization which requires reduction of unnecessary blocking of capital in order to bring down the cost of financing.
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Current Assets This is any cash or assets that can be quickly turned into cash. Current assets are assets, which can be converted into cash within an accounting year. Constituents of Current Assets: Cash in hand and bank balance bills receivables Sundry debtors (provision for bad debts) Short term loans and advances Inventories of stocks. Raw material. Work in progress. Stores and spares. Finished goods. Prepaid expenses. Accrual incomes.etc Current Liabilities Current liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year. Constituents of current Liabilities
Bills payable Sundry creditors or account payable Short term borrowings Dividend payable Bank overdraft Provisions Outstanding expenses Un accrued income
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Need for working capital The basic objective of financial management is to maximize shareholders wealth. For this it is necessary to generate sufficient profits. The extent to It, which the profit can be earned, largely depends on the magnitude of sales. However sales do not convert into cash instantly. There is invariable the time gap between the sales of goods and receipts of cash. There is, therefore, a need for working capital in the form of Current Assets to deal with the problem arising. Out of the lack of immediate realization of cash again goods sold. Therefore, sufficient working capital is necessary to sustain sales activity.
1. for the purchase of raw material, components and spares. 2. To incur day to day expenses and overhead costs such as fuel, power and office expenses, etc. 3. To meet selling costs as packing, advertisement etc. 4. To provide credit facilities to the customers. 5. To maintain the inventories of raw material, work in progress, stores and spare and finished goods. 6. To pay wages and salaries.
Working Capital Management is concerned with the problems that arise in attempting to manage the Current Assets, Current Liabilities and the inter-relationship that exists between them. Working Capital Management means the deployment of current assets and current liabilities efficiently so as to maximize short-term liquidity. Working capital management entails short term decisions -generally, relating to the next one year periods - which are "reversible"
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Need to Hold Inventory :The question of managing inventories arise only when the company held inventories, maintain inventory involves tiding up to companys funds and storage and handling cost. As it is expensive to maintain inventories. Why do companies hold inventories? There are general motives for holding inventories. (a) Transaction motive emphasis the need to maintain inventories to facilitate smooth production and sale operation. (b) Precautionary motive necessitates holding of inventories to guard against the risk unpredictable changes in demand and supply forces and other factors. (c) Speculative motives influence the decision to increase in reduces inventory levels to take advantage of price fluctuations. Organisation inventories are maintained to widen the latitude in planning and scheduling successive operation. Raw material is inventory enables a firm to decouple its purchasing and production activities to some extent. It provides flexibility in purchasing and production. The firm can wait for an opportune buying moment without affecting its production schedule likewise the production schedule need not be influenced by immediate purchasing activity. In process inventory provides flexibility in production scheduling so that an efficient schedule and high utilization of capacity may be attained. Without in process inventory, a bottleneck at any stage in the process renders idle the machines and facilities at subsequent stage. This results in delay and idle facilities. Finished goods inventory enable a firm to decouple its production programs and marketing activities so that desirable results can be achieved on both the fronts. If adequate fished goods inventory is available, the marketing department can meet the needs of customer promptly, irrespective of the quantity and composition of goods flowing out of the production line currently.
Purpose of Inventory Management & Control :In holding different types of inventory, the capital of the firm is tied-up and it has to in cure some expenditure in the form of storage and transportation costs. In spite of it every business enterprise holds adequate inventories. By holding inventories, the firm is able to separate the process of purchasing, production and selling. If firm are not willing to hold adequate raw materials and finished goods then purchasing would take place only when immediate production and sells have anticipant. In brief, holding of inventory has many purposes that are explained as under.
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(A) To stabilize production processes :In the absence of adequate stock of raw materials, production would be has. It is not possible for a firm to produce raw materials whenever it is needed. There exists a time lag between placing and order and receiving goods. Sometimes, it becomes difficult to procure raw materials due to strikes, transport disruption and shortages of raw materials. There for a firm has to hold adequate quantities of raw materials in stocks foe continuous supplier to the factory for an uninterrupted production. (B) Reducing order costs :Every time a firm places and orders of materials then in cures certain costs. Forms must be typed, checked, approved and mailed when goods arrived, accepted, inspected and counted. The invoice must be checked with the goods and then send to the accounting de order so that the payment will be made to the suppliers. The costs which vary with individual orders can be reduces if the firm places few larger than numbers small orders. (C) Gaining quantity discount :If a firm is willing to hold large inventories in selected products lines then it may be able to make bulk purchases of goods at large quantity discount. Suppliers usually offer a substantially reduced price if the firm want to purchase large order. By this firm will be to increase its profit as long as the cost of maintaining inventories is less than the amount of discount. (D) Avoiding losses of sales :If the firm doesnt have available goods for sales it will lose sales when customers requiring immediate delivery. Then customers will purchased their wanting goods from the firms competitors or will decide not to purchase at all instead of waiting for delivery. At any rate, the customer is to be maintained because a satisfied customer creates a new class of customers for selling and producing our final product. So by this we will maintain customer goodwill as well as increasing profit for any company. (E) Full utilization of capacity :The firm has also to hold adequate quantity of stock of raw materials to use its unutilized production capacity. If the production capacity is not being fully utilized due to shortage of raw materials, it causes an increase in cost of production because some elements of cost are meant for production capacity. Partial utilization of capacity doesnt result in reducing such cost. Therefore to protect the firm from such losses, holding of an adequate inventory is inevitable.
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(F) Lower prices :Raw materials, special prices and other components may be purchased in bulk quantity to take the advantage of a special offer at low prices. Similarly, it is anticipated that there will be large prices increase in near future, bulk purchases are made at current market prices to take the advantage of low cost materials. In both the cases of bulk purchases, the purpose is to reduce the cost of materials, input and thereby increase the profitability. However this is possible only when corrected cost of inventory do not exceed the benefits from lower prices.
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Inventory Analysis of Elecon (1) Inventory Level :R.M. = Raw Material W.I.P. = Work-in-progress T.C.A. = Total current assets F.G. = Finish goods (1) Inventory level :particulars Stock of stores R.M. W.I.P. F.G. Goods-in transit Total
4000 3500 3000 2500 2000 1500 1000 500 0 Stock of stores R.M. W.I.P. F.G. Goods-In Transit 2007-08 2008-09 2009-10
(Rs. In Lacks) 2008-09 2009-10 1461.36 1683.06 1431.79 3467.14 2137.89 3286.32 2758.11 3529.45 158.40 169.55 7947.55 12135.52
Interpretation :Above table shows the inventory level components wise. There is clearly shown that in inventory of stores, raw-material and work-in-progress have consistently increases due to increases in the sales as well as more pending order which they have to finish in next coming year. Inventory of finished goods is reduced in 2009-10 respectively.
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Interpretation :The above table shows the trends TCA and total inventory during the period from 2007-08 to 2009-10. It reveals that the TCA shown increasing trends during the study period. And TCA increase by 3.77 times from the base year 2007-08. In case total inventory, it ranged between Rs. 25086 Lacks in 2007-08 and Rs. 45677.18 Lacks in 2009-10.
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Interpretation :The above table shows the component wise inventory to W.I.P. progress shoes increase trend in absolute term thought out the study period on the other hand W.I.P. progress show increasing T.C.A. shows a decline trend up to 2008-2009 year. It means the share of W.I.P.in TCA reducing continuously and corrective action of management to reduce the share of W.I.P. in TCA then again increased in 2009-10 year.
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Work-inProgress
Operating Cycle
Accounts Receivables Sales Finished goods
Thus, the operating cycle of a firm consists of the time required for the completion of the chronological sequences of some or all of the following:
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1. Procurement of raw material and services. 2. Conversion of raw material into work-in-progress. 3. Conversion of work-in-progress into finished goods. 4. Sale of finished goods (cash or credit) 5. Conversion of receivable into cash.
1.
2.
(1) Raw material conversion period:2008-09:- (Rs. In Lacks) R.M.C.P. = Avg. Raw Material Raw Material Conversion Period
Avg. R.M. = Opening stock of R.M. + closing stock of R.M. 2 =1431.79 + 1022.630 2 =1227.21 R.M.C. = 58655.28 365 = 160 R.M.C.P. = 1227.21 160 = 76 day 2009-10 :Avg. R.M. = 3467.14 + 1431.79 2 = 2449.47 R.M.C. = 57859.71 365 = 158 R.M.C.P. = 2449.47 158 = 155 day Interpretation :From above calculation we show that R.M. Conversion Period is increased from year 2008-09 to 2009-10 increased up to155 day which is efficient of the management of inventory.
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(2) Work In Progress Conversion Period:2008-09:- (Rs. In Lacks) W.I.P.C.P. = Avg. W.I.P. Cost of Production
Avg. W.I.P. = Op. stock of W.I.P. + Closing Stock of W.I.P. 2 = 2137.89 + 1228.25 2 = 1683.07 Cost of production = 68448 365 = 187 W.I.P.C.P. = 1683.07 187 = 90 day 2009-10 :Avg. W.I.P. = 3286.32 + 2137.89 2 = 2712.10 Cost of Production = 103263.08 365 = 282 W.I.P.C.P. = 2712.10 282 = 96 day Interpretation :From the above calculation we can see the W.I.P. conversion period is increased from year 2008-09 to year 2009-10 increased up to 96 day which is effectives of the management of work in progress.
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(3)Finished Goods Conversion Period:2008-09:- (Rs. In Lacks) F.G.C.P. = Finished goods Inventory Cost of Goods Sold Avg. Finished goods = op. stock of finish stock + closing Stock of finish stock 2 = 2758.11 + 1304.87 = 2031.47 Cost of goods sold = 66995 Finish goods C.P. = 2031.47 * 365 66995 = 11day 2009-10 :Avg. F.G. = 1605.47 + 2758.11 2 = 2181.79 Cost of goods sold = 89681.60 F.G.C.P. = 2181.79 * 365 89681.60 = 8.88 day Interpretation :From the above calculation we show that F.G. conversion period is decreased from year 2008-09 to 2009-10 decreased up to 8.88 day which is efficient of the management of finished goods conversion period.
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(4) Book depth Conversion Period:2008-09:- (Rs. In Lacks) B.D.C.P. = Avg. debtors Total Credit Sales Avg. debtors = op. debtors + closing debtors 2 = 47173.58 + 49231.61 = 48202.59 Total Credit sales = 95506.48 B.D.C.P. = 48202.59 *365 95506.48 = 184 day 2009-10 :Avg. Debtors = 51758.54 + 47173.58 2 = 49466.06 Total Credit sales = 97198.48 B.D.C.P. = 49466.06 * 365 97198.48 = 186 day Interpretation :From the above calculation we show that Book Depth Conversion Period is increased from year 2008-09 to2009-10 increased up to 186 day which is efficient of the management of Book Depth Conversion Period.
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(5)Credit Conversion Period:2008-09:- (Rs. In Lacks) C.C.P. = Avg. Creditors Total Credit Purchase Avg. creditors = 28167.77 + 27526.23 2 = 27847 Total Credit purchase = 73747.68 C.C.P. = 27847 * 365 73747.68 =138 day 2009-2010 :Avg. Creditors = 29469.51 + 28167.77 2 = 28818.64 Total Credit Purchase = 69376.92 C.C.P. = 28818.64 * 365 69376.92 = 152 Interpretation :From the above calculation we show that Credit Conversion Period is increased from year 200809 to 2009-10 increased up to 152 day which is efficient of the management of Credit Conversion Period.
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6.4 RATIO ANALYSIS Introduction :An investor is interested in information regarding the exact financial position of business, its earning capacity, the present position with regard to the profitability and the future possibility. He has only the published accounts of the company before him which would enable him to take any decision with respect to invest his money. The published account contains Profit & Loss account, Balance sheet, Auditors Report, Directors Report and the Chairmans Speech.
(1) Quick Ratio :Quick Ratio = Current assets Closing inventory Current Liability (Rs. In Lacks)
Years Current Assets Closing Inventory Current Liability Quick Ratio 2007-08 80963.70 25086 35003.64 1.60 2008-09 100845.90 39916.26 43177.28 1.41 2009-10 84768 45677.18 44256.18 0.88
Quick Ratio
1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2007-08 2008-09 2009-10
Quick Ratio
Interpretation :In Elecon Company we can see that Quick ratio is highest in 2007-2008 which in 1.60 and again better in 2008-09 and 2009-10 which is 1.41 and 0.88 the reason behind this decreased in Quick ratio is Company decrease most of it is current assets other than closing inventory which is not good for Company.
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(2) Cash Ratio :Cash Ratio = Cash + Marketable Securities Current Liability
(Rs. In Lacks)
Years Cash Marketable Securities Current Liability Cash Ratio 2007-08 752.24 305.72 35003.64 0.030 2008-09 6105.87 305.72 43177.28 0.148 2009-10 3881.00 305.72 44256.18 0.095
Cash Ratio
0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2007-08 2008-09 2009-10 Cash Ratio
Interpretation :In Elecon Company cash ratio is highest in year 2008-09 as compare with previous year because company future increase its cash balance in current account, bank deposit and unpaid dividend bank account which show the positive side of the company because now Elecon Company can easily pay its day to day expenses.
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(3) Solvency Ratio : Debt / Equity Ratio :Debt / Equity Ratio = Debt Equity Years Debt Equity Debt / Equity 2007-08 40926.09 23672.62 1.729 2008-09 59208.20 27540 2.15 2009-10 6269.20 28560.59 2.19
0.5
Interpretation :In Elecon Company Debt Ratio is continuously increased in last two years which show the Elecon Company to get funds from outside sources which increase the liability of company.
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7.1 FINDING
Elecon is the fastest growing company in engineering world. I have taken a summer internship programmers for my MBA project at Elecon Engineering Ltd. I have prepared a project on Working Capital Management of Elecon. Following are some findings of my project work. Companys main strength is its employees and company is properly taking care of that by providing safety working conditions, canteen facilities etc. Elecon is investing more and more money in subsidiary companies for its faster growth. Companys working capital is enough to maintain companys sales and other operations easily. Due to high goodwill the company is not getting any problem in getting short term finance. Company gives 75% of dividend since last two years, instead of giving 75% dividend the company should give 60 to 65% and reinvest the balance amount in financing the working capital. Company is targeting to increase foreign exchange transactions and also trying to avoid hedging risk. Company should try to utilize cheap source of finance for financing working capital requirements.
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7.2 CONCLUTION
The mission of Elecon is providing best quality to customers. It is financially very sound organization. The performance of the Elecon has been reasonably good. Due to constant work on the quality, better concentration on the material usage and proper prices the Elecon could improve maximum its performance. If Elecon give emphasis on human, it will useful in increasing production. Elecon is continuously trying to maximize the wealth of share holders. As per my knowledge Elecon is running successfully and in Asia it is on number one position in Gear division. At last I wish bright future of Elecon, and may got first rank in all over world The overall performance of Elecon Engineering Company Limited is going on good track. The turnover has been increased by 17.06% while the profit is increased by 17.11%. With the increase in capacity on account of the expansion projects being undertaken by the company. The recent boom in the engineering and technology sector has coupled with continuous thrust of government on infrastructure projects is expected to sustain healthy growth of engineering products demand. Almost all major players have announced substantial increase in capacity which results into increase in sales of Elecon. An increase in tax rates, transportation charges, railway freight, and cost of coal can add worries for the company.
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7.3 LIMITATION
Limitations of the study Following limitations were encountered while preparing this project: (1) Limited data:This project has completed with annual reports; it just constitutes one part of data collection i.e. secondary. There were imitations for primary data collection because of confidentiality. (2) Limited period:This project is based on five year annual reports. Conclusions and recommendations are based on such limited data. The trend of last five year may or may not reflect the real working capital position of the company (3) Limited area:Also it was difficult to collect the data regarding the competitors and their financial information. Industry figures were also difficult to get.
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(A) Bibliography
Books :-
(1) Financial Management by I.M. Pandey Ninth Edition, Vikas publishing House PVT. Ltd. (2) Stores Management by K.S.Menon Second Edition, MacMillan India Ltd. (3) Financial Management by Prusanna Chandra Seventh Edition, Tata McGraw Hill Education. Pvt. Ltd.
(1) Elecon Engineering Co. Ltds Review and Literatures. (2) Elecon Engineering Co. Ltds Five Years Financial Highlights. (3) Annual Report of Elecon from Year 2007 to 2010.
Websites :-
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2.60 847.68
1.69 867.48
0.97 645.99
Notes: Book value of unquoted investments Market value of quoted investments Contingent liabilities 2.95 38.87 117.99 7.81 29.40 109.82 928.62 6.40 58.91 106.85 928.62
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