CHEPTER: 1 RESEARCH METHODOLOGY INTRODUCTION OF STUDY: Working capital is the capital available to meet the day-to-day operations, and depending on the industry, it could be a relatively high percentage of the total assets of the organization. Cash flow is the lifeblood of firms, and efficient working capital management is the key to achieving healthy cash flow. Firms with weak working capital management strategies give up flexibility and potentially a competitive advantage. REVIEW OF LITERATURE A study by Melita Stephanou Charitou, Maria Elfani, Petros Lois, University of Nicosia, Cyprus(Dec 2010) titled “The Effect Of Working Capital Management On Firm’s Profitability: Empirical Evidence From An Emerging Market” indicated that the cash conversion cycle and all its major components; namely, days in Page 1
Transcript
CHEPTER: 1
RESEARCH METHODOLOGY
INTRODUCTION OF STUDY:
Working capital is the capital available to meet the day-to-day operations,
and depending on the industry, it could be a relatively high percentage of the total
assets of the organization. Cash flow is the lifeblood of firms, and efficient
working capital management is the key to achieving healthy cash flow. Firms with
weak working capital management strategies give up flexibility and potentially a
competitive advantage.
REVIEW OF LITERATURE
A study by Melita Stephanou Charitou, Maria Elfani, Petros Lois,
University of Nicosia, Cyprus(Dec 2010) titled “The Effect Of Working
Capital Management On Firm’s Profitability: Empirical Evidence From An
Emerging Market” indicated that the cash conversion cycle and all its major
components; namely, days in inventory, days sales outstanding and creditors
payment period, are associated with firm’s profitability.
Chatterjee, S (2012). The impact of working capital on the profitability:
Evidence from the Indian firms. This research has analyzed the impact of
working capital on the profitability for a sample of 100 Indian companies
listed in the Bombay Stock Exchange for a period of 2 years from 2010-
2011. The results depict that, there is a strong negative association between
the components of the working capital management and the profitability
Page 1
ratios of the Indian firms which indicates that, as the cash conversion cycle
increases it would tend to reduce the profitability of the company, and the
managers might increase the shareholder’s value by shortening this cash
conversion cycle to a minimum level. It is also observed that the negative
association also persists between the liquidity and the profitability of the
Indian firms. Nevertheless, there is a positive relationship between the size
and the profitability of the firm. This indicates that, as the size of the firm
increases the profitability of the firm also increases. Finally a negative
relationship is observed between the debt and profitability of the Indian
firms.
Appuhami, B. A. R. (2008). The impact of firms' capital expenditure on
working capital management: An empirical study across industries in
Thailand. International Management Review, 4(1), 8-21. The empirical
research found that firms' capital expenditure has a significant impact on
working capital management. The study also found that the firms' operating
cash flow, which was recognized as a control variable, has a significant
relationship with working capital management.
Amarjit Gill, Nahum Biger, Neil Mathur (2010), the Relationship between
Working Capital Management and Profitability: Evidence from the United
States. A sample of 88 American firms listed on New York Stock Exchange
for a period of 3 years from 2005 to 2007 was selected. It has found a
statistically significant relationship between the cash conversion cycle and
profitability, measured through gross operating profit. It follows that
managers can create profits for their companies by handling correctly the
cash conversion cycle and by keeping accounts receivables at an optimal
level.
Page 2
OBJECTIVE OF THE STUDY
The following are the main objective which has been undertaken in the present study:
To determine the amount of working capital requirement and to calculate various ratios relating to working capital.
To make an item wise study of the components of the working capital.
To suggest the steps to be taken to increase the efficiency in management of working capital.
RESEARCH DESIGN
It is a descriptive research designs in this report of the Ashapura
minechem ltd.
It is secondary data analysis of welspun India limited from financial
report during the year 2011-2012, 2012-2013 and 2013-2014.
It is not any personal research.
This data was gathered through the company’s websites, its corporate
intranet, Ashapura’s annual reports and wesite.
While doing this project, the data relating to working capital, cash
management, receivables management, inventory management and short
term financing was required.
Page 3
LIMITATION OF THE STUDY
We cannot do comparisons with other companies unless and until we have
the data of other companies on the same subject.
Only the printed data about the company will be available and not the back–
end details.
Future plans of the company will not be disclosed to the trainees.
Lastly, due to shortage of time it is not possible to cover all the factors and
details regarding the subject of study.
The latest financial data could not be reported as the company’s websites
have not been updated.
SIGNIFICANCEOF THE STUDY
Significance of the study is better improvement and creates a well awareness
of training and development program between employees.
To identify the strengths and weaknesses in the training process.
To test the clarity and validity of tests, cases and exercises.
To identify which participants were the most successful with the program.
To gather data to assist in future programmes.
To establish a database that can assist management in making decision.
To determine program was the appropriate solution for the organization.
Page 4
CHEPTER: 2.ORGANITIATION DETAIL
INTRODUCTION
The report presented in the following pages represents the “ASHAPURA GROUP”
and the working of “ASHAPURA MINE CHEM. LTD” at Jamkhambhalia site.
The ASHAPURA GROUP OF INDUSTRIES is engaged in mineral mining and its
export. The Ashapura group is engaged minerals like bentonite, bauxite and kaolin.
As we know the export is necessary to gain the foreign index and to level up the
import. Ashapura Minechem. At Jamkhambhalia site is famous for its bauxite
production and its export. Therefore Ashapura group is a major player in export
due to its high mineral portfolio and its own freight facilities. Ashapura wants to
emerge as a world class company through proactive customer support, innovation
and cutting edge technology. Reliability and social responsibility will become
benchmark for other companies to emulate.
Production department of the AML is eye catching. I observed as AML is that to
maintain the quality of production they have kept special employees to check the
raw material, semi-finished product and final product also. Every time they are
taking samples and send it to lab for inspection and after approval of the lab then
only material are proceeds.
H R department is also effective organized company is aware f the fact that
employees are their most valuable asset. Company tries to satisfy most of their
needs and provides them satisfaction to the fullest extent.
Page 5
Systematic wages and salary payment including welfare facilities and services
coupled by workers voice in the management smoothen the job of handling the
personnel in AML.
AML does well for these personnel and their problems and has a very good
grievance handling system and workers relationship. AML also does proper
scientific recruitment and selection procedure. They selected right person at right
place at right time.
In AML marketing department is also done well but is totally done from the head
office. Company always gives preference to the need and wants of the customer
and always tries to provide satisfactory services to its customers.
Finance department is the mirror through which a company sees itself. To operate
effectively, all the transaction are to be recorded in terms of money and quantity,
sale, gross profit, net profit and information about debt and equity, as well and also
capital structure is good. In AML they prepare monthly budget and that much
amount they will take from head office for their expenses.
In AML there is also separate department for quality assurance for environment
protection & pollution control. So in short, AML is well managed, highly
disciplined and aware about global market and strive for continuous improvement
in quality of products and services.
Page 6
HISTORY AND DEVELOPMENT
Established in 1960 the Ashapura group is India’s largest multi-mineral solutions
provider. Its flagship company Ashapura Minechem Ltd. is listed on India’s
premier exchanges. Ashapura Minechem Ltd. which is a part of the BSE Midcap &
BSE 500 indices was ranked 4th in terms of Net Profit growth and 21st in terms of
Super Rank by Business Standard (December 2006). The multinational group has
mining & mineral processing facilities in Belgium, Nigeria, Oman and Malaysia;
in India it operates from Gujarat, Maharashtra, Karnataka, Kerala, Andhra Pradesh
and Orissa.
The Ashapura group is one of the largest exporters of traded bauxite in the world
and is amongst the world’s top five Benonite companies. Ashapura also dominates
the value added segments in the country for Bleaching Clay, Geosynthetic Clay
Liners, Clay Catalysts and Calcined Bauxite.
Ashapura … the journey to excellence
Page 7
When Navnitlal R. Shah, the Company’s Chairman,
returned to India from Burma, he had confidence in
his ability to convert opportunities to a profitable
venture. He started a partnership business in bentonite
in the 60’s. By the early 80’s, the business flourished
due to the export of drilling grade of Bentonite to the
Middle East. The war in the Middle East forced the
company to explore new applications. Since then
Ashapura never had to look back
SOME MAJOR MILESTONES
1960 : Mr. N.R. Shah starts a partnership business in bentonite
1970 : An Office and a factory was set up in Bhuj
1972 : First export order received from Yugoslavia and then Iraq
1975 : Chetan Shah, the Chairman’s son, joins the business
1980 : The Shah family separated from their partners
1980 : Alternate uses of bentonite explored like oil & water well drilling, iron ore
pelletization, metal casting, civil engineering, bleaching clay etc
1982 : The partnership firm was converted to a Company
1991 : Marketing alliance established with Mitsubishi Corporation. Major support
received mainly in developing Bentonite for Iron Ore Pelletization
1992 : Ashapura Shipping Ltd. (ASL) established
1993 : Ashapura Minechem Ltd went public with an equity issue of 600,000 shares
1995 : Diversification into bauxite business
1995 : Cat Litter business was started
1997 : Indo-American-Japanese joint venture Ashapura Volclay Limited started to
Page 8
Mr. Navnitlal R. ShahExecutive Chairman
manufacture value added Bentonite product
1999 : AMCOL International Corporation acquires 20% stake in Ashapura
Minechem Ltd.
2001 : Established a state-of the -art Knowledge & Innovation Centre at Belapur
We have a simple but unique mission statement: We will live up to our name…
We will consistently work to realize hopes… ours and those of our stake holders -
customers, business associates, shareholders, employees, community,
governments…
Hopes fulfilled give rise to new hopes resulting in continuous improvement in the
pursuit of excellence.
VISION
To emerge as a world class company and preferred partner to diverse industries
through proactive customer support, innovation and cutting edge technology. Our
standards of integrity, reliability and social responsibility will become benchmarks
for other companies to emulate. The commitment, zeal and team spirit of our
human resources will enable us to transform this vision to reality.
Page 12
LOCATION OF THE UNIT
Location is the place where we established our industry. We should select the
location where the cost of the production is lowest and easy availability of all the
necessary factors.
AM L is located in Jamkhambhalia because of below given factors.
1. Easy availability of raw materials
2. Cheap and qualified labour.
3. Low transportation cost.
4. Nearness to market port and mines.
5. Proper power and water supply.
6. Cheap land
7. Government benefits.
Page 13
RAW MATIRIALS USED IN A PROCESS
Bauxite Chemical Properties
Contents High Grade Law GradeAlumina 57-60% 51-52%Calcium 1-3% 1-3%
Silica 1-10% 1-14%Ferric 1.4% 3%LOI 29-30% 29-30%
Others Remaining Remaining
Physical Properties
It is a grey coloured rock found in form of natural deposits from the earth in form
of large lumps. It is a non-corrosive, non-flammable substance. Its fuses at a
temperature of about 2000c.
High grade bauxite is more desirable and is around 650/- Rs. per mt. The law grade
bauxite that contains lower % of alumina is rated at Rs. 250/- per Mt. L. S. H. S.
(Low Sulphur Heavy Stock)
It is low sulphur heavy stock. It is a thick vicious black liquid which is use as a
fuel. It is preferred over other fuels due to its low cost and high calorific value. It is
brought from IOC, Koyali and Baroda. L. S. H. S. is stored in two tanks which are
of 120 kl. Capacity. The tanks are fabricated of mild steel and are insulated. There
are two pumps for transferring it to the plant.
L. S. H. S. ----------------------------- storage tank ------------------- service tank
Page 14
Name of other raw materials
A. Bentonite Granites
B. Bentonite Powder
C. Bentonite Processed Lumps
D. Bentonite Inactivated Lumps
E. Bauxite Lumps
F. Attapulgite Lumps
G. Bleaching Clay
H. Kaolin
I. China Clay
Page 15
TYPES OF PRODUCT (BAUXITE)
The production chart shows the types of products and: -
Page 16
Raw bauxite
High grade
Calcinations process
Calcined Bauxite
Refractory Grade
General grade
Law ferric Grade
Abrasive grade
Abrasive
Pinching
Law grade
Export
Cement Grade
Metal grade
Chart No.-1
EXPLANATION OF THE CHART
The above chart shows the types of products. Here two types of Bauxite are found
during the mining in raw form. Those are:
1) High grade which contains above 55% of alumina and
2) Low grade which contains below 55% alumina
The low grade bauxite is directly without any process exported in different
countries from mines. It is in different size and contains different percentage of
alumina, silica, calcium, titanium etc. the low grade bauxite is exported as per
below parameters: -
CEMENT GRADE BAUXITE
Parameters Specifications
AI203 42-45 % min
SiO2 10 % max
TiO2 3-4 % max
Fe2O3 10-25 % max
CaO 0.5-5 % max
Size 0-100 mm
Moisture 5% max
Page 17
METAL GRADE BAUXITE
Parameters Specifications
AI203 45-47 % min
SiO2 4-5 0% max
TiO2 3-4 % max
Fe2O3 15-25 % max
CaO 0.5-3 % max
Size 0-100 mm
Moisture 5% max
The High grade bauxite which contains more than 55% alumina is taken to the
production unit and the further process of calcinations is done and from that
Calcine bauxite is prepared. Calcinations process has three steps
1) Kiln Operation
2) Sampling
3) Gradation Unit
1) Kiln Operation
The process chart of Calcine operation is as follows
First of all the raw bauxite is taken into crusher to reduce the size of the lumps than
in elevator. Through elevator it is taken into the Cylo and than taken into the Killen
where it has given heat on 1300 to 1500 degree temperature for producing
Page 18
Refractory Grade and to produce Abrasive Grade on 1000 to 1200 degree
temperature it has given heat. At last it is taken into cooler.
2) Sampling
After the production sampling is done for Quality Assurance analysis. Below
sample preparation flow chart is given
Bauxite size 0-150 mm
Jaw crasher (size reduces up to 30 mm)
Sample divider (sample reduces up to 75 %)
Roll crusher (size reduces up to 3 mm)
Sample divider (sample reduces up to 2 kg)
Pulveriser (pulvelise material for quality 100mesh)
Blender (blend powder for quality sample)
Sample prepare with increment reduction
Page 19
Chart No.-2
3) Gradation unit
Handling:-
A proper care for handling of materials at all stages during processing, bulk of
activities is for raw materials, processed materials and packaged materials.
They provide handling facilities like loaders, trucks, forklifts, trolley and tractors.
Also provide the requirement man power and their training for carrying out
handling activity.
Storage:-
While bulk loose bauxite raw materials and processed materials are stored in
poniards, packed bauxite is stored in covered storage sheds.
In coming material / items e. g. machine spare parts packing materials electrical
items and miscellaneous items are stored in general stores which have storage
racks, cupboards office facility.
Packing:-
After completing the whole process the last work is to dispatch the production. The
dispatch is done according to the size of the product and as per the customer
requirement. The different sizes are 0-1 mm, 1-3 mm and 3-5 mm. The capacity of
the unit is 5 tonne per hour. Generally 50 kg per bag is loaded for domestic market
and 1 metric tonne per bag for export.
Page 20
Preservation:-
The product bauxite does not have shelf life limitation. However they ensure that
the finished products are protected from occasional rains, winds to the extent
possible.
Ashapura also uses many testing chemicals with limited shelf life and draws out a
list of all such items with the detailed shelf life and display in laboratory area.
Page 21
PROCESS FLOW CHART OF LOW GRADE BAUXITE
Page 22
RAWMATERIAL
STORGE
BELT CONVIEARCOOLER
SAMPLECHECK
HOPPERKILN
PROCESS FLOW CHART OF HIGH GRADE BAUXTE
Page 23
MINING , SORTING &
SIZING
Chart No.-3
SWOT ANALYSIS
Page 24
Chart No.-4
STRENTHS:
1. The biggest strength is there is no competition on high level.
2. All the employees at office are well trained and high experienced.
3. All the employees are doing their work together as a family.
WEAKNESS:
1. Cooling system failure, the bauxite is directly received from the Killen
and then water is sprayed over it cool to it.
2. Some mechanical problems.
3. Electrical equipment failure.
OPPORTUNITIES:
Page 25
S W O T A n a l y s i s
1. Convert bauxite into alumina which will significantly improve the
profitability of the company.
2. Market for minerals is expected to expand
3. We have various opportunities in mining and processing to penetrate in
the international markets so as to expand our market share.
THREATS
1. The prices of the oil are increasing day by day so the cost of the product
increase but the price of the product we cannot increase every time so
profit margin will decrease.
2. We have a limited source of minerals.
3. The biggest threats now days are that GIDC undertake all the export of
the bauxite in their hand. So no private company cannot export. So it can
make a question mark on the survival of the company.
CHEPTER: 3. WORKING CAPITAL MANAGEMENT
Page 26
INTRODUCTION
WORKING CAPITAL:
Working capital in simple terms means the amount of funds that a company
requires for financing its day -to- day operations. Working Capital includes the
current assets and current liabilities areas of the balance sheet.
Working Capital Management is concerned with the problems that arise in
attempting to manage the current assets, the current liabilities and the
interrelationship that exists between them. Working Capital Management is the
process of planning and controlling the level and mix of current assets of the firm
as well as financing these assets. Analysis of working capital is of major
importance to internal and external analysis because it is closely related to the
current day -to- day operations.
Concept of Working Capital:-
Page 27
There are two concepts of working capitals: -
1. Gross Working capital: - It means the current assets which represent the
proportion of investment that circulates from one form to another in the ordinary
conduct of business.
2. Net Working Capital: - It is the difference between current assets and current
liabilities or alternatively the portion of current assets financed with long-term
funds.
Constituents of Current Assets:-
1. Cash in hand and cash at bank.
2. Bill receivables.
3. Sundry debtors.
4. Short term loans and advances.
5. Inventories.
6. Prepaid Expenses.
7. Accrued Income.
8. Marketable Securities.
Constituents of Current Liabilities:-
Page 28
1. Accrued and outstanding expenses.
2. Short term loans, advances and deposits.
3. Dividends payable.
4. Bank overdraft.
5. Provision for taxation.
6. Sundry Creditors.
7. Bills payable.
CLASSIFICATION OF WORKING CAPITAL
Page 29
Working capital may be classified in two ways:
On the basis of concept.
On the basis of time.
On the basis of concept working capital can be classified as gross working capital
and net working capital. On the basis of time, working capital may be classified as:
Permanent or Fixed working capital.
Temporary or variable working capital.
PERMANENT OR FIXED WORKING CAPITAL
Permanent or fixed working capital is minimum amount which is required to
ensure effective utilization of fixed facilities and for maintaining the circulation
of current assets. Every firm has to maintain a minimum level of raw material,
work- in-process, finished goods and cash balance. This minimum level of current
assets is called permanent or fixed working capital as this part of working is
permanently blocked in current assets. As the business grow the requirements
of working capital also increases due to increase in current assets.
Page 30
TEMPORARY OR VARIABLE WORKING CAPITAL
Temporary or variable working capital is the amount of working capital which is
necessary to meet the seasonal demands and some special necessities. Variable
working capital can further be categorized as seasonal working capital and
special working capital. The capital necessary to meet the seasonal need of the
enterprise is called seasonal working capital. Special working capital is that part
of working capital which is required to meet special demands.
Temporary working capital differs from permanent working capital in the sense
that is required for short periods and cannot be permanently employed profitably in
the business.
IMPORTANCE OF ADEQUATE WORKING CAPIATAL
Page 31
SOLVENCEY OF THE BUSINESS: - Adequate working capital helps in
maintaining the solvency of the business by providing uninterrupted of
production.
GOODWILL: - Sufficient amount of working capital enables a firm to make
prompt payments and makes and maintain the goodwill.
ESAY LOANS: - Adequate working capital leads to high solvency and credit
standing can arrange loans from banks and other on easy and favorable terms.
CASH DISCOUNT: Adequate working capital also enables a concern to avail
cash discounts on the purchases and hence reduces cost.
REGULAR SUPPLY OF RAW MATERIAL: - Sufficient working capital
ensures regular supply of raw material and continuous production.
REGULAR PAYMENT OF SALARIES, WAGES AND OTHER DAY TO
DAY COMMITMENTS: - It leads to the satisfaction of the employees and
raises the morale of its employees, increases their efficiency, reduces wastage
and costs and enhances production and profits.
EXPLOITATION OF FAVORABLE MARKET CONDITIONS: - If a firm
is having adequate working capital then it can exploit the favorable market
Page 32
conditions such as purchasing its requirements in bulk when the prices are
lower and holdings its inventories for higher prices.
ABILITY TO FACE CRISES: - A concern can face the situation during the
depression.
QUICK AND REGULAR RETURN ON INVESTMENTS: - Sufficient
working capital enables a concern to pay quick and regular of dividends to its
investors and gains confidence of the investors and can raise more funds in
future.
HIGH MORALE: - Adequate working capital brings an environment of
securities, confidence, high morale which results in overall efficiency in a
business.
DISADVANTAGES OF EXCESSIVE WORKING CAPITAL
Page 33
1. Excessive working capital means ideal funds which earn no profit for the firm
and business cannot earn the required rate of return on its investments.
2. Redundant working capital leads to unnecessary purchasing and accumulation
of inventories.
3. Excessive working capital implies excessive debtors and defective credit policy
which causes higher incidence of bad debts.
4. It may reduce the overall efficiency of the business.
5. If a firm is having excessive working capital then the relations with banks and
other financial institution may not be maintained.
6. Due to lower rate of return n investments, the values of shares may also fall.
7. The redundant working capital gives rise to speculative transactions.
WORKING CAPITAL IS NEEDED FOR THE FOLLOWING PURPOSES: -
Page 34
For the purpose of raw material, components and spares.
To pay wages and salaries.
To incur day-to-day expenses and overload costs such as office expenses.
To meet the selling costs as packing, advertising, etc.
To provide credit facilities to the customer.
To maintain the inventories of the raw material, work-in-progress, stores and
spares and finished stock.
Page 35
FACTORS DETERMINING THE WORKING CAPITAL
REQUIRMENTS
1. NATURE OF BUSINESS: - The requirements of working is very limited in
public utility undertakings such as electricity, water supply and railways because
they offer cash sale only and supply services not products, and no funds are tied up
in inventories and receivables. On the other hand the trading and financial firms
requires less investment in fixed assets but have to invest large amt. of working
capital along with fixed investments.
2. SIZE OF THE BUSINESS: - Greater the size of the business, greater is the
requirement of working capital.
3. PRODUCTION POLICY: - If the policy is to keep production steady by
accumulating inventories it will require higher working capital.
4. LENGTH OF PRODUCTION CYCLE: - The longer the manufacturing time
the raw material and other supplies have to be carried for a longer in the process
with progressive increment of labor and service costs before the final product is
obtained. So working capital is directly proportional to the length of the
manufacturing process.
Page 36
5. SEASONALS VARIATIONS: - Generally, during the busy season, a firm
requires larger working capital than in slack season.
6. WORKING CAPITAL CYCLE: - The speed with which the working cycle
completes one cycle determines the requirements of working capital. Longer the
cycle larger is the requirement of working capital.
7. RATE OF STOCK TURNOVER: - There is an inverse co-relationship
between the question of working capital and the velocity or speed with which the
sales are affected. A firm having a high rate of stock turnover will needs lower
amt. of working capital as compared to a firm having a low rate of turnover.
Page 37
RAW MATERIAL
WORK IN PROGRESS
FINISH SALES
DEBTORS & BILLS
RECEIVABL-ES
CASH OPERATING CYCLE
Chart No.-5
8. CREDIT POLICY: - A concern that purchases its requirements on credit and
sales its product / services on cash requires lesser amt. of working capital and vice-
versa.
9. BUSINESS CYCLE: - In period of boom, when the business is prosperous,
there is need for larger amt. of working capital due to rise in sales, rise in prices,
optimistic expansion of business, etc. On the contrary in time of depression, the
business contracts, sales decline, difficulties are faced in collection from debtor
and the firm may have a large amt. of working capital.
10. RATE OF GROWTH OF BUSINESS: - In faster growing concern, we shall
require large amt. of working capital.
11. EARNING CAPACITY AND DIVIDEND POLICY: - Some firms have
more earning capacity than other due to quality of their products, monopoly
conditions, etc. Such firms may generate cash profits from operations and
contribute to their working capital. The dividend policy also affects the
requirement of working capital.
12. PRICE LEVEL CHANGES: - Changes in the price level also affect the
working capital requirements. Generally rise in prices leads to increase in working
capital.
Page 38
MANAGEMENT OF WORKING CAPITAL
Management of working capital is concerned with the problem that arises in
attempting to manage the current assets, current liabilities. The basic goal of
working capital management is to manage the current assets and current liabilities
of a firm in such a way that a satisfactory level of working capital is maintained,
i.e. it is neither adequate nor excessive as both the situations are bad for any firm.
There should be no shortage of funds and also no working capital should be ideal.
WORKING CAPITAL MANAGEMENT POLICES of a firm has a great on its
probability, liquidity and structural health of the organization. So working capital
management is three dimensional in nature as:
1. It concerned with the formulation of policies with regard to profitability,
liquidity and risk.
2. It is concerned with the decision about the composition and level of current
assets.
3. It is concerned with the decision about the composition and level of current
liabilities.
Page 39
MANAGEMENT FUNCTIONS IN WORKING CAPITAL
Management of cash Management of inventories Managemet of account receivable Financing current assets
1. MANAGEMENT OF CASH
To managing cash is one of the most and significant factor for operation of business. To manage cash it requires good knowledge of managing cash. Though cash fund takes very small part of the total current asets of the origination. So the organization should contain neither more nor less amount of the cash because the shortage of cash leads to disturbance in the businee operation while the excessive of cash will remain ideal in the organition, which is not used for the revenue generation. Therefore the management of the cash takes a large amount of management time.
The major facets of the Cash management are
Cash management cycle
The key issue in organization is to manage cash. The revenue generated from the sales should be manage in such manner that the distribution of the cash allotted at the proper place. The cash is significant in the organization because it used for the payment of needed expanses. The main aim of any organization is to maintain the minimum cash balance and invest the surplus fund in opportunity areas. For this purpose the division transfer its surplus to the finance dept. invests that cash in various opportunity areas.
Page 40
Managing the flow of cash
Managing the cash flow is very important task that company should do effectively. Company need to look at cash inflow and cash outflow about whether it is going in right way or not. So various companies prepares cash budget but in this division, company does not prepare cash budget but account dept prepare expenditure budget. The cash management efficiency will be improved by a proper control on cash collection and cash distribution by the management. So the cash collection should be done as quickly as possible while the cash distribution should be delay.
Cash collection
An ashapura minechem is operating in various geographical area of the county.
It tries to speed up the collection by decentralization of the collection procedure instead of only one collection centre, which is generally located at the head office of the company. The main aim of decentralization collection is to minimize the lag between the mailing times from customers to the firm.
Cash disbursements
Any company can get benefit by delay Cash disbursements if a company have a control on cash disbursements than it can reduce its cash balance requirement. Trade credit can be used as a source of funds. The organization should make payments using at the credit terms to the full extent. The company has a policy of paying the payment at the due date they never pay delay the payment to the supplier that’s why they got good image on its suppliers.
In ashapura minechem, the disbursements are done through centralized system by the organization the payment of bill will be made from the central account and from the head office. So the company can enjoy the transit time delay using the factoring.
Page 41
Investment in market securities
The organization is transferring the excess of cash to its finance division so the decision regarding the investment of cash in to marketable security is done through the finance division only. Finance division generally invests its excess cash to the commercial bank for some fixed maturity. While if necessary, the company can also invest the surplus cash in new project or land to its other subsidaries associated companies or to the company have a high credit standing. The company transects all the bank transaction through Bank of India, uti bank ltd and union bank of India.
Optimum cash balance
It is most important function of the management of maintain the optimum cash balance on its hands. Either excess or deficit of the cash is leads trouble to the company. The Ashapura division keeps a maximum level of cash balance worth an average payment from 3 days. If cash is more than its maximum level then the cash is transferred to the ffinance department and if the cash is less than that level than the requirement of the cash is borrowed from the finance department.
Page 42
2. INVENTORY MANAGEMENT
Inventories constitute the most significant part of current assets of a large majority of companies in India. On an average, inventories are approximately 60 % of current assets in public limited companies in India. Because of the large size of inventories maintained by firms, a considerable amount of funds is required to be committed to them.
Nature of inventories
Raw materials
In AML division, it hilds a largr amount of the raw material for it’s manufacturing purpose.
1. Semi finished goodsSome inventories are semi manufafured product. They represent that need more before they become finished product for sale. Organization also holds some inventories for further processing.
2. Finished goodsInventories are those completely manusfatured products, whicj are ready for sale of raw materials and work in progress facilities production, while stock of finished goods is required for smooth marketing operations. The ashapura minechem holds the finished goods like
3. Spares and stores In incude office and plant cleaning materialas like soap, brooms, oil, fuel, light bulb etc. these materials do not directly enter production, but are necessary for production process.
Page 43
Need of holding inventories
The questions of managing invenrories arise only when the company holds inventrie. Maintaining invoives tying up of the companys funds incurrence of storage and holding costs. If it its expesive to maintain inventrories, why do companies hold inventories? There are three general motives for holding inventories.
Transactions motive: emphasizes the need to maintain inventories to facilitate smooth production and sales operation.
Precautionary motive: necessitates holding of inventories to guard against the risk of unpredictable change in demand and supply forces and other factors.
Speculative motive: influences the decision to increase or reduce inventories levels to take advantages of price of fluctuations.
Trade credit arises when a firm sells its product or service on credit and does not receive cash immediately. It’s an essential marketing tool, action as abridge for the movement of goods through production and distribution stages to customers. A firm grants trade credit to protect its sales from the competitor and the potential customers to buy it product t favorable terms. Trade credit account receivable or trade debtors that the firm is expected to collect In the near future. The customer from whom receivable or book debts have to be collected in the future are called trade debtors or simply as debtors and represent the firms caim or asset. A credit sale has three characteristics.
Page 44
It involves an element of risk that should be carefully analyzed. Cash sales are totally risk less, but not to the credit sales as the payment are yet to be received.
It is basis on economic value. To the buyer, the economic value in goods and services passes immediately at the time of sale, while the salller expects an equivalent value to be receivable later on.
It implies futurity. The buyer will make the cash payment for goods and services receivable by him in a future period.
3. RECEIVABLE MANAGEMENT
Trade credit arises when a firm sells its product or service on credit and does not receive cash immediately. It is an essential marketing tool, acting as a bridge for the movement of goods through producatio and distribution stages to customers. A firm grants trade credit to protect its sales from the competitors and to attract the potential customers to buy its product at favorable terms. Trade credit creates account to collect in the near future. The customeer from whom receivable or books debts have to be collected in the future are called trade debtors or simply as debtors and represent the firms claim or asset. A credit sale has three characteristics:
It involvves and an element of risk that should be carefully analyzed. Cash sales are totally risk less, but not to the credit sales as the cash paymemt are yet to be rreceived.
It is basis on ecomnomic value. To the buyer, the economic value in goods and service passes immediately at the time of sales, while the seller expects an equivalent value to be receivable later on.
It implies futurity. The buyer will make the cash payment for goods and services receivable nby him in a future period.
Page 45
4. FINANCING WORKING ASSETS
There are various sources for financing the current assets for the organization as per the requirement of the company can finance the capital from the short term or long term sources.
Policies for financing current assets
A firm ca adopt different financing policies vise- a – verse current assets. Thee type of financing may br distinguished
Long term financing: the source of long- term financing includes ordinary share capital, preference share capital debenture, long – term borrowing from financial institution and surplus (retained earnings).
Short – term financing: Th short – term financing is obtained for a period less than one year. It is arranged in advance from bank and other supplier’s odf short –term finance in the money market, short-term finance include working capital fund from banks, public deposits, commercial paper, facing receivable etc.
Spontaneous financing: Spontaneous financing refers to the automatic source of short-term arising in the normal course of a business. Trade (suppliers) credit and outstanding expenses are examples of Spontaneous financing. There is no explicit cost of Spontaneous financing. A firm is expected to utilize these sources of finance to the fullest extent. The real choice of financing current assets, once the Spontaneous sources of financing have been fully utilized between the long-term and short-term sources of finances.
Page 46
SOURCES OF WORKING CAPITAL
The typical sources of working capital are summarized below:
1) Funds from operation(adjusted net income)2) Sales from non-current assets
1) Sales of long term investments (shares bonds/debentures etc.)2) Sales of tangible fixed assets like building,plant,or requirements3) Sales of intangible fixed assets like goodwill, plants, or copy rights.
3) Long term financing 1) Longterm borrowings (institutional loans, debentures, bonds etc.)2) Issuance of equity and prefereces shares.
4) Short term financing such as bank borrowings
USES OF WORKING CAPITAL
The typical uses of working capital are as follows:
1) Adjusted net loss from oprations.
2) Purchase of non-current assets:
1) Purchase of long-term investments like shares, bonds/debentures etc.2) Purchase of tangible fixed assets, like land, building, plant, machinery,
equipment etc.3) Purchase of intangible fixed assets, like goodwill, patents, copyrights etc.
Page 47
3) Repayment of long term debt (debentures of bonds) and short term debt (bank borrowings).
Current assetsCurrent liabilitiesNet Working Capital
INTERPRETATION
The Company had not sufficient working capital during financial year 2011-12, which was Rs. -6,329,083,928, during financial year 2012-13 it was Rs. -5,293,410,566 and during financial year 2013-2014 it was good position compare to previous year, which is Rs. -412,553,336.
But it’s good for the company because AML is continously try to increse its working capital. Working capital is also going toward positive form.
ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL
Page 51
CURRENT INVESTMENTS
Year 31st March, 2012
31st March, 2013
31st March, 2014
Investments in Government Securities:National Savings Certificates (under lien with sales tax/mining authorities)
By analyzing the 3 years data we see that the current investments are increased year by year. We are looking increasing pattern in i current investments. We can see that current investments are increse Rs. 15,000 in year 2013 and Rs.5, 000 in year 2014.
INVENTORY ANALYSIS
Page 52
Inventory is total amount of goods and materials content in a store of factory at any given time. Inventory means stock of three things:-
1. Raw materials2. Semi finished goods.3. Finished goods.
POSITION OF INVENTORY IN ASHAPURA MINECHEM LIMITED
Year 31st March, 2012
31st March, 2013
31st March, 2014
(valued at the lower of cost ornet realisable value)Raw materials 88,807,516 130,087,420 100,679,715
As above graph 3 years’ data we see that the inventories are changed year by year. We are looking increasing and decrese pattern in inventories. We can see that inventories are grown by 7% in year 2013 and than decrese 9% in year 2014 compare to previous year. By this growth we can say that the company is growing very rapidly in mine sectore. A company uses inventory when they have demand in market and Ashapura minechem is having a great demand in mining industy sector.
In the table and figure we see that there is continuous rise in the debtors of Ashpura minechem Limited in the successive years. A simple logic is that debtors increase only when sales increase and if sales increases it is good sign for growth. We can see 6% and 36% growth in 2012-13 and 2013-14 respectively from previous years.
We can say that it is a good sign as well as negative also. Company policy of debtors is very good but a risk of bad debts is always present in high debtors. When a sale is increasing with a great speed the profit also increases. If company decreases the debtors they can use the money in many investment plans.
Page 55
CASH AND BANK BALANCES
Cash is called the most liquid asset and vital current assets; it is an important component of working capital. In a narrow sense, cash includes notes, bank draft, cheque etc while in a broader sense it includes near cash assets such as marketable securities and time deposits with bank.
Position of Cash and Bank Balance in Ashapura minechem Ltd.
31st
March, 201231st
March, 201331st
March, 2014I. Cash and Cash Equivalentsa. Balances with Banks :Current accounts 17,838,925 81,236,019 127,171,187
Short term deposits …………….. …………….. ……………..
17,838,925 81,236,019 127,171,187
b. Cash on Hand 1,496,802 1,705,618 2,788,302
19,335,727 82,941,637 129,959,489
II. Other Bank BalancesDividend accounts 1,218,202 1,118,008 928,997
Margin money accounts
…………….. 1,363,000 1,363,000
Terms deposits with more than 12 months maturity
1,271,485 403,261 3,933,794
Other terms deposits 28,930,929 33,903,959 55,306,959
31,420,616 36,788,228 61,532,750
Total cash and bank balance
50,756,343 119,729,865 191,492,239
Analysis through chart:
Page 56
31stMarch, 2012 31stMarch, 2013 31stMarch, 20140
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000Cash and bank balance
Cash and bank balance
INTERPRETATION
If we analyze the above table and chart we find that it follows an incresing trend. In the year 2012 it had maintained a huge amount of cash and bank balance which has rise hugely in the year 20013 and year 2014.The analysis shows that the cash and bank balance of company are rapidly increse in last three years as 135% and 160% in 2012-13 and 2013-14 respectively from previous year.
includes -Trade advances to subsidiaries RS.140,327,258 (145,972,318)Trade advances to joint ventures and associate companies Rs.144,767,157 (156,048,198)Advance payments of income tax (net of provisions)
32,478,869 10,952,676 19,993,376
ns and advances to staff 4,468,614 3,318,212 4,238,456
Other loans and advances 47,591,419 98,635,757 61,051,688
Total 876,118,905 955,330,430 752,569,926
Analysis through chart:
Page 58
31st March, 2012
31st March, 2013
31st March, 2014
0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
Short-rerm Loan and Advances
Short-rerm Loan and Advances
INTERPRETATION
From the above table we can see that short-term loan and andvances are increse in year 2013 copmare to 2013 and in year 2014 is decrese compare to 2013. Its show that company give good return as an advance to its workers.
SHORT-TERM BORROWINGS
Page 59
31st
March, 201231st
March, 201331st
March, 2014a. Secured
Working capital finance from bank(Indian rupee accounts)
334,109,075 …………………. …………………
Working capital finance from banks(Indian rupee accounts)
2,132,840,962 645,182,120 254,000,000
Working capital finance from financial institutions and others * (Indian rupee accounts)
360,282,956 781,019,556 420,282,956
Term Loans from financial institutions and others *(Indian rupee accounts
………………….. 98,389,566 52,000,000
2,827,232,993 1,533,591,242 726,282,956
b. Unsecured
Inter corporate loans …………………… 13,850,000 …………………..
………………….. 13,850,000 …………………..
Total 2,827,232,993 1,547,441,242 726,282,956
Analysis through chart:
Page 60
31st March,2012 31st March,2013 31st March,20140
500,000,000
1,000,000,000
1,500,000,000
2,000,000,000
2,500,000,000
3,000,000,000
Short-Term Borrowing
Short-Term Borrowing
INTERPRETATION
From the above table we can see that short term borrowing is decresing trend. Short term borowing is decresing 55% in year 2012-13 and 47% decresing in year 2013-14.
If we analyze the above table then we can see that it follow an uneven trend. The important component of trade payable is sunadry creditors and other liabilities. In 2012-13 it decreased by 24% and in 2013-14 it increased by 33%. In 2013-14 it was increased because of growth in other liabilities by 57%.This is liability for company so this should be less. When company has minimum liabilities it creates a better goodwill in market. High current liabilities indicate that company is using credit facilities by creditors.
OTHER CURRENT LIABILITIES
Page 62
31st
March, 201231st
March, 201331st
March, 2014Current maturities of long-term debt[including amount in default in repayment Rs.98,615,036; (70,246,599)
183,760,278 1,086,770,110 765,366,025
Interest accrued but not due on borrowings
33,634,731 ………….. …………….
Interest accrued and due on borrowings
240,536,936 389,344,998 346,352,493
Payables on purchase of capital assets
1,713,878 2,064,298 1,964,231
Advances from customers 36,189,649 40,102,664 170,599,467
As above chart shows that other current liabilities of Ashapura Minechame is increased in March-2013 by 12% and after passing 1 year i.e. decreased by 4%. When current liabilities are decreased that position is good for the company. It shows the good growth of company.
SHORT-TERM PROVISIONS
31st
March, 201231st
March, 201331st
March, 2014Provision for bonus 8,157,986 8,497,741 9,903,232
Provision for leave encashment 1,052,064 1,248,894 1,292,423
From the above table we can see that Short term provision shows an increasing trend and the huge amount is being kept in these provisions. Though the profits of the company are increased income tax is also increased which is good that company is creating goodwill in market by paying income tax in time.Short term provision increse by 5% and 14% in 2012-13 and 2013-14 respectively from previous year. Although company is paying more income tax but also they are earning more. Other provisions are also for the benefit of employees and public. This is good sign for Company growth.
Page 65
Page 66
POSITION OF CURRENT RATIO IN ASHAPURA MINECHEM LIMITED.
FORMULA
TOTAL CURRENT ASSETS CURRENT RATIO= --------------------------------------------
TOTAL CURRENT LIABILITIES
Year 31st March,2012
31st March,2013
31st March,2014
Current Ratio 0.36 0.43 0.51
Analysis through chart:
31st March,2012 31st March,2013 31st March,20140
0.1
0.2
0.3
0.4
0.5
0.6
Current Ratio
Current Ratio
INTERPRETATION
This ratio reflects the financial stability of the enterprise. The standard of the normal ratio is 2:1 but in AML which was 0.36 in year 2011-12, 0.43 in year 2012-13 and its 0.51 in year 2013-14
Now if we analyze the three years data it can be predicted that in AML current
libilities more than current aseets due to the advances received during the year by
the company from customers.
Page 67
POSITION OF QUICK RATIO IN ASHAPURA MINECHEM LIMITED
FORMULA
TOTAL CURRENT ASSETS - INVENTORIES QUICK RATIO= ----------------------------------------------------------------- TOTAL CURRENT LIABILITIES
Year 31st March,2012
31st March,2013
31st March,2014
Quick Ratio 0.23 0.27 0.35
Analysis through chart:
31st March,2012 31st March,2013 31st March,20140
0.050.1
0.150.2
0.250.3
0.350.4
Qick Ratio
Qick Ratio
INTERPRETATION
It is the ratio between quick liquid assets and quick liabilities. The normal value for such ratio is taken to be 1:1. It is used as an assessment tool for testing the liquidity position of the firm. It indicates the relationship between strictly liquid assets whose realizable value is almost certain on one hand and strictly liquid liabilities on the other hand. Liquid assets comprise all current assets minus stock.
Page 68
By analyzing the three years data it can be said that its position was weak in the year 2011-12 but it improved significantly in the next year and again it is improved during the 2013-14. It can be said that its liquidity position is not good & stable.
POSITION OF CURRENT ASSETS TO FIXED ASSETS RATIO ASHAPURA MINECHEM LTD
FORMULA
CURRENT ASSETS CA TO FA RATIO = ----------------------------- FIXED ASSETS
Year 31st March,2012
31st March,2013
31st March,2014
CA TO FA Ratio 2.30 2.62 2.70
Analysis through chart:
31st March,2012 31st March,2013 31st March,20142
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
Current assets to Fixed assets Ratio
Current assets to Fixed assets Ra-tio
Page 69
INTERPRETATION
Assuming a constant level of fixed assets, a higher CA/FA ratio indicates a conservative current assets policy and a lower CA/FA ratio means an aggressive current assets policy assuming other factors to be constant. A conservative policy i.e. higher CA/FA ratio implies greater liquidity and lower risk; while an aggressive policy i.e. lower CA/FA ratio indicates higher risk and poor liquidity.
Now if we analyze the three year data we find the CA TO FA Ration in increasing pattern, so we can say that company is following the conservative policy to finance its short term capital requirement.
POSITION OF INVENTORY TURNOVER RATIO IN ASHAPURA MINECHEM LTD.
FORMULA
AVERAGE STOCK STOCK TURN OVER RATIO (IN DAYS) =-------------------------------- * 365 COST OF GOODS SOLD
Year 31st March,2012
31st March,2013
31st March,2014
Inventory Turn over RAtio
123.76 108.82 79.15
Page 70
Analysis through chart:
31st March,2012 31st March,2013 31st March,20140
20
40
60
80
100
120
140
Inventory turnover Ratio
Inventory turnover Ratio
INTERPRETATION
This ratio tells the story by which stock is converted into sales. A high stock turnover ratio reveals the liquidity of the inventory i.e., how many times on an average, inventory is turned over or sold during the year. If a firm maintains a minimum stock level in order to maximize sales by quick rotation of inventory and the holding cost of inventory will be minimum. A low stock turn over ratio reveals undesirable accumulation of obsolete stock.
By analyzing the three year data it seen that it follows a decresed trend. We see that it is reduced to 108.82 from the 123.76 days in 2013 and in 2014 it is decresed again by 79.15 days, which is a good indicator for the company. Company should have to reduce the inventory conversion period in order to reduce the cost.
Page 71
POSITION OF RECEIVABLE RATIO IN ASHAPURA MINECHEM LTD.
FORMULA
DEBTORS RECEIVABLE RATIO = ---------------- * 365 SALES
Year 31st March,2012 31st March,2013 31st March,2014
Receivable Ratio(In Days)
98.37 107.88 94.67
Analysis through chart:
31st March,2012 31st March,2013 31st March,201485
90
95
100
105
110
Receivable Ratio
Receivable Ratio
INTERPRETATION
Generally a low debtor’s turnover ratio implies that it considered congenial for the business as it implies better cash flow. The ratio indicates the time at which the debts are collected on an average during the year. Needless to say that a high Debtors Turnover Ratio implies a shorter collection period which indicates prompt payment made by the customer.
Page 72
Now if we analyze the three year data, we can say that it holds a good position while receiving its money from its debtors. The ratios are in an uneven ternd, which implies that recovery position of company is not good in year 2012-13 but it’s good in 2013-14 compared with previous year.
POSITION OF PAYABLE RATIO IN ASHAPURA MINECHEM LIMITED.
FORMULA
CREDITORS PAYABLE RATIO= ----------------------------- * 365 COST OF SALES
Year 31st March,2012
31st March,2013
31st March,2014
Payable Ratio(In Days)
75.87 58.58 45.34
Analysis through chart:
31st March,2012 31st March,2013 31st March,20140
10
20
30
40
50
60
70
80
Payable Ratio (In Days)
Payable Ratio (In Days)
Page 73
INTERPRETATION
Actually this ratio reveals the liability of the firm to avail the credit facility from the suppliers throughout the year. Generally a low creditor’s turnover ratio implies favorable since the firm enjoys lengthy credit period
Now if we analyze the three years data we find that in the year 2013 the ratio was very high which means that its position of creditors that year was not good, and in the 2014 it is seen that it has followed an increasing trend which isnot much good sign for the company.
POSITION OF OPERATING CYCLE IN ASHAPURA MINECHEM LTD.
Formula =
Inventory Conversion Period (ICP) + Receivable Conversion Period (RCP) -Deferral Period (DP)
Calculation of Operating Cycle at Ashapura minechem ltd:-
(All Figures in Days)
Particulars 31st March,2012
31st March,2013
31st March,2014
Inentory Conversion Period
123.76 108.82 79.15
(+) Receivable Conversion Period
98.37 107.88 94.07
Gross Operating Cycle
222.13 216.70 173.22
(-) Deferral Period 75.67 58.58 45.34
Net Oprating Cycle
146.46 158.12 127.88
Page 74
Analysis through chart:
31st March,2012 31st March,2013 31st March,20140
20
40
60
80
100
120
140
160
180
Series3
INTERPRETATION
The operating cycle involves determinig how long it takes to create inventory, sell inventory and collect on invoices to customers. The net operating cycle measure of how long an investment is locked up in producation before turning into cash.
Above chart saw that three years data of oprating cycle, analyze three year data we find that company generate cash from its assets withing 146 days in year 2012 and takes 158 days in year 2013. In year 2014 it decrease by around 128 days, it’s good for company if company takes less time to convert cash.
Page 75
MAJOR FINDINGS
Statement Showing Difference from Previous Year
Particulars 2014 2013
Working Capital -4,125,533,536↑ by 22.06%
-5,293,410,566↑ by 16.36 %
Sales 5,875,059,128↑ by 25.38%
4,685,758,038↓ by 20.18%
Current assetsCurrent Investments
374,800↑ by 0.01%
369,800↑ by 4.22%
Inventories 1,389,334,726↓ by 6.7%
1,489,022,461↑ by 9.16%
Trade Receivables 1,985,407,446↑ by 36.26%
1,456,978,010↓ by 6.24%
Cash and Bank Balances
191,492,239↑by 60%
119,729,865↑ by 135.90%
Short-term Loans and Advances
752,569,926↓by 21.22%
955,330,430 ↑ by 9.04%
4,319,179,137↑ by 7.40%
4,021,439,566↑ by 9.80%
Current LiabilitiesShort-term Borrowings
726,282,956↓ by 53.06%
1,547,441,242↓ by 45.26%
Trade Payables 722,648,707↑ by 33.16 %
542,678,463
↓ by 25.12%
Other Current Liabilities
6,984,585,355↓ 3.19%
7,214,983,792↑ By 12.20%
Short-term Provisions
11,195,655↑ by 14.87
9,746,635↑ by 5.82%
8,444,712,673↓ by 9.34%
9,314,850,132↓ by 6.77%
Page 76
Working Capital is increased by 22.06% only in 2013-14 as compare to 16.36% increase in 2012-13 and if we analysis the working capital with sales, the sales is increased by 25.38 in 2013-14. Working capital of Ashaura minechem ltd is negative form but it’s not good for company but it’s continuously decrease toward positive form so its good sign for company.
Current assets are increased by 7.40% in 2013-14 and current liabilities are decreased by 6.34% in 2013-14 as compare to previous year but current assets are increased by 9.80% in 2013-14 as compare to 6.77% increase in current liabilities, so we can say that working capital is increased because of increase in current assets.
Inventory is increased by 6.7% in 2013-14 as compare to 2012-13, so we can say that current assets are increased due to the increase in the inventory.
Trade receivable are increased by 32.26% in 2013-14 whereas Trade payables are increased by 33.16% in 2013-14, which shows that company enjoys the good payable period and goodwill among the creditors.
Cash and the bank balances are increased by 60 % in year
2013-14 and its incresed by 135 % in year 2012-13 which shows company not face the any liquidity problem.
Short-term loan and Advances are decresed by 21.22 % as compare to 9.4% increase in 2012-13, which shows that company provide better facility to employees. Short term borrowing is decreased by 53.06 % which shows that company reducing its liabilities.
Current investment are increased by 0.01% in year 2013-14 and incresed by 4.22% in year 2012-13, which is good because due
Page 77
to current investment companys current assets are contineously increase.
Short term provision is incresed by 5.82% in year 2012-13 and it’s again increased by 14.87% in year 2013-14. Other current liabilities of the AML are decresed on year 2013-14.
Operating cycle of the company is decreased in year 2014 which shows the good receivable collection policy
I found that company has not sufficient working capital during last three
financial years and payables deferral period has been more or less consistent
over the years.
A consistent increase in the sales over past three years has been witnessed;
Return on assets has shown a no consistent trend.
Page 78
CHEPTER:5
SUGGESTIONS AND RECOMMENDATIONS
The management of working capital plays a vital role in running of a successful
business. So, things should go with a proper understanding for managing cash,
receivables and inventory.
Ashapuram minechem ltd. is managing its working capital in a good manner, but
still there is some scope for improvement in its management. This can help the
company in raising its profit level by making less investment in accounts
receivables and stocks etc. This will ultimately improve the efficiency of its
operations. Following are few recommendations given to the company in
achieving its desired objectives:
The business runs successfully with adequate amount of the working
capital but the company should see to it that the cash should not be tied up
in excessive amount of working capital.
Though the present collection system is near perfect, the company as due
to the increasing sales should adopt more effective measures so as to
counter the threat of bad debts.
The over purchasing function should be avoided as it could lead to
liquidity problems.
The investment of cash in marketable securities should be increased, as it
is very profitable for the company.
Holding of excessive and insufficient stock must be avoided as it creates a
burden on the cash resources of a business and results in lost sales, delays
for customers, etc respectively.
Page 79
CHEPTER:6
CONCLUDING ANALYSIS
The company has not sufficient working capital during last three financial
years and payables deferral period has been more or less consistent over the
years so its need to improve.
The company has used its purchasing, financing and investment decisions
properly and good effect can be seen from the inferences made earlier in the
project.
The debts doubtful have been increase over the years but their percentage on
the debts has almost become half. This implies a sales and collection policy
that get along with the receivables management of the firm.
The various ratios calculated are an indicator as to the fact that the
profitability of the firm and sales are on a rise and also the deletion of the
inefficiencies in the working capital management.
The firm has not compromised on profitability despite the high liquidity is
commendable.
As the turnover and scales of operations, increase the firm needs to manage its working capital requirements through a proper policy
Page 80
CHEPTER:7
BIBLIOGRAPHY
BOOKS, JOURNALS and REFERENCES:
Financial management
Cost Accounting and financial management
Hrishikesh Bhattacharya, Working capital management - Strategies and
techniques, Nov. 2005, published by Prentice Hall India
E BOOKS:
Ashapura Minchem Limited Annual financial report of year 2012-13
Ashapura Minchem Limited Annual financial report of year 2013-14
2,833,789,474Current Assets Current Investments 374,800 369,800Inventories 1,389,334,726 1,489,022,461Trade Receivables 1,985,407,446 1,456,978,010Cash and Bank Balances 191,492,239 19,729,865Short-term Loans and Advances 752,569,926 955,330,430Other Current Assets — —
