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WORKING CAPITAL

MANAGEMENT

CHAPTERS CONTENTS PAGE NO:

ACKNOWLEDGEMENT I

LIST OF TABLES II

LIST OF GRAPHS III

CHAPTER-I INTRODUCTION TO THE STUDY 2

• Need for the study 3

• Scope of the study 4

•

Objectives of the study 5

• Methodology of the study 6

• Limitations of the study 7

CHAPTER-II INDUSTRY PROFILE 8-14

CHAPTER-III COMPANY PROFILE 15-23

CHAPTER-IV THEORETICAL FRAME WORK 24-40

CHAPTER-V DATA ANALYSIS & INTERPRETAION 41-72

CHAPTER-VI FINDINGS 73-78



SUGGESTIONS

BIBILIOGRAPHY 79

CHAPTER 1

INTRODUCTION



INTRODUCTION

1. WORKING CAPITAL MANAGEMENT

The success of business, among other things depends upon the manner

in which its capital is managed in the dynamic business setting, the

composition of working capital mismanaged, in the dynamic business setting,

the difference between the current assets and current liabilities. Constantly

changes in relation to the level of activity of the business concern and rates at

which the current assets of current liabilities keep changing in relation to each

other and other things are significant factors also continuous review and

direction of the financial manager.

It is the task of the financial maintain an appropriate level of working

capital that is enough current assets to pay off current liabilities neither excess

nor less because excessive working capital leads to interruption in the smooth

functioning of the business concern.

There are numerous instances in the history of business world where

inadequacy of working capital has led to business failures when a firm finds it

difficult to meetings day to day.

Operating expenses essential out lays may have to be postponed for

want of funds, operating plans will go out of gear & enterprise objectives on

investment slumps the suppliers & creditors of the firm may have to wait

longer to raise their dues & will hesitate to extend further credit to the firm.

Thus efficient management of working capital in an important

prerequisite for successful working of a business concern it reduces the chances



of business failure generates a felling of security and confidence in the minds

of personnel in the organization it assurance solvency of steady of the

organization.

1.1 NEED AND IMPORTANCE OF THE STUDY:

1.Their projects is helpful in knowing the companies position of funds

maintenance and setting the standards for working capital inventory levels,

current ratio level, quick ratio, current amount turnover level & web torn

turnover levels.

2. This project is helpful to the managements for expanding the dualism & the

project viability & present availability of funds.

3. This project is also useful as it companies the present year data with the

previous year data and there by it show the trend analysis, i.e. increasing fund

or decreasing fund.

4. The project is done entirely as a whole entirely. It will give overall view of

the organization and it is useful in further expansion decision to be taken by

management.



1.2 OBJECTIVE OF THE STUDY:

1. To examine the effectiveness of working capita management polices

with the help of accounting ratio.

2. To study liquidity position of the company by taking various

measurements.

3. To evaluation the financial performance of the company.

4. To make suggestions for policy makers for effective management of

working capital.



1.3 METHODOLOGY

Primary Data

DEF: The first handed information/Fresh data collected through various

methods is known as primary data.

In respect of primary data which the researchers is directly collects data

that have not been previously collected.

The primary data was gathered through personal interaction with various

functional heads and other technical personnel. Some information was also

collected by observation.

Secondary Data :

DEF: The data which have been already collected & comprised for another

purpose.

Secondary data was collected various reports / annual reports, documents

charts, management information systems, etc in PRAGA. And also collected

various magazines, books, newspapers and internet.

The analysis of the information gathered has been made on the basis of

the clarifications sought during the personal discussions with the concerned

people and perception during the personal visits to the important areas o

services.



In marking observations identifying problems and suggesting certain

remedies such emphasis was given on the basis of opinions gathered during the

personal discussions and with the personal experience gained during the

academic study of M.B.A course.

1.4 SCOPE OF THE STUDY

1. The scope is limited to operations of Praga tools Ltd, Hyderabad.

2. The period consider 2 months

The scope of the study is limited to collecting the financial data published

in the annual reports of the company with reference to the objectives stated

above and an analysis of the data with a view to suggest favorable solution

to various problems related to financial performance.



1.5 LIMITATION OF THE STUDY:

1. The following are the various aspects involved in the analysis of the study.

2. The study in limited 4 years (2004-2005) to (2005-2006) performance of the

company.

3. The data used in this study have been taken from published annual report

only.

4. This study in conducted within a short period. During the limited period the

study may not be retailed, full fledged and utilization in all aspects.

5. Financial accounting does not take into account the price level changes.



CHAPTER – II

MACHINE TOOLS INDUSTRY

– AN OVERVIEW



MACHINE TOOLS INDUSTRY – AN OVERVIEW

India ranks nineteenth in production and sixteenth in consumption of

machine tools in the world. The Indian machine tool industry averaged more

than 35 percent growth in 2004-05. Imports exceeded production in the year

2004 with us$356 million worth machine tools being imported while the

production was only us$225 million. Machine tools from I percent of Indies

engineering industry and contributes 0.3 Percent of total machinery exports.

The Indian machine tool industry currently consists about 450

manufacturing units of which approximately 33 percent (150 units) Fall under

the organized category. Further ten Major Indian companies constitute also

most 70 percent of the total production. The government Owned Hindustan

Machine tools Limited (HMT) alone accounts for Nearly 32% of Machine tools

Manufactured in India Approximately 75% of the Indian Machine tool

producers have received the coveted. 150 certification while the large

organized players cater to Indian’s Heavy and Medium industries, the small

scale sectors meets the demand of ancillary and other units

World wide the total modify locations are 3,336. First highest modify

location country is United States in 1333 lowest Modify location countries are

Belarus, Bosnia and Merzegovina, Bulgaria, Croatia, Malta, Russian

Federation in only one Modify Location. 51 modify location are located in

India. Modern Machine Tool in India’s leading Industrial Magazine on

machine tools and Ancillary industries. Published in affectation with the



country’s apex Body for the machine tools industry. Indian machine tool

Manufacture’s association (IMMA)

With a healthy readership base of over 2 lakhs, this Premium quarterly

magazine is regularly referred to by the key decision makers in the machine

tool, cutting and other manufacturing Industries that include CEOs. Directors,

senior managers, as well as engineers and shop. Floor technical personal apart

from students. It serves as the bench mark and with word it this ever growing

sector of Indian industry.

In addition to manufactures, this publication also reaches out to

exporters, dealers, distributors, R&D personnel Educational institution,

consultants, industry associations and trade commissions almost every entry in

the industry.

Modern machine tools provide an intelligent balanced and cohesive

insight into the machine tools and ancillary industries in India in terms of the

death editorial content. It includes the latest trends and technologies highly

useful technical articles and case studies. Business strategies views and vision

of industry leaders and one of the largest ranges of machines tools/cuttings

tools. This apart, there is exhaustive coverage of the current national andinternational news, upcoming projects, tenders, events and much more that help

the readers to effectively manage their business in a facilitator and guide for

this burgeoning industry.

Modern machine tools strives to facilitate effective interaction among

several fatuities of the machine tool, cutting and user industries by enabling



them in reaching out to their prospects buyers and sellers through better trade

contacts and more business opportunities.

Machine tool industry has undergone a radical shift in its paradigm

thinking, the Indian machine tool industry is now recognized as a provider of

low-cost high quality learn manufacturing solutions. The industry resiliently

supports all its users to enhance productivity as well as improve

competitiveness, for the betterment of the final customer.

Being an integral sector, growth of the machine tool industry has an

immense bearing on the entire economy, especially India’s manufacturing

industry. And is even more crucial for development of the country’s strategic

segments such as Defense, railways, space and atomic energy.

World over too, industrialized-advanced countries have created market

inches on the back of a well- developed and supportive machine tool sector.

In India as well, indigenous machine tools have the highest impact on

capital output ratios. Machine tool consumption of Rs. 1,000 Crore truly

supports the advancement of the country’s engineering sector, output of which

is estimated to be worth over Rs. 1,50,000 crore.

2.2 Manufacturing range:

The Indian machine tool industry manufactures almost the complete

range of metal cutting and metal forming machine tools complete range of metal-cutting and metal-forming machine tools.

Customized in nature, the products from the Indian basket comprise and

conventional machine tools as well as computer numerically controlled (CNC)

machines. There are other variants offered by Indian manufactures too,

including special purpose machines, robotcsrobotics, handling systems and

TPM friendly machines.



Efforts within the industry, are now on to better the features of CNC

machines, and provide further value additions at lower costs, to meet specific

requirements of users. Based on the perception of the current trends, and

emerging demands, CNC segment could be the driver of growth for the

machine tool industry in India.

2.3 Current trends :

A slowdown in the Indian economy since mid-1999 had its fallout on

prospects of Indian machine tool manufactures. The Indian machine tool

industry is besieged by lack of adequate business opportunities that has

stemmed from sluggish demand in the home market of all user industries.

Output by domestic metal working machine tool manufacturers in 2001

calendar year declined by 14 pr cent to Rs.5, 137 million marking the fourth

yeast of decline, since 1997, for the Indian machine tool industry. Much of this

fall was due to subdued investment by all the major users segments of machine

tools, except the Defense industry, primarily because of a higher capital

expenditure outlay.

While decrease in domestic production was dormant in case of

conventional metalworking machine tools computer numerically conventional

metalworking machine tools, computer numerically controlled (CNC) machine

tool manufacturers too suffered, although marginally. Lathes, machining

centers, special purpose machines, and grinding machines were among the

machine tools that sustained much of the order inflow during 2001.even though

these segments registered decline, in comparison with the previous

corresponding year.

2.4 Export Performance:

In view of an imminent slowdown in the Indian economy, most Indian

machine tool manufactures focused on potential overseas markets for business

opportunities. Sustenance on Indian market alone did not look feasible enough.



Further, there has off late been a perceptible change in the image of the

made in India brand in overseas markets particularly true for Indian-built

machine tools. Enhanced features, competitive pricing, and marketing focus

has increased demand for Indian –made machine tools in overseas markets,

particularly in Europe, United states, and East-Asian regions.

And this is what Indian machine tool manufactures are hoping to

leverage so as to post an optimistic export turnover in the next few years.

Indian-made machine tools are currently exported to over 50 countries:

major ones being United states, Italy, Brazil. Germany and the middle East.

Lathes and automats, presses, electro-discharge machines, and machining

centers formed the bulk of export orders for Indian manufactures. These

machines from the Indian basket are generally favored in overseas markets

primarily due to their cost-competitiveness, as compared to that available

elsewhere compared to those available elsewhere.

This vision of the Indian machine tool industry is now to step out and

establish a relative presence in, other potential markets. World-over, market

leaders have been those who have looked to increase their market presence

beyond their national frontiers.

2.5 Industry Structure

Machine tool industry in India comprises about 450 manufactures with

150 units in the organized sector. Almost 70 percent of production in India is

contributed by ten major companies of this industry. And over three-quarters of

total machine tool production in the country comes out of ISO certified

companies. Many machine tool manufacturers have also obtained CE marking

certification, in keeping with requirements of the European markets. The

industry has an installed capacity of over Rs. 10,000 million and employs a

workforce totaling 65,000 skilled and unskilled personnel.



Machine tool industry in India is scatted all over the country. The hub of

manufacturing activities, however, is concentrated in places like Mumbai and

Pune in Maharashtra; Batala, Jullunder and Ludhiana in Panjab; Ahmedabad,

Baoada, Jamnagar, Rajkot and Surendranagar in Gujarat, Combatore and

Chennai (Madras) in Tamilandu: some parts in East India; and Bangalore in

Karnataka.

Bangalore is considered as the hub for the Indian machine tool industry.

The city, for instance, house HMT machines Tools limited, a company that

manufactures nearly 32 percent of the total machine tool industry’s output.

2.6 User Industries Services

The industry’s prospects mainly depend on growth of engineering

industries. The user sectors of machine tools are the automotive, automobile

and ancillaries, Railways, Defense, Agriculture, steel, Fertilizers, Electrical,

Electronics, Telecommunication, textile machinery, ball & roller bearings,

industrial values, power-driven pumps, multi-product engineering companies,

earth moving machinery, compressors and consumer durable like washing

machines, refrigerators, television sets, watches, dish-washers, vacuum

cleaners, air conditioners, etc.



CHAPTER – III

PROFILE OF PRAGA TOOLS

LIMITED



ORGANISATION PROFILE

3.1 INTRODUCTION

Praga is once of the leading machine tool manufacturing units in India

established in the year 1943, Praga’s production are well known in the field of

machine tools the company in organized in four divisions via the machine tools

forge foundry and CNC division which pulsated with the activities of 697

employees turning out a wide range of production the four divisions equipped

with the modern facilities for design development of manufacture of machine

tools, are manned by qualified personnel with proven record of technical

knowledge and exquisite craft smashup acquitted over a period of year.

Praga is proud of its diverse of machine tools the cutler& tools venders

milling machines copy lathes thread rolling machines & Praga CNC machines

which keep pace with the ever changing technology in addition the company

also manufactures a wide of industrial forgings for railway automotive &

ordnance applications.

Praga’s wriest investment has been in its excellent collaboration with

world famous names like Jones & shipman of UK for surface grinding and

cutter of tool vendors gamin of France for milling machines scoffers of grace

for thread rolling machines George finisher of Switzerland for coping lather

Mitsubishi Heavy industries of Japan for machining centers of Kayo spiky of

Japan for CNC lather the collaboration have culminated in Praga producing



machine tools of the highest quality conforming to international standards by

virtue of their dependability prevision engineering & proven.

PROFILE OF PRAGA

The Praga Tools is one of the oldest, machine Tools industries in India

and has entire its golden jubilee year in 1993-94. The company has

incorporated has the joint stock company is 1943 has a private company with

objective of manufacturing, instruments with the Technical assistance of a few

Czechoslovakia Engineers. The company was incorporated in Many 1943 as a

public limited company in private sector. The name PRAGA symbolizes the

technical co-operation extended in the initial phase by some Czechoslovakian

engineers who suggested the naming of the company as PRAGA after their

capital city PRAGUE (PRAGA).

In March 1995, the Government of India acquired the controlling

interest in the company by acquiring majority shares and placed the

administrative control under the ministry of commerce and industry from May

1995 to December 1963. The managing agents M/S united industrial

corporation limited initially managed the company. Administrative control of

the company has been transferred from the defense minister to the department

of public enterprise under ministry of industry on the 25 th of April 1986.

Presently the company enjoys the status of being a subsidiary of HMT LTD.

Bangalore when a paid up capital of the company was transferred in its name

from the government.

The company has four manufacturing nits located with in the twin cities

of Hyderabad at Kavadiguda at Secunderabad it manufactures a wide range of



machine Tools, accessories and defiance items. A unit of forge and foundry

divisions is located at Kukatpally Hyderabad where manufactures castings and

forgings are.

A CNC project was established with advance technology like numerical

control machines like automobiles CNC lathes, VNC mailing machines etc are

manufactures with the qualified personnel’s in the fields of engineering of

technology.

The company has manpower of 2000 employees turning out wide range

of products.

The company has organized into four divisions viz., the machine Tools

division (MT-I), machine Tools II (MT-II), forge and foundry division, and the

CNC division.

Performance Praga machine tools ate penetrating large segments of

foreign markets including UK CIC Canada, Bulgaria, Indonesia, Germany,

Japan.

PRAGA is even mote proud of the fact that it has contributed to the

development of thee machine tools industry in the development of the machine

tools industry in the country and the creation of a vast band of skilled

technicians thus Praga to day in name of techno, within the machine tool

industry.



3.2 CORPORATE VISION OF PRAGA TOOL

VISION STATEMENT:

Praga tools to be the provider of choice for total machine tools solution

to customers and a significant provider of service in Indian industry of oversees

too the strong market position in to be sustained by the provision of integrated

products and services and the aggressive marketing of machine tool knowledge

expensive and support services.

COMPANY STATRATEGY:

1. To maintain good customer relation

2. Providing after seller service

3. Increasing the book order position

4. To maintain good quality and loyalty of the customers on their products

5. Maintain better research and development activities

6. Relation to company and other customer services through conducting

the product exhibition within the company preview

QUALITY VALUE:

• Commitment of the management of the quality at all stager.

•

To create quality culture among all employees to maintain qualityleadership in all products.



• To maintain quality leadership in all products and services.

• Total customer satisfaction through quality goods and services.

• Total quality through performance leadership.

3.3 MANUFACTURING FACILITIES

The company has two manufacturing units the order manufacturing unit

is located at Kavadiguda in Secunderabad, the heart of the city these unit

houses the machine toils division and the corporate head office and

accompanies and area of slightly over 1 acres the company.

Has its second manufacturing has is at balanagar in Hyderabad, about 5 to 6

kilometers from Hyderabad, airport the CNC division forge shop of foundry

division are located in the balanagar unit the total and available with the

currently utilized by the CNC division forge shop and foundry division leaving

a surplus of nearly 100 acres.

3.4 PRODUCT RANGE:

The company has three manufacturing division viz., can pavilion forge

shop and foundry division.

MACHINE TOOLS DIVISION:

The major products manufactured by the company in its machine toll

division are cutler of fool grinders, milling machines, thread rotting machine,

lather chuckn etc. There products were developed with the technical assistance

of the world-renowned machine tool manufacture by entering into

collaboration agreements with M/s. Escofier, SA, France, M/s. F. Pratt and Co.

and U.K. There machines enjoy good reputation in the market.



FORCE DIVISION:

Railway Duplication

Auto dialer pants

Tractors links

Other carting

BOUNDARY DIVISION:

Carting for companies machine tools:

The sophisticated machines like CNC machining center sideway,

grinding machines, universal grinding machines, jigs boring machine with

coordinated system been added at a cost of Rs. 1,107.05 lacks.

PRAGAS VALUES:

Underlying our minion in a set of core corporate valued which deliver praga

priorities. This set of values creates an overall framework for determining our

derived future and developing plans to achieve it.

We take advantage of existing synergies and foreseeing higher level of

competitiveness. Safety in the priority value for all aspects of our business.





• Export potential for exports of machines.

• Foreign and components(with up gradation)

Opportunity to from joint venture update technology. And use technicalmanicuring experience for globalization through venture partnership.

Diversification into related areas where ever synergy exists.

Threats:

• Dwindling market for some of the products server.

• Competition from imports of latest technology machines.

• A threat from second hand machine imparts.

• Shrinking resources of traditional customers, defense and railways.

The above analysis indicates ample scope and prospects for the company

subject to corrective steps being taken early.



CHAPTER – IV

CONCEPTUAL & METHODOLOGLCAL

FRAME WORK



4.1 NATURE OF WORKING CAPITAL

Working capital management in concerned with the problem that arises

in attempting to manage the current assets current liabilities and the inter

relationship the exist between them the term current assets refers to those assets

which in ordinary course of business can be or will be turned into cash within

one year without undergoing diminution in value and without undergoing in

value and without disrupting the operations of the firm.

The major current assets are cash marketable securities accounts

receivable and inventory, current liabilities those liabilities, which are intended

at their inception to be paid in the ordinary course of business with in a year

current liabilities are amount payable, bills payable bank overdraft and

outstanding expenses.





Thus the current assets should be large enough to cover its current

Liabilities in order to ensure a reasonable margin of safety. Each of the current

assts must be efficiently in order to maintain the liquidity of the short term be

managed efficiently in order to maintain the liquidity of the short term sources

of financing must be continuously managed to ensure that they are obtained

and used in a best possible way.

Therefore interaction between current assets and current liabilities in the

main theme of working capital Management.

The current assets should be large enough to cover is current liabilities

in order to ensure a reasonable margin of safety. The interaction between

current assets and current liabilities in therefore the main theme of the threat of

working capital management.

The two concepts of working capital are:

4.3 Methodological Framework

The data for the period 2001-2005 used in this study have been taken

from primary and secondary sources. The necessary primary data have been

collected from corporate office of the organization; secondary data have been

collected from the financial statements published in the report of the PRAGA

TOOLS LTD.

Data was analyzed through various established techniques of working

capital and personal observation. Editing the data, clarification and tabulation

of the financial data collection from the above mentioned source have been

done as per the requirements of the study. Data has been analyzed using

various comparative statements and working capital ratios.

The data is analyzed in the chapter-4 ‘Analysis of Working Capital

PRAGA TOOLS LTD’ under the following head.



1. Trends in Net Working Capital2. Working Capital Ratios

a) Current Ratiosb) Quick or Acid test Ratioc) Current Assert Turnover Ratiod) Current Asserts to Total Asserts Turnover Ratioe) Working Capital Turnover Ratio

3. Cash Management

a) Percentage of Cash to Current Asserts

4. Receivables Management

a) Debtors Turnover Ratio

b) Debtors Collection Period

5. Inventory Management

a) Inventory to Total Current Asserts

b) Inventory Turnover Ratio

c) Inventory Holding Period in Days

4.4 NEED FOR WORKING CAPITAL:

Working capital is the amount of funds necessary to cover the cost of

operating the enterprise. Working capital in a going concern is revolving

funds; it consists of cash receipts from sales which are used to cover the

cost of current operations.

The need of working capital arises because of time gaps in

manufacturing and marketing cycle of business operations. This time gap is

due to time gaps between Cash and purchase of Raw-Materials.

a) Purchase and productionb) Production and salesc) Sales and Realization of cash.



During these intervals, the company should have ready working or

operating funds to keep their business going. Thus every business concern

should have sufficient liquidity funds as its disposal to buy Raw-Materials,

stores etc to pay wages to personnel and to meet incidental expenses with the

installed plant equipment, tools and other fixed assets, the concerned would be

able to produce finished goods by spending cash or Raw Materials,

intermediate goods Labor remuneration etc. The goods so produced will swell

into inventories or stock soon, the stock will take the form of debtors or Bill

Receivable on maturity.

There is therefore, a need for working capital, because the production

Sales and cash payment and realization of cash are not instantaneous, the

company needs cash to purchase Raw material and to meet expenses as there

may not be helps to meet future agencies.

The stocks or Raw materials are kept in order to assure smooth

production and protect against the risk of Non availability of raw material.

Similarly, stocks of finished goods have to be carried to meet the demands of

the customers on continuous basis and sudden demand. Thus, an adequate

amount of funds has to be invested in current assets for smooth and

uninterrupted. Production and sales process, which is refers to as operating

cycle or cash cycle. The operating cycle determines the need for working

capital.

The operating cycle represents the period during which investment of

one unit of remain blocked till recovery out of revenue, in other words, the

operating cycle refers to the time necessary to complete.

a) Conversion of cash into Raw Material.

b) Conversion of Raw Material into finished goods.

c) Conversion of finished goods into cash sales or credit sales.

d) Conversion to credit sales or receivable into cash.





Marketable Securities, Account Receivable, inventories etc. effective in

order to maintain liquidity of the firm. The process of current asserts

management can be as follow management of cash and Marketable Securities.

a) Management of cash and Marketable Securities.

b) Management of Cash.

Current liability management is concerned with the management of

curr3ent liabilities like, trade Credit or Account Payable, Accruals etc.

which represents short term financial source and must be cautiously

management to ensure that they are obtained and used in the best way

possible.

4.6 OBJECTIVES OF WORKING CAPITAL

The main if working capital management in to attain trade off between

profitability and risk. Here risk refers to the profitability that a firm will

become technically involvement that is unable to pay obligation promptly. Risk

is commonly measured by using either the amount of net working capital of the

current ratio. Thus more the net working capital the more liquidity is associated

with increasing levels of risks.

To have higher profit the firm may have to sacrifice solvency that is take

the risk of technical insolvency and maintain relatively low level of current

assets. When the firm does so, its profitability would improve but greater risk

of technical insolvency.

Thus, if a firm wants to increase profitability it must also increases its

risk and if it want to decrease risk, it must decrease profitability. Thus, working

capital management involves trade off between risk and profitability.



4.7 COMPONENTS OF WORKING CAPITAL

The main components of working capital are currents assets & currents

liabilities.

A. CURRENT ASSETS:

Current assets comprised items that would get converted in to cash in

short term, within a year, through the business operations current asserts

include.

Inventories including stock of raw material, work in progress, finished

goods & factory supplies. Packing, shipment material, office supplies etc

Loan & advances, other balances; include sundry debtors, bills receivables and

others including loans and advances, prepaid expenses etc.

Marketable securities including government securities and semi government

securities, cash and bank balances.

B. CURRENT LIABILITIES:



Current liabilities are those which are expected to fall due of mature for

payment in short period of one year and they represent short term source of

funds. They include:

C. SHORT TERM BORROWINGS:

Include bank borrowings other than those against own debentures and

other mortgages, trade creditors and other labializes sundry creditors,

outstanding expenses and advances received etc.

Provision for taxation, dividends and other current provisions.

4.8 GROSS WORKING CAPITAL:

Gross working capital in represented by the sum total of all current

assets of the enter price adequate funds have to be provided to sustain the

movement of the row material through the work in process to the finished

goods stage and then to receivables and up to realization of cash.

NET WORKING CAPITAL:

Net working capital in excess of current assets over current liabilities the

concept of net working capital highlights the character of serves from which

the funds have been obtained to support that position of current liabilities.

PRORIETORS

FUNDS

CREDITORS



NEED FOR WORKING CAPITALS

Business firms aim at maximizing the wealth of shareholders. In its

endeavor to maximize shareholder’s wealth a firm should earn sufficient return

from its operation earning a steady amount of profits required successfully

sales activity. The firm has to invest enough funds in current assets for the

success of sales activity current assets are needed because sales don’t convert

into cash instantaneously there is always an operating cycle involved in the

conversion of sales into cash.

PERMANENT AND TEMPORARY WORKING CAPITAL:

The above figure shows permanent level is fairly constant, while

temporary working capital is fluctuating some times increasing and some time

decreasing in accordance with seasonal demands, in the case an expanding firm

the permanent working capital may not be horizontal. This is because the

demand for permanents current asserts might be increasing or decreasing

support a rising level of activity. In that the line should be a rising one.





3. Excessive working capital makes management complacent, which

degenerates into managerial efficiency.

4. Tendencies of accumulating inventories to make speculation profits

grow this may tend to make dividend policy liberal and difficult to cope

with in future when the firm is unable to make speculative profits.

INADEQUATE WORKING CAPTIAL

1. It stages growth and become difficult for the firm to undertaken

profitable projects for non-availability of working capital funds.

2. It becomes difficult to implement operating plans and achieve the firms

profit target.

3. Operating inefficiencies creep in when it becomes difficult even to meet

day-to-day commitments.

4. Fixed assets are not efficiently utilized for the lack of working capital

funds thus the firms profitability would deteriorate.

5. Paucity of working capital funds renders the firm unable to avail

attractive credit opportunities etc.

6. The firm losses its reputation when it is not in position to honor its short

term obligation as result the firm faces tight credit terms.

Thus, enlightened management should therefore maintains a right

amount of working capital on a continuous basis which helps to develop the

organization effectively and efficiently.

4.10 ROLE OF FINANCIAL MANAGER IN WORKING CAPITAL

MANAGEMENT:

1. Working capital management requires must of the finance manger time

as it represent a large position of investment is assets.





sheets. The comparison of current assets and current liabilities as shown in the

balance sheet at the beginning and the ending of a specific period.

The statement of changes in working capital reveals to manage to way in

which working capital was obtained and use with this insight management to

can prepare the estimates of the working capital flows. A project statement of

changes in working capital is very much useful in the firm long planning.

CONCEPT OF FUND

The working capital flow or fund arises when the net affect of a

transaction is to increase or decrease the amount of working capital a firm will

have same transactions that will change net working capital and same that will

cause no change in net working capital transaction which change net working

capital include most of items of the profit & loss account and those business

events which simultaneously effect both current and not current balance sheet

items. On the other based transaction, which do not increase or decrease

working capital include those which effect only current accounts or only non

current accounts.

USES AND SIGNIFICANCE OF THE FUND FLOW STATEMENT

1. A Funds Flow statement show how the resource has been obtained and

the uses to which are put it helps in analyzing the financial operations.

2. It helps in determining the financial consequences of business

operations.



3. It is useful in judging whether the fund has expanded at too faster rate

and whether financing is trained.

4. It points out the effectiveness with which the management has handled

working capital during the period under review.

5. The statement can assist the financial management in planning

intermediate and long-term finance to obtaining resources in the further

and determining how they are used.

6. It gives an insight into the evaluation of the present situation it provides

certain useful information about the firm financial policies to out side

world.

The funds flow statement is becoming popular with the

management because it helps to explain why in spite of earn sizeable

amount of profits the company is experiencing difficulty in making

payment to creditors the rate of dividend on equi9ty shares cannot be

increased and bank balance is getting thinner.

OBJECTION OF FUND FLOW ANLAYSIS:

1. To indicate the result of current financial position.

2. To lay emphasis on the most significant change that has taken place

during specified period.





simply remain ideas without contribution any thing towards the firm’s

profitable way.

Cash management is concerned with the managing of cash flow into and

out of the firm cash flow with in the firm and cash balances held by the firm

at appoint of time by financing depict investing surplus cash. Cash

management is to obtain adequate control over cash position to keep the

firm sufficiently liquidate and to use excess cash in some profitable way.

CASH PLANNING:-

Cash planning is technique to plan and control of the use of funds. It

protect the financial condition of them firm by developing a projected cash

statement from a forecast of plans are very crucial and developing the

overall operating plans of the firm.

USES OF CASH MANAGEMENT:-

1. It indicates company’s future financial need especially for its workingcapital requirement.

2. To help to evaluate proposed capital projects.

3. It pinpoints the cash required to finance these projects as well as thecash to be generated by the company to support them.

4. It helps to improve corporate planning.

5. Cash forecasting helps to future and to formulate projects carefully.





CurrentAssets

Inventories 1,44,120.00 1,19,395.00 24,725.00

Sundry debtors 71,970.00 61,278.00 10,692.00

Cash & Bank balance

1,213.00 1,252.00 39.00

Loan & Advance 31,317.00 22,180.00 9,137.00

Total (a) 2,48,620.00 2,04,105.00

(b)

CurrentLiabilities

Current Liabilities 3,41,037.00 3,70,306.00 29,269.00

Provisions 82,424.00 83,160.00 736.00

Total (b) 4,23,461.00 4,53,466.00

WorkingCapital (a-b)

-1,74,8,741.0

0-2,49,361.00

Net increasein W.C

74,520.00 74,520.00

Total of N.W.C

-7,74,841.00 -1,74,841.00 74,559.00 74,559.00

ANALYSIS:

Above table explaining that working capital shows the continuous increase in

the net working capital through in the year 31-03-2000 to the year of comparing the

balance sheet is the year 31-03-2001 to 31-03-2002. So, this is due to the sale of

inventory and reducing the debtors and increasing the current liabilities and

provisions.

Rs. in Lakhs

S.No. Particulars 31-03-2002 31-03-2003 Increase Decrease



(a)

Current Assets

Inventories 1,19,395.00 72,230.00 47,165.00

Sundry debtors 611,278.00 28,478.00 32,800.00Cash & Bank balance

1,252.00 7,041.00 5,789.00

Loan & Advance 22,180.00 13,205.00 8,975.00

Total (a) 2,04,105.00 1,20,954.00

(b)

CurrentLiabilities

Current Liabilities 3,70,306.00 3,10,123.00 60,183.00Provisions 83,120.00 71,062.00 12,099.00

Total (b) 4,53,466.000 3,81,185.00

WorkingCapital

(a-b) -2,49,361.00 -2,60,231.00

Net decreasedin W.C

10,870.00

Total of N.W.C

-2,49,361.00 -2,49,361.00 88,940.00 88,940.00

ANALYSIS:

Above table discloses that working capital shows the continuous increase in

the net working capital through in the year 31-03-2002 to the year of comparing the

balance sheet is the year 31st March. So, this is due to the sale of inventory and

reducing the debtors and decreasing the current liabilities and provisions.

Table-2

STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN

31-03-2003 & 31-03-2004.

Rs. in Lakhs

S.No. Particulars 31-03-2003 31-03-2004 Increase Decrease





















Sales of fixed assets2,043.00

Decreased Security

loans 18,45,247.00

Net decreased working

capital1,93,986.00

Decreased unsecurity

loans24,806.00

Funds lost in

operations 16,74,024.00

Total 18,70,053.00 Total 18,70,053.00

ANALYSIS:-

In this year 2005-2006 the funds flow statement the losses of the PRAGA

TOOLS LIMITED is still continuing. The company has mobilized his funds increased

figures of the secured and unsecured loans. The company has adjusting their losses

through these areas and in this year the purchasing power of the company is also

decreased.

CHART – 1

TRENDS IN NET WORKING CAPITAL





evaluated the parties interested in financial analysis are short and long term

creditors owners and managements short term creditors main interested is in

the liquidity position or short term solvency of the form long term creditors

on the other hand. Are more interested in the long-term solvency and

profitability of the form. Similarly owners are more interested on the form

profitability and conditions. Management is interested in evaluating every

aspect of the forms performance. They have protect interested of all the

parties.

The ratios are classified into three types.

(a). Liquidity Ratios

(b). Leverage Ratios

(c). Profitability Ratios

LIQUIDITY RATIOS:-

Liquidity Ratios measure the ability of the firm to meet its

current

obligations. The analysis of liquidity needs the preparation of cash budget

and cash fund flow statement but liquidity ratios by establishing relationship

between cash and other current asset of current obligation, provide a quick

measures of liquidity. A firm should ensure that it does not suffer form.

LIQUIDITY OR SHORT TERM SOLVENCY RATIOS:-

Liquidity ratio measures the short-term solvency of the firm. The



following are the important liquidity ratios.

4.2 WORKING CAPITAL RATIOS:-

Current Assets

Current Ratio = ----------------------

Current Liabilities

The current Ratio is calculated by dividing current assets by current liability.

The current ratio is a measure of the firm’s short term solvency a current ratio of 2 or

more in considered satisfactory.

TABLE – 2

CURRENT RATIO

(In Lakhs)

Year Current Assets Current Liabilities Current Ratios

2002-03 17846.14 4652.24 4.10

2003-04 15800.00 5117.81 3.09

2004-05 20272.00 11485.00 1.76

2005-06 1377.11 5130.73 2.69

CHART – 2

CURRENT RATIO



Current Ratios

0.00

1.00

2.00

3.00

4.00

5.00

2002-03 2003-04 2004-05 2005-06

Year

Ratios

INTERPRETATION:-

Generally 2:1 in considered ideal for a concern from the ratios we can observe

that the ratios are above the standard in the year 2002-03 & 2003-04 but in the year

2004-05 the firm in not able to maintain a standard level of liquidity so the current

assets ratio has been directed below standard level that is by 1.76 but in the year

2005-06 the company is able to regain its standard level and can obtain its current

assets ratio by 2.69 compared to its current liabilities.

Quick Assets

Quick or Acid Test Ratio = ------------------------

Current Liabilities



The quick Ratio is more penetrating test of Liquidity than Current Ratio, this Ratio

measures the firms liability to meet short term liabilities from its liquid assets that is

current assets inventories.

TABLE – 3

QUICK RATIO

Year Quick Assets Current Liabilities Quick Ratios

2002-03 10141.00 4352.00 2.33

2003-04 8697.00 5118.00 1.64

2004-05 15335.00 11486.00 1.34

2005-06 9722.00 5130.00 1.89

CHART-3

QUICK RATIO

























3. INVENTORY HOLDING PERIOD (IN DAYS):

Days in Year

Inventory Holding Period (in days) = ----------------------------------

Inventory Turnover Ratio

The ratio represents the length of time required for conversion of

investments in inventoried for conversion of investments in invests airier to cash of a

firm as a result, the firm will be able to forecast its working capital requirements.

Lower ratio suggested better inventory management their ratio is calculated by

dividing the number of days of year by inventory turnover ratio.

TABLE-8

INVENTORY HOLDING PERIOD (IN DAYS)

(In Lakhs)

Year No. of Days Inventory Turnover Ratio Collection Period

2002-03 365 1.93 189 Days

2003-04 365 1.39 263 Days

2004-05 365 2.27 161 Days

2005-06 365 3.29 111 Days













2. There are various global challenges that are faced by every company n

the present competitive environment and PRAGA TOOLS is not any

exemption. To face the present global challenges the human resources

department should be develop to improve various skills among the

employees specially the motivational skills and having the regular

training for the employees about various developments in the market.

3. The marketing department should be restructured on profit center and

product line basis. The new marketing strategy should also make efforts

to regain the agents in Germany and UK. They should also make efforts

to regain the defiance and railways and find new markets for expansion.

4. There are various development taking in the industry to change it the

company should develop a full fledged research and development

department for bringing technological change and improvement in

design and process.

5. The policy of development new market with the accreditation of ISO

9001 and C.E. making for certain products should be continuous as it

will help in development the confidence of foreign buyers.

6. The sundry debtors should be efficiently managed so that the

outstanding are to be cleared at short intervals. The company should

appoint on different areas on a success fees basis to collect the debtors.

7. The cost of holding inventory is too high so the inventory holding period

is to be reduced and to build up inventory in anticipation of export

orders from Russia and Germany.

8. The company has to make new joint venture with other companies in

order to reduce the losses.



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