Working_Capital_Management Final 73 Pages

8/12/2019 Working_Capital_Management Final 73 Pages

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Content

CHAPTER 1

Introduction

Executive Summary

Industry Profile

History of Coca-Cola

CHAPTER 2

Overview of Company profile

History of Coca-Cola India

About the Orani!ation

CHAPTER 3

"or#in Capital $anaement

"or#in Capital Cycle

Sources of "or#in Capital

"or#in Capital $anaement at %AI&

"or#in Capital at %AI&

CHAPTER 4

'esearch Ob(ective

'esearch $ethodoloy

Analysis and Interpretation

&imitations) Conclusions and 'ecommendations

%iblioraphy

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CHAPTER 1Introduction

Executive Summary

Industry Profile

History of Coca-Cola

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INTRODUCTION

Soft drin# includes all types of non alcoholic carbonate flavored or otherwise

sweetened beveraes* Soft drin#s are mostly pac#aed in +,, ml) ,, ml) .,, ml and

+ &tr comes in a variety of flavors* It also comes in lass as well as in plastic bottles*

Since so many chanes and transformations are underoin ever chanin consumer

demands* /ovt* Policies and innovative pac#ain* 0hen industries are much

emphasi!in advertisin to increase its sales*

"ith the introduction of fruit pulp based soft drin#s pac#aed in cardboard cartoons

#nown as 10E0'A PAC23 has been introduced in the mar#et* 0he bottled soft drin#

mar#et has underone a marinal decreases in demand after 4556 the eminent re-

entry of Coca-Cola in Indian soft drin# Industry it is headin for two iants war to

capture the mar#et* It has introduced various sharp and efficient tools say tour

pac#aes) pri!es ift other avenues to enhance social status and satisfyin eos also*

$ar#etin plays a vital role in today7s business scenario) where the all the 8$C/

concerns are plannin to have an ede over their competitors*

$ar#etin is a viewpoint) which loo#s at entire business process as a hihly

interated effort to discover) create and satisfy consumer needs*

0he pro(ect wor# consists of findin new channels of promotion for Co#e* Survey

was carried out to find out the test mar#et and the stratey to be used to enter and

sustain the channel*

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EXECUTIVE SUMMARY

%'I9:A;A9 Aro Industries &td* is the most reputed company) in the cold drin#

manufacturin sector in India* It was this orani!ation which had set up the first Coca

< Cola plant in India) on the comebac# of Coca < Cola Company after 4. years of its

absence in India* 0his plant is set up at Hathras near Ara =0he City of 0a(>) under the

franchise areement with the former* It has its branch in many cities* 0his Pro(ect

focuses on the overall "or#in Capital 'e?uirement of %'I9:A;A9 Aro

Industries &td* =%AI&>) Ara for aerated water manufacture*

"or#in Capital is essential for a company to meet its continuous operational need*

Effective wor#in capital manaement is especially important in today7s business

environment* Its ade?uacy influences the firm7s ability to meet its trade and short sector in the lobal prospects and in the Indian

context* It ives an outloo# on the soft drin# industry*

Information on %'I9:A;A9 Aro Industries &td*) its activities* 8uture plans

of the company*

Ob(ective of the research* 0ells us about the expectations of the research*

0he research methodoloy used by the researcher is discussed it tells us about

the nature of the research and the tools used in the research process*

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0he theoretical concepts of the wor#in capital is also covered) it tells us

about the wor#in capital re?uirement) its sources of finance) the various #ind

of wor#in capital policy used in a company* 0hen it tells about the wor#in

capital manaement at %'I9:A;A9 Aro Industries &td*

8ocusin on the ob(ective and techni?ue of inventory manaement* 0hen it

ives information about practices of inventory manaement at %AI&* How

company manaes its inventory and what are the different observations about

the inventory*

Cash manaement deals with reasons of handlin cash) methods of cash

inflows and outflows) determinin optimum cash balance* It also tells the

importance of cash budet for a company* 0hen it explains the practices of

cash manaement followed by %AI&*

'eceivables manaement deals about various costs of maintainin receivables

and different standards to form a policy for manain the receivables* It

includes credit standard) credit terms) collection procedure for the receivables*

And then the manaement of receivables advances at %AI&*

Estimation of wor#in capital in %AI& is shown and data is analy!ed with the

help of raphs and tables* 0his part shows the various ratios to analy!e the

structural health of wor#in capital of %AI&* It also shows the various

findins and interpretations are discussed* At last) the limitations of the

pro(ect) and then iven is the conclusion and recommendations for the

company towards better wor#in capital manaement*

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INDUSTRIAL PROFILE OF SOFT DRINKS

0he history of soft drin#s bean with the end of the last century* Its date bac# to the

civil war in BSA in 4., at that time peoples were sufferin from many diseases*

Problem at that time was how to cure all these diseases since no remedy was present

at that time* It was a bi ?uestion for American people* So in 4D $r* ohn

Pemberton) who lived in Atlanta) made a drin# and ot it reistered with the name

Trench Wine Colain the beinnin this drin# was made with mixture of alcohol but

later on it was converted and chaned into a soft drin#*

0he drin#in of either natural or artificial mineral water was considered a healthy

practice* American pharmacists) who were sellin most of the mineral waters) started

to add medicine and other flavored herbs to this drin#* 0he early dru stores with

their sod fountains became popular part of American culture*

:rin# bottle tops* 0he bottles were under a lot of pressure from the as* Inventors

were tryin to find the best way to prevent the carbon dioxide from escapin* In 45+

the crown bottle seal was presented by "illiam Painter) a %altimore machine shop

operator* It was the first very successful method of #eepin the bubbles in the bottles*

In 455 the first patent was issued for a lass blowin machine for the automatic

production of lass bottles* Earlier lass bottles had all been hand blown* 8our years

later) the new bottle blowin machine was in operation* It was first operated by the

inventor) $ichale * Owens) an employee of &ibby /lass Company*

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HISTORY OF COCACOLA

FOUNDER

Dr !o"n St#t" Pe$%erton &or t"e r't t#$e (ro)*+e) t"e ',r*( &or Co+-.Co/- on

M-, 0 100

Coca cola traces its oriin to 4. when the reat pharmacist ohn stith Pemberton in

Atlanta who developed patent medicines) created a drin# from carbonated water) cane

suar syrup) caffeine and extracts of cola nuts and coca leaves* Pemberton found the

drin# both medicinal and refreshin) and he souht to mar#et it* His boo# #eeper)

8ran# m* 'obinson) suested the name Coca Cola after the two extracts in the

inredients and also wrote the product7s name in distinctive script* Coca cola has used

that same loo ever since* Pemberton and 'obinson also coined the drin#7s first

sloan) 1delicious and refreshin3*

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Pemberton) however) was ill and he would not live to see his product7s success* In

their first year sellin co#e) and its partners made only FD, by sellin it* Pemberton

sold two third of his business in 4 to cover his losses an deep the business afloat*

He died later that year and Candler) an Atlanta wholesale druist) purchased total

interest in Coca Cola for F +,, in 454* 0he next year Candler and his brother) ohn

8ran# 'obinson and two associates formed Coca Cola Company*

In 45 Candler reistered Coca Cola as a Patented trademar#* He also responded to

rowin concerns over the daners of cocaine by reducin the amount of coca in the

drin# to a trace* However) he #ept some coca extracts in Coca Cola so the name

would accurately describe the drin#* Candler only had a patent on the name) and not

on the drin# syrup that was the drin#7s base) containin all the inredients minus the

carbonated water* He fiured that #eepin the coca in his formula would leally allow

the company to distinuish its drin# form limitations* Other companies also produced

soda drin# made with cola nut extracts* In particular) the Pepsi Cola Company and its

cola of the same name would become Coca Cola7s ma(or competitor over the next

few decades*

Candler also spent more than F 44),,, on his first massive advertisin campain in

45+* 0he Coca Cola loo appeared across the country) painted as mural on walls

displayed on posters and soda fountains where the drin# was served and imprinted on

widely mar#eted) common household items) such as calendars and drin#in lasses*

In addition to this) Candler was the first person ever to use coupons to ain costumers

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for a product* He distributed flyers offerin free soda fountain lasses of Coca Cola to

people visitin his drustore*

In 456) 0he Coca Cola Company opened its first co#e syrup production plant outside

of Atlanta) in Dallas, Texas* 0hat same year a candy storeowner in ;ic#sbur)

$ississippi) installed bottlin machines and produced the first bottled co#e* It had

previously been sold only at soda fountains* %y 45D the drin# was sold in all BS

states and territories*

In 455 &awyers %en(amin 0homas and oseph "hitehead of Chattanooa)

0ennessee) bouht the exclusive rihts to distribute co#e syrup to bottlers throuhout

most of the country for only one dollar* At that time Candler saw a little profit in

bottlin) and was more t willin to ive up that part of the business* 0heir contract

maintained that Candler could withdraw bottlin rihts) however) if the ?uality of

bottled co#e was not consistently hih* %ecause of differences in availability of time

and money) 0homas and whitehead split their partnership soon after it started* In

45, 0homas too# bottlin rihts for the northeast and the west coast* "hitehead

received financial bac#in from ohn &upton) and the two formed the :ixie Coca

Cola bottlin franchise system that still exists*

In 454D the root lass company created a contour lass bottle for co#e) its desin

based on the curvature of coca bean* 0his bottle desin became a Co#e trademar#

worldwide* 0he same year) Candler retired from the company) passin it on his

children and movin in to politics* He was elected mayor of Atlanta in 454.*

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CHAPTER 2 Overview of Company profile

History of Coca-Cola India

0echnoloy used by Coca < Cola

$anufacturin Process of Coca < Cola

About the Orani!ation

Co+- Co/- Co$(-n, Pro/e

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Coca - Cola) the corporate nourishin the lobal community with the world7s larest

sellin soft drin# concentrates since 4.) returned to India in 455 after a ap of 4.

years ivin a new thumbs up to the In)#-n So&t Dr#n M-ret* In the same year)

the Company too# over ownership of the nation7s top soft-drin# brands and bottlin

networ# 0humbs Bp* 9o wonder) the brands have assumed an iconic status in the

minds of the consumers*

Ever since) Coca-Cola India has made sinificant investments to build and

continually consolidate its business in the country) includin new production

facilities) waste water treatment plants) distribution systems and mar#etin channels*

Coca-Cola India is amon the country7s top international investors) havin invested

more than BSF 4 billion in India within a decade of its presence and further pleded

another BSF 4,, million in +,, for its operations*

COCA COLA INDIA

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At*/ S#n"

Pre'#)ent 5 CEO Co+-.Co/- In)#-

Atul Sinh too# over as the President CEO) Coca-Cola India from 4st September

+,,D*

Prior to this assinment) Atul Sinh was the President of East) Central South =ECS>

China :ivision in anuary +,,D*

Prior to (oinin Coca-Cola) Atul wor#ed for the Colate Palmolive Company for 4,

years and held several roles includin Country /eneral $anaer) 9ieria =455D-

455>) C8O then /eneral $anaer) 'omania =455+-455D> and 8inance $anaer)

BSA %ody Care =455,-455+>) Prior to Colate) Atul wor#ed as an Auditor with Price

"aterhouse in 9ew Gor#* Atul) holds a $%A deree from 0exas Christian

Bniversity*

"ith Share my dream said Coca-Cola to Indian Consumer in 455 after 4 years

with a deal of F 6, million with Parley Product* /et the .,J $ar#et Share of Coca-

Cola is second taret investor in country after Enron*

In startin Coca-Cola set the bottlin plants in these cities*

4- %ombay

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+- Calcutta

- 2anpur

6- :elhi

At that time no any competitor of Coca-Cola* So Coca-Cola accept by Indian very

easily* In 45 Coca-Cola had 6DJ $20 share in India* 0hen Coca-Cola left India

because 8E'A 'eulation Company was re?uired to India or close operation by D th

$ay * Get stronly enouh the companyKs operation came to an end in uly *

In Oct 455 Coca-Cola returned to India after a 4. years of absence with sloan Old

waves have come to India aain launched in Hathras near Ara*

At this time Parley was the leader in soft drin# mar#et and had more than .,J of the

total share in the soft drin#s* Coca-Cola (oined hand with parley and a strateic

alliance with parley exports have the company instant ownership of the nation top

soft drin# $20 brands* 0humsup) &imca) Citra) /old Spot and $a!!a access to

ParleyKs extensive .+ plant bottlin networ# and a base for rapid introduction of the

companyKs International %rand by stri#in F 6, deal with parley*

Coca-Cola India focused on the four Passions of Indian Consumers Identified by the

company namely cric#et) movies) music and food apart from eat) sleep and :rin#

series* 8our new companies were made) one revolvin around the cric#et) two were

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theme company involvin teenae cospiraton and the forth aimed to propel volume of

the 4 &itre si!e* 0he mar#et stratey of CCI revolves around acceptability and

affordability*

At the leadin ae of %everae Industry for over a century* 0he CCI system in India

introduced a series of innovations in the area of mar#etin*

A He-/t", 6ro7t" to t"e In)#-n E+ono$,

Ever since) Coca-Cola India has made sinificant investments to build and

continually consolidate its business in the country) includin new production

facilities) waste water treatment plants) distribution systems) and mar#etin channels*

Coca-Cola India is amon the country7s top international investors) havin invested

more than BSF 4 billion in India in the first decade) and further pleded another

BSF4,, million in +,, for its operations*

A P*re Co$$#t$ent to t"e In)#-n E+ono$,

0he Company has sha#en up the Indian carbonated drin#s mar#et reatly) ivin

consumers the pleasure of world-class drin#s to fill up their hydration) refreshment)

and nutrition needs* It has also been instrumental in ivin an exponential rowth to

the country7s (ob listins*

Te+"no/o, *'e) %, Co+- Co/-

Coca Cola uses best available technoloy for the followin process

Syrup Preparation

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Cleanin of empty bottles

8illin of bottles

Cappin

&abelin

Luality chec#s

Pac#ain or Casin

:istribution

0hese all process is interated with each other with help of automatic machines which

are automatically maintained by computer tools or software li#e CA$ =Computer

Aided $achine>* Cleanin of bottles are done in various critical steps li#e PS8

8iltration) AC8 8iltration) D $icron 0reatment) Chemical dosin) Chlorination and

'O "ater 0reatment* &atest technoloy cappin machine is used to maintain the air

pressure in a bottle* "ell maintained labs in each bottlin plant to chec# the ?uality

standards by ta#in reular sample from each batch which on process* %efore fillin)

strenth of bottle is chec#ed with the help of pressure and Carbon :ioxide* %est

possible transport are use to maintain the '0$*

M-n*&-+t*r#n Pro+e'' o& Co+- Co/-

Coca-Cola beverae products bein as raw material and o throuh many staes) until

the final step when the finished products reach the consumer*

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0he first step in creatin Coca-Cola is ?uite simple@ $a#e syrup of suar and water*

0he water is carefully purified because for Coca-Cola absolutely top ?uality

inredients are re?uired*

0o be certain that the water used for bottlin and cannin is clean and pure) local

drin#in water is filtered and purified* Luality control technicians test the water

fre?uently as it is used to ma#e the finished product*

0he chec#in and testin continues* Sophisticated e?uipment helps technicians chec#

everythin from the condition of each pac#ae to details of the carbonation level)

taste and syrup content* Here the syrup mix is chec#ed*

Coca-Cola concentrate is added to the syrup* 0his flavor base for Coca-Cola

Company manufacturin plants and still remains one of the worldKs reat trade

secrets* 0echnicians carefully sample) chec# and record the blend of each batch of

syrup* After blendin) it is ready to have the KbubblesK or carbonation) added* Strict

?uality control is the reason Coca-Cola is famous for a perfect level of KbubblinessK*

An army of lass and PE0 =Polyethylene terephthalate> bottles) as well as cans) is

now ready to be filled with the finished product* 0he bottles o throuh a throuhout

test@ first theyKre washed) rinsed and inspected electronically and visually Only then

are they ready to be filled with the worldKs most popular soft drin#*

A8OUT THE OR6ANI9ATION

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0he orani!ation name is 18RINDAVAN A6RO INDUSTRY PVT LTD3 is a

part of &adhani roup of Companies) which accounts to be worth of more than .,,

Crore 'upees* It has ot other sister concerns company namely@-

Amrit %ottles Pvt* &td* 8ai!abad*

%rindavan %evraes %areilly*

%rindavan %ottles %araban#i*

Avadh Crown Industry %araban#i*

&axmi Cold Alloys 8ai!abad*

Ara Sales $ar#etin Services Ptd* &td*

'*P* $il# $aid) 8oundry 9aar Ara

0he Chairman of Ladhani Group Companies is Mr. S.N. Ladhani* 0he

Chairman $*:* ofBrindavan Agro Industry Pvt. Ltd. is Mr. Gula Chand

Ladhani and it has three :irectors-

$r* Paritosh &adhani

$rs* 2aushalya :evi

$rs* Al#a &adhani

0he /*$* =8inance> is $r* Sablo#

0he /*$* =sale> is $r* 9aresh /ovil

Ara franchise is reputed to be the first franchise of Coca Cola Company* It was

established in 455) when $r* :onald "* Short ) Chairman of Coca Cola came in

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India and offered the franchise to the &adhani roups but at this time chairman of

Coca Cola wasMr. Ale! "on Bher) since from the beinnin the company has been

rowin in hilly way havin a turnover of 's* +D Crores in 455*

0he bottlin plant of the company is situated in near Hathras about .D 2m* from

Ara* Its premises are situated on a plot of D),,, s?uare feet* It has a storae

capacity of 4)D,),,, case* 0he company has moderni!ed it7s plant havin the latest

technoloy of Co#e* Its machinery includes a hih tech par mix which is made

exclusively for Coca Cola incorporates* 0he production capacity of company is 5,,

bottles per minute* In addition to this company has a approximately 4+D owned and

D, hired vehicles to facilitate distribution*

0he company has a sales and mar#etin of the products of the company* It is named

asAgra Sales # Mar$eting Servi%es Pvt. Ltd.

BAIL is continuously rowin with increasinly diversified pro(ects* 0oday a

%rindavan aro Industry &td* is the top manufacturin unit in India* 0he roup has

entered into a wind mill pro(ect Pvt &td* in 2arnata#a where the power eneration is

bein done from d natural sources and recently %AI& is oin in the hotel business

tyin up with the country inns suites this is the upcomin pro(ect of theBrindavan

agro industries Pvt. Ltd.

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BAIL


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19

Manufacturingbusiness

Power business Infrastructure

business

Cold drin ! "uices

#anufacturing

$ind #ill %ro"ect

set u% in &arnataa

and 'a"ast(an

)otel in *gra wit(

t(e tie u% wit(

countr+ inn (otel,


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In a perfect world) there would be no necessity for current assets and liabilities

because there would be no uncertainty) no transaction costs) information search costs)

schedulin costs) or production and technoloy constraints* 0he unit cost of

production would not vary with the ?uantity produced* %orrowin and lendin rates

shall be same* Capital) &abour) and product mar#et shall be perfectly competitive and

would reflect all available information) thus in such an environment) there would be

no advantae for investin in short term assets*

However the world we live is not perfect* It is characteri!ed by considerable amount

of uncertainty reardin the demand) mar#et price) ?uality and availability of own

products and those of suppliers* Information is costly to obtain and is not e?ually

distributed) there are spreads between the borrowins and lendin rates for

investments and financins if e?ual ris#s* 0hese real world circumstances introduce

problems which re?uire the necessity of maintainin wor#in capital* 8or example) an

orani!ation may be faced with an uncertainty reardin the availability of sufficient

?uantity of crucial imputes in future at reasonable price* 0his may necessitate the

holdin of inventory) current assets*

Similarly an orani!ation may be faced with an uncertainty reardin the level of its

future cash flows and insufficient amount of cash may incur substantial costs* 0his

may necessitate the holdin of reserve for short term mar#etable security) aain a

short term capital asset*

:or#n C-(#t-/ M-r#n

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0his 'epresents the provision re?uired to be built into the cost of a pro(ect for

meetin the wor#in capital marin re?uirements at the pea# level =i*e* when the level

if ross current assets is at pea#> durin the first year of operations after

commencement of commercial production) additional marin money re?uired durin

the subse?uent years bein met out of internal cash eneration* "hile examinin the

wor#in capital marin built into the cost of a pro(ect) it should be ensured that the

provision is ade?uate to ta#e care of the re?uirements of appropriate method of

lendin =in terms of T-n)on Co$$#ttee;' recommendations>* 0his will be

applicable to the pro(ect for the wor#in capital finance* In this connection) three

methods of lendin is suested by the 0andon Committee) only 4 + method have

been prescribed by '%I for wor#in out maximum level of ban# borrowinsM the third

method has not been accepted by 'eserve %an# of India for implementation*

T"e T"eor,) i*e* Current Assets

minus Current &iabilities*

9"C N C*A < C*&*

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"ith the reference to the manaement of "or#in Capital) net wor#in capital

represents the part of current assets which are financed by the lon < term funds*

Con+e(t' o& :or#n C-(#t-/entor, M-n-e$ent -t 8AIL

C-'" M-n-e$ent An O>er>#e7

Cash $anaement will be successful only if cash collections are accelerated and cash

disbursements) as far as possible) are delayed* Cash $anaement is a broad term that

refers to the collection) concentration) and disbursement of cash* It encompasses a

company7s level of li?uidity) its manaement of cash balance) and its short term

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investment strateies* In some ways) manain cash flow is the most important (ob of

business manaers* If at any time a company fails to pay an obliation when it is due

because of the lac# of cash) the company is insolvent* Insolvency is the primary

reason firms o ban#rupt* Obviously) the prospect of such dire conse?uence should

compel companies to manae their cash with care* $oreover) efficient cash

manaement means than (ust preventin ban#ruptcy* It improves the profitability and

reduces the ris# to which the firm is exposed*

'easons for Holdin Cash

Speculative $otive

0he need to hold cash is to ta#e advantae of additional investment

opportunities) such as barain and purchase*

Precautionary $otive

0he need to hold cash as safety marin is to act as financial reserve*

C-'" M-n-e$ent -t 8AIL

0he company head ?uarter at Ara controls the activities and decision ma#in for the

entire company as whole* A department of finance loo#in after the purchase and

accountin related activities is situated at all the plants* Also at reional offices

competent and exercised personnel are appointed*

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0he finance department is headed by $r* 'a(esh Sablo#) a Chartered Accountant*

"ith his wide and varied experience he is uidin the activities of the department*

0he company determines its cash level by minimum and optimum cash balances* It is

determined on the bases of cash outflow and salary dates* Cash budetin is done in

the company on the cash flow statement is prepared for capital and revenue operation

throuh cash from operation) flow of cash and wor#in capital chanes* 0he finance

department is responsible for overall cash manaement operations* 0heir

responsibilities includes ensurin cash sufficiency) avoidin overdrafts) assurin cash

operations in accordance with approved budet and ma#in cash flow analysis* 0he

cash manaement has helped the company in elimination of delays in receipt of

funds) considerable reduction in inter < office transfer of funds) elimination of

difficulties in accountin and idle poc#et* 0o control cash flows of the company and

periodically review and see# reports about cash availability and its re?uirement)

mobili!in collection and staerin payments) by disposin off each cash

payment on merit by comparin the actual expenditure with budeted fiures and

ta#in corrective action) and by maintainin minimum cash balances*

P-,$ent to S*((/#er') while in electricity eneration and supply it was

found to be in the rane of =+, to ,J>* 0he enterprise in the tobacco)

construction and tradin roups had) as is to be expected) the hihest

component of wor#in capital =,J to 5,J>* 0he other industrial roups fall

between these limits thouh there are very wide inter < industry variations*

+* Pro)*+t#on Po/#+,


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areement will not only be expensive but also inconvenient* 0hus serious

problems will be encountered when tryin to match production to the ebb and

flow of the seasonal demand pattern* A better alternative will be a steady

production policy independent of the shifts in demand for the finished oods*

0his will mean a lare accumulation of inventories durin the off-season and

their abrupt sales durin the pea#-season* 0he proressive accumulation of

stoc# will naturally re?uire an increasin amount of wor#in capital which

will remain tied up for some months* 0he wor#in capital plannin will have

to incorporate this pattern of re?uirement of funds when production and

season sales are steady* It should) however) be noted that this stratey =steady

production policy> will not be adopted by everyone* It may be possible) for

instance) some to follow the policy of diversification which will enable them

to enae the wor#in force and physical facilities in some other activities* If

this is possible) there will be no ma(or problem of wor#in capital*

$oreover) the nature of some products may be such that accumulation of

inventories may create special ris# and cost problems* 8or them a production

policy in tune with chanin demands may be preferable* 0herefore)

production policies will have to be formulated on the basis of the individual

settin of each enterprise and the manitude and dimensions of the wor#in

capital problems will accordinly vary*

6* O(er-t#on'


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considerably durin the busy season and decrease durin the slac# season* Ice

creams and cold drin#s have a rear demand durin the summers) while in

winters the sales are neliible*

D* M-ret Con)#t#on'< If there is hih competition in the chosen product

cateory) then one shall need to offer soaps li#e credit) immediate delivery of

oods etc* for which the wor#in capital re?uirement will be hih* Otherwise)

if there is no competition in the mar#et then the wor#in capital re?uirements

will be low*

.* A>-#/-%#/#t, o& R-7 M-ter#-/'< If raw material is readily available then one

need not maintain a lare stoc# of the same) thereby reducin the wor#in

capital investment in raw material stoc#* On the other hand) if raw material is

not readily available then lare inventoryQstoc# is maintained) thereby callin

for substantial investment in the same*

* 6ro7t" -n) E=(-n'#on< /rowth and Expansion in the volume of business

results in enhancement of the wor#in capital re?uirement* As the business

rows and expands) it needs a larer amount of wor#in capital* 9ormally) the

need for increased wor#in capital funds precedes rowth in business

activities*

* Pr#+e Le>e/ C"-ne'< Chanes in the price level also affects the re?uirements

of wor#in capital* /enerally) risin price level re?uires a hiher investment

in the wor#in capital* "ith increasin prices) the same level of current assets

needs enhanced investment*'isin prices would necessitate the use of more

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funds for maintain and existin level of activity* 8or the same level of current

assets) hiher cash outlays will be re?uired* 0he affect of risin prices will be

that a hiher amount of wor#in capital will be needed*

5* M-n*&-+t*r#n C,+/e< 0he manufacturin cycle starts with the purchase of

raw materials and is completed with the production of finished oods* If the

manufacturin cycle involves a loner period) the need for the wor#in capital

would be more* At timesM business needs to estimate the re?uirement of

wor#in capital in advance for proper control and manaement* 0he factors

discussed above influence the ?uantum of wor#in capital in the business*

Each constituent of wor#in capital retains its forms for a certain period and that

holdin period is determined by the factors discussed above*

:or#n C-(#t-/ C,+/e

In corporate 8inancial $anaement) the term "or#in Capital $anaement

represents the excess of current assets over current liabilities* In simple words

wor#in capital is the excess of current assets over current liabilities* "or#in capital

has ordinarily been defined as the excess of current assets over current liabilities*

"or#in capital is the heart of business* If it is wea# business) it cannot properly

survive* It is therefore said that the fate of a lare scale investment in fixed assets is

often determined by relatively small amount of current assets* As wor#in capital is

important to the company it is important to #eep ade?uate wor#in capital with the

company* Cash is the lifeline of company* If this lifeline deteriorates so does the

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company7s ability to fund operation) reinvest do meet the capital re?uirements and

payment* Bnderstandin Company7s cash flow health is essential to ma#in

investment decision* A ood way to (ude a company7s cash flow prospects is to loo#

at its wor#in capital as much as needed by the company* It should neither be

excessive or nor inade?uate* Excessive wor#in capital cuisses for idle funds layin

with the firm without earnin any profit) where as inade?uate wor#in capital shows

the company doesn7t have insufficient funds for inade?uate wor#in capital shows the

company doesn7t have sufficient funds for financin its daily needs wor#in capital

manaement involves study of the relationship between firms current assets and

current liabilities* 0he oal of wor#in capital manaement is to ensure that firm is

able to continue its operation* And that it has sufficient ability to satisfy both

maturin short term debt and upcomin operational expenses* 0he better the company

manaes its wor#in capital) the less the company needs to borrow*

Even companies with cash surpluses need to manae wor#in capital to ensure those

surpluses are invested in ways that will enerate suitable returns for investors*

:or#n C-(#t-/ C,+/e

Each component of wor#in capital =namely inventory) receivables and payables> has

two dimensions 0I$E and $O9EG* "hen it comes to manain the wor#in capital

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0I$E IS $O9EG* If you can et money to move fester around the cycle =collect

monies due from debtors more ?uic#ly> or reduce the amount of money tied up =i*e*

reduce inventory level relative to sales>* 0he business will enerate more cash or it

will need to borrow less money to fund wor#in capital* As a conse?uence) you could

reduce the cost of ban# interest or you will have additional) free money) to support

additional sales rowth or investment* Similarly) if you can neotiate improved terms

with suppliers e** et loner credit or an increased limitM you festively create freed

finance to help fund sales*

So*r+e' o& :or#n C-(#t-/

0he Company can choose to finance its current assets by

&on 0erm Sources

Short 0erm Sources

A Combination of %oth*

Lon Ter$ So*r+e' o& (er$-nent 7or#n +-(#t-/< &on 0erm Sources of

permanent wor#in capital include e?uity and preference shares) retained earnins)

debentures and other lon term debts*

0he lon term wor#in capital needs should meet throuh lon term means of

financin* 8inancin throuh lon term means provides stability) reduces ris# or

payment and increases li?uidity of the business concern* ;arious types of lon term

sources of wor#in capital are summari!ed as follows@

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loans) cash credit) and overdraft and throuh discountin the bills of

exchanes*

P*%/#+ De(o'#t'< $ost of the companies in recent years depends on this short term

wor#in capital re?uirements ranin from six months to three years*

V-r#o*' Cre)#t'


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hypothecated) however continue to be in the possession of the owner of these oods

=i*e* the borrower>* 0he rihts of the lendin ban# depend upon the terms of the

contract between the borrower and the lender* Althouh the ban# does not have

physical possession of the oods) it has the leal riht to sell the oods to reali!e the

outstandin loan*

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Mort-e< It is the transfer of interest in specific immovable property for security of

payment of money advanced*

:or#n C-(#t-/ M-n-e$ent -t 8AIL

0he company is professionally manaed with senior experienced professional7s at all

crucial departments li#e production) mar#etin finance* 0he company has efficient

control systems in places li#e budetin system) costin system) etc* 0he ob(ectives

of wor#in capital manaement in the company are better cash profit marin)

maintainin comfortable li?uidity and brinin in the promoters proposed

contribution* 0o achieve wor#in capital ob(ectives) the company follows the policy

of efficient timely completion of contracts) maintainin minimum level of cash

balance in each component of wor#in capital) continuous review of the situation)

manain inflows and outflows without affectin production process and sales)

maintainin a ood balance between creditors and receivables and effective

manaement of inventory*

0he company applies overall budetin and cash forecastin methods and duration of

operatin cycle methods in determinin its wor#in capital re?uirements* 0he budet

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period is often ?uarterly when the subse?uent budet fiures are reviewed* 0he

wor#in capital budet is prepared in co-ordination with the budets of production

and sales and collection functions*

$r* 'a(esh Sablo#) /eneral $anaer) 8inance) is responsible for the overall wor#in

capital manaement* In plannin the wor#in capital re?uirements the ma(or

responsibilities of the financial executives are) determinin wor#in capital

re?uirement which is done by ta#in into consideration the data and the needs of

various plants* 0he accountin policies with respect to oods and installation of

inventory valuation system are planned at the company head office*

0he responsibilities reardin orani!in in this reard includes preparin

information reports of wor#in capital for manaerial action) reportin to the

manaement the money loc#ed up in wor#in capital by preparin collection reports

and sendin them to financial and monitorin sources and application of funds*

'eardin controllin the duties are utili!ation of funds for maximum profitability

which is centrali!ed) controllin) carryin) holdin and orderin costs) controllin

debtor7s payment and cash operations which are centrali!ed at Ara Head Office*

0he company receives its wor#in capital throuh ratio techni?ues and various

reports* 0he norms are reviewed ?uarterly* 0he operatin cycle is considered while

forecastin wor#in capital*

In the company) the retained earnins are a ma(or lon term =internal> sources)

ordinary shares preference shares are also ma(or lon term sources of wor#in

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capital finance* So) the short term =external> source includes oods on credit)

discountin bills and advances*

0he overall policy of the company reardin financin of wor#in capital is same in

portion of variable needs with lon term sources and the portion of the permanent

needs from short term sources by ban# borrowins*

0he borrowins for wor#in capital from ban# are secured by hypothecation of boo#

debts) mortae of land of the plant owned by :irector of the company and also a

chare on various lands) flats owned by :irectors) their relatives and associate

company7s and firm*

0he person who parts with the interest in the property is called 1mortaer3 and the

person in whose favor the transfer ta#es place is the mortaee* $ortae is) thus)

conveyance of interest in the mortaed property*

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/enerally) a chare cannot be enforced a transferee for consideration without

notice* In a mortae the transferee of the mortaed property can ac?uire the

remainin interest in the property) if any is left*

:or#n C-(#t-/ -t 8AIL

Particulars Amount - 's* =In &ac#s>

&ast + years actual =as per audited accounts>

4*,*+,,.

4*,*+,,

CB''E90GEA'AB:I0E:4*,*+,,

8O&&O"I9/GEA'P'OEC0IO94*,*+,,5

9EU0 GEA'P'OEC0IO94*,*+,4,

A>* Current Assets

'eceivables .6*.+ D6*4. .,* .6*D, .*,

Inventory 446D*4 4,5D*4 4D5*4+ 464*,5 4*5

Cash 4+*, +6*,6 ++*5+ +.*D, +*D,

Investment .D*6, .44*. 4,+5*DD 5,*,, 4,+,*,,

Advances 4,D*.6 45D*6 4D6* 4.,*, 4.*4,

Others .*D 6*5. D6*5, D*+, D5*,

=A> 0otal +,6,*D +,4D*.. +.+*46 +.,*55 +.+*4

%>* Current liabilities

%an#borrowins

+6.*5 ,6*,6 6*.6 6,,*,, 6,,*,,

Creditors +4*, 4.D*, 65* +*D, +.*D,

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Advances +4+*. 5*65 D*DD +4,*,, +,D*,,

Statutoryliabilities=due in4 year>

5,*6, D*6+ 4,6*+ 4,D*5, 4,*D,

Others 5D5*D *6. ..*D +6*. .4*,6

=%> 0otal 45,*6 46++*+4 45+.* 445*+. 4D4*,6

"or#in Capital=A- %>

+D,*6+ D5*6D DD*+ 44* 54*4

:or#n C-(#t-/ In>e't$ent -n) F#n-n+#n Po/#+,

Gear +,, +,,5 +,4, +,44 +,4+

C* Assets +,6,*D +,4D*.. +.+*46 +.,*55 +.+*4

C* &iabilities 45,*6 46++*+4 45+.* 445*+. 4D4*,6

8ixed Assets +D5* .,6*D4 4*65 .54D*5D .*.

E?uity +,++ ++DD* +D*64 +.*.. ++*4,

9et Income

After 0ax

.*,. +5*5 6D*5 6,4*+D 664*66

9et "or#in

Capital

+D,*6+ D5*6D DD*+ 44* 54*4

Current 'atio 4*46 4*6+ 4*5 4*6D 4*D

0he above table shows that the Company follows $oderate or Compromisin policy

for its wor#in capital re?uirements which means the company faces moderate ris#

with moderate amount of profits*

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CHAPTER 4Re'e-r+" O%?e+t#>e

Re'e-r+" Met"o)o/o,

An-/,'#' -n) Inter(ret-t#on

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Re'e-r+" O%?e+t#>e

0he basic ob(ective of this pro(ect is to provide an analytical overview of @:or#n

C-(#t-/ M-n-e$ent -t 8RINDAVAN Aro In)*'tr#e' Lt) by brinin into use

various theoretical tools and s#ills which have been studied* 0his includes studyin

and analy!in various financial data over a period of +,,-+,,5 to +,44-+,4+) with

an aim of ainin useful insihts into the s#ills needed for controllin the movement

of wor#in capital* It also includes suestion and comments to improve specific

areas of wea#nesses*

An implicit ob(ective of this summer trainin pro(ect is to observe the day < to < day

wor#in of the finance department at close hand and also to observe the theoretical

concepts of manaement and orani!ational behavior at wor#*

0o what extent the manaement of wor#in capital in COCA CO&A) which is

one of the leadin concern in the fastner industry contribute to the overall

ob(ective of the firm i*e* wealth maximi!ationT

"hether the firm has ade?uate li?uidity throuhout the period which lead to ris#

return trade offT

How far has the firm been successful in manain and collection of thereceivables in timeT

0o study manaement policies reardin inventory manaement) whether the

manaement have applied various inventory control techni?ues for proper

utili!ation of resources*

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How far have the firm been successful in manain and payments of accounts

payables*

CH NO 2< RESEARCH METHODOLO6Y

H,(ot"e'#'er R-t#o) net credit sales consists of ross credit sales minus returns)

but here the company deals in sales which are on credit* 0he ratio measures how

rapidly the receivables are collected* A hih ratio is indicative of shorter time la

between credit sales and cash collection* A low ratio shows that debts are not bein

collected rapidly* 8or %AI&) the debtor7s turnover is ood the collection is done in

proper time this is also because the company has oodwill amon its customers* It

ta#es an av* of 6 days for collection which is an ideal time of collection* %ut the

company should ta#e precautions in chec#in that the turnover does not decrease* 0he

increase in collection period can impair the li?uidity of the firm* 0o #eep this intact

the firm can adopt restrictive credit and collection policy

C*rrent A''et' R-t#o to Tot-/ A''et' R-t#o indicates the extent of total funds

invested for wor#in capital purpose* 0he table shows that on an averae near about

less than half of the total assets of %AI& =av*> are current assets* It reveals that not

much of total investment made is bloc#ed in wor#in capital investment*

C*rrent A''et' to S-/e' R-t#o is used to see if there is ade?uacy of wor#in capital

and whether or not wor#in capital has been effectively utili!in in ma#in sales* A

lower ratio implies by and lare a more efficient use of funds* 0he table shows a

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declinin trend in the ratio of %AI& it indicates that the company is puttin in efforts

for efficient employment of wor#in capital funds*

Ratios

0

10

20

30

40

50

*-g, 1,386 0,59 0,44 0,344 9,98 4,36 39,26

C,' .,' C* / aleC* / otal

*ssetsI,, ,, C,,

0he above raph is an overall depiction of all the basic ratios) necessary for findin

the position of the company* 0hese ratios are the averae of all the D years includin)

which includes the pro(ection year also* Here we see a hue difference in the Creditor

0urnover 'atio* 0he creditor turnover is showin a rise because the payment is done

late to the creditors) but it is seen that the payment is done* 0he Company wants to

maintain a ood rapport with the creditors so it ta#es all measure to prevent the delay

in payin the creditors* 0he increase in the period of payment is because the company

does not do payments when the season is on) that means when the sales at its pea#*

"hen the season for sales is over the company starts payin its suppliers without any

further delay* 0he suppliers also have full faith in the company and that7s why they

rant lon credit payment periods to %AI&*

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Tren) #n L#*#)#t, R-t#o

0he above raph shows the li?uidity of %AI&* Current Luic# 'atios are the most

common ratios which indicate the extent of li?uidity of the Company* 0he company

should ensure that it does not suffer from li?uidity) and also that it does not have

excess li?uidity as of now it does not have an ideal ratio in both current ?uic#

ratios) which can be a matter of concern* 0he failure of the company to meet its

obliations due to lac# of sufficient li?uidity) will result in poor credit worthiness)

loss of creditor7s confidence) or even in leal tanles* 0he company havin very hih

deree of li?uidity is also badM idle assets earn nothin* 0herefore) it is necessary to

stri#e a proper balance between hih li?uidity and lac# of li?uidity*

RATIO TO ANALY9E THE STRUCTURALHEALTH OF :ORKIN6 CAPITAL

In addition to efficiency and li?uidity of wor#in capital) manaement should also

loo# throuh the structural health aspect* 0he structural health of the wor#in capital

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in business is enerally studied by analy!in the shifts and chanes between its

various elements i*e* Cash) receivables) inventories and other items of current assets*

De+o$(o'#t#on -n-/,'#'can help manaement to detect the occurrences and extent

of such structural shifts and chanes in a concern7s resources allocation over a period

of time* If after scannin the data any unusual phenomenon is detected) manaement

can further investiate that in depth* Bnder decomposition analysis) the value of

individual items can be seen in relation to total assets* &i#ewise) the proportion of

short term liabilities can be aued with respect to total liabilities*

0he followin ratio is enerally used to analy!e the structure of wor#in capital in the

business and have to be ?uite useful-@

Cash to current asset ratio*

'eceivables to current assets ratio*

Inventory to current assets ratio*

Investment to current assets ratio*

0hese entire ratios are very simple to calculate and if analy!ed toether they indicate

areas of strenth and wea#ness in the sphere of wor#in capital*

C-'" to C*rrent A''et' r-t#o is the proportion of cash to current assets* 0his

ratio can be calculated as follows@

CashQCurrent Assets R 4,,*

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T-%/e =I9 &A2HS>

Ye-r C-'" CA R-t#o

+,, 4+*, +,6,*D ,*.+,,5 +6*,6 +,4D*.. 4*45

+,4, ++*5+ +.+*46 ,*D

+,44 +.*D, +.,*46 4*,4

+,4+ +*D, +.+*4 4*,

C-'" to C*rrent A''et' r-t#o

Re+e#>-%/e to C*rrent A''et' R-t#o* It is calculated as

follows@

InventoryQCurrent Assets R 4,,

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T-%/e I9 &A2HS>

Ye-r In>entor, C*rrent A''et' R-t#o

+,, 446D*4 +,6,*D D.*46+,,5 4,5D*4 +,4D*.. D6*

+,4, 4D5*4+ +.+*46 D,*.

+,44 464*,5 +.,*55 D,*5

+,4+ 4*5 +.+*4 65*5+

In>entor, to C*rrent A''et' R-t#o

In>e't$ent to C*rrent A''et'

Ye-r In>e't$ent' C*rrent A''et' R-t#o

+,, .D*6, +,6,*D *,5

+,,5 .44*. +,4D*.. ,*6

+,4, 4,+5*DD +.+*46 *

+,44 5,*,, +.,*55 *+D

+,4+ 4,+,*,, +.+*4 *,

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0he Above 'atio shows the efficiency of %AI& in asset manaement* Activity 'atio

is also called as efficiency ratio* 0his shows how efficiently %AI& utili!es its assets*

As we can see above) there is efficient manaement of the inventory and the control

on debtors* 0his ratio in a sense also shows the relationship between sales and various

assets of %AI&*

E-rn#n' (er '"-re EPS

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