PROJECT REPORT

ON
A STUDY OF WORKING CAPITAL MANAGEMENT
AT
ACCURA ENGINEERS

SUBMITTED TO
UNIVERSITY OF PUNE

IN THE PARTIAL FULFLMENT OF MASTERS DEGREE IN

BUSINESS ADMINISTRATION
2016-2017
SUBMITED BY
MR.SAGAR SHIRSATH
UNDER GUIDANCE OF
PROF.MURALI SHARMA

PDVVP FOUNDATIONS
INSTITUTE OF BUSINESS MANAGEMENT & RURAL
DEVELOPMENT,AHMEDNAGAR-414111

The Project
Entitled
A STUDY OF WORKING CAPITAL MANAGEMENT
AT
ACCURA ENGINEERS
AHMEDNAGAR
Submitted
For The Degree Of
MASTER OF BUSINESS ADMINISTRATION

UNDER GUIDANCE OF
PROF.MURALI SHARMA
M.com,M.B.A(FINANCE/IBM)
Submitted by
MR.SAGAR SHIRSATH
M.B.A(FINANCE)
Submitted to
PDVVP Foundations
Institute of Business Management and Rural
Development,Viladghat,Ahmednagar
UNIVERSITY OF PUNE
2016-2017

Declaration

I hereby declare that this Thesis entitled A STUDY OF WORKING

CAPITAL MANAGAMENT is written by me and submitted to University of
Pune for the award of the Degree of MASTER OF BUSINESS
ADMINISTRATION in the faculty of MANAGEMENT. I further declare
that, this has not been submitted, in full or part, to any other university for
any degree or whatsoever.

(SAGAR VITTHAL SHIRSATH)

ACKNOWLEDGEMENT
Project whether it is small or large cant be completed until it is assisted by a
group of individuals fulfilling every criteria of its process.
Throughout this project I would like to acknowledge the precious help of Prof.
Megha Jain who helped me to choose the project title.
At the onset I would like to thank Mr.D V Akolkar (Accura Engineers) &
Mr.Rohit Janwe (Accura Engineers.) for providing me the opportunity to do my summer training
in this prestigious company.
My acknowledgement would not be completed without mentioning the name of
the Director of IBMRD DR.A.M. INGLE for providing me with all the facilities required in
completing this project. The MBA course at IBMRD gave me a unique opportunity to be in
association with one of the largest organization of the country. I am extremely greateful to
Prof.MEGHA JAIN and other faculty members at the institute for encouraging & guiding me in
this project. Myself is grateful to all those who have supported me towards the successful
completion of the project.

DATE:-

SAGAR SHIRSARH

CONTENTS

CHAPTER.NO
1.

PARTICULARS
Chapter 1
1.1 Introduction
1.2 Importance
1.3 Objective
1.4 Research and
methodology
1.5 Limitation of project

2.

Chapter 2
2.1 Company History
2.2 Company product

3.

Chapter 3
3.1 Concept Working
Capital
3.2 Factors influencing
working capital requirement
3.3 Concept Operating cycle
3.4 Working capital finance
Chapter 4
4.1 Calculation of Working
Capital
4.2 Working capital with
Sales,Sundery
Debtor,Inventory,Sundery
Creditor
Chapter 5
5.1 Data interpretation
&ratio analysis
5.2 Operating cycle
Chapter 6
6.1 Finding & Suggestion
6.2 Conclusion
6.3 Bibliography
6.4 Annexure

4.

5.

6.

EXECUTIVE SUMMERY
5

PAGE NO.

The selection of this topic is mainly due to its nature and importance in overall
Financial Management of any Organization. Primary function of Financial
Management procurement of funds but also their effective use with objective
maximizing the owners wealth . The allocation of funds, therefore, is an
important function of Financial Management. Modern Organization expects
finance managers to take the responsibility of acquiring the targeted funds and
also require looking into financial implications of any decision. Level of current
assets depends on expected sales and can be adjusted as per short term
fluctuations. The need for working capital to run day to day activities of a
manufacturing firm depends upon its operating cycle. The operating cycle and
need for funds are directly related. Hence working capital management requires
greater degree of efforts on the part of finance managers.
In short, working capital management involves the following concepts:
1.
2.
3.
4.
5.

ESTIMATION OF Requirements.
Sourcing of funds and Composite thereof.
Collection from Debtors
Payment to Creditors.
Inventory Management.
Hence, the management of current assets and current liabilities starts with
calculation of operating cycle which with the past three years forms the base
of estimation of required funds. Depending on the firms risk taking capacity
and its ability to service debt, the composition of funds is worked out by the
finance manager. Finally evaluation of the firms performance is done on the
basis of raio analysis and the length of the operating cycle (both gross and
net).

Chapter 1
1.1
1.2
1.3
1.4
1.5

INTRODUCTION
IMPORTANCE
OBJECTIVE
RESURCH AND METHODOLOGY
LIMITATION OF PROJECT

INTRODUCTION

WORKING CAPITAL MANAGEMENT

Working capital is the firms holdings of current assets such as cash, receivables,
inventory & marketable securities. Every firm requires working capital for its day to day
transactions such as purchasing raw material, for meeting salaries, wages, rents, rates,
advertising etc.
The importance of working capital management is reflected in the fact that
financial manager spend a great deal of time in managing current asset and current liabilities.
Arranging short-term financing, negotiating favorable credit terms, controlling cash
management, managing accounts receivable, and monitoring investments in inventories consume
a great deal of time of financial managers.
The following paragraphs will highlight the various concepts working capital as
well as other aspects of working capital management.

Importance of WORKING CAPITAL MANAGEMENT:

Working capital management is mainly confined to management of current assets to
optimize investment in current assets and it should avoid two danger points- excessive or
inadequate investment in current assets. Investment should be adequate to the needs of the
business firm.
Excessive investment in current assets- impairs the firms profitability, as idle investment
earns nothing.
Inadequate amount of working capital can threaten solvency of the firm because of its
inability to meet its current obligations.

It should be realized that the working capital needs of the firm may be fluctuating with
changing business activity. This may cause excess or shortage of working capital frequently.
Whenever a need for working capital funds arises, financing arrangement should be made
quickly. Similarly, if some surplus funds arise they should not be allowed to remain idle, but
should be invested in short-term securities.
Net working capital is a qualitative concept. It indicates the liquidity position of the firm.
Current assets should be sufficiently is excess of current liabilities to constitute a margin for
maturing obligations within the ordinary operating cycle of a business. It is conventional to
maintain the level of current assets twice the level of current liabilities.

Introduction:
There are two types of capital required for a business to be carried out.
1. Fixed Capital
2. Working Capital

CW a o p r ik t an l g BuC ad pg ie at iln Mg a n a g e m e n t
9

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above graph shows that there are two types of working capital.
1. Fixed Working Capital
2. Temporary Working Capital
Fixed working capital is the investment in fixed assets and long-term investments;
whereas temporary working capital is the capital which can be adjusted with the sales
fluctuations in the market and helps to adjust with variable demands.
Working capital increases when sales increase and decreases when the sales decrease.

10

OBJECTIVES OF THE PROJECT

To study how effectively the different components of working capital are managed in the
company.
To draw a comparative ratio analysis of Accura Engineer and suggest areas for
improvement.
To calculate the gross operating cycle and cash conversion cycle of Accura Engineer and
suggest areas for improvement if any.
To gain familiarity with phenomenon or the achieve new insights into it.
To portray accurately the characteristics of a particular individual, situation or a group.
To determine frequency with which something occurs or with which it is associated with
something else.
To test a hypothesis of a casual relationship between variables.

11

RESEARCH METHODOLOGY

Methodology of the ProjectData collected by adopting two types of methodologies.

In primary data collection- Data collected from every department manager such as finance,
production, administrative, engineering and special product departments through personal
interviews and contacts, some other data by observing the company environment.
In secondary data collection- By requesting the general manager of finance department
collected Annual Reports have 2009-10,2010-11,2011-12 and a file which having some
information regarding company.

Data Analysis
The analysis was done for each component of working capital with the help of financial facts and
figures available. Tables were used to show calculations in a presentable format. On the basis of
results and discussions, the inferences were made.

12

LIMITATIONS OF PROJECT:-

There may be limitation to this study because the study duration (Summer Placement) is
very short and it is not possible to observe every aspect of working capital management
practices.
Arability of financial data is very limited which is not disclosed due to the confidentiality
of the data to be maintained by the company.
Busy schedule of the employees of the company as they had catered the need of the
administrative work which meant full devotion of their time towards company.
For the purpose of data analysis figure of some heads are not exactly found that time
some assumption are needed to be consider.

CHAPTER-2

13

2.1 CMOPANY HISTORY

2.2COMPANY PRODUCT

COMPANY PROFILE
We would like to introduce ourselves as manufactures of quality
precision and turned components. The Proprietor Mr. Dilip Akolkar has done Diploma in
Mechanical Engineering and a Post-Diploma in Automobile Engineering and has worked in
production of Assembly of Scooters at Bajaj Auto Ltd., Pune. He was looking after Machine
Shop and Heavy fabrication, Boiler & Boiler Accessories at IAEC, Ahmednagar. He was the
Production Incharge for FHP Motors and Hand Tools at Ralli Wolf Ltd., Ahmednagar.
In 1995, Mr. Akolkar, saw the development in the outside market and viewing Crompton
Greaves Ltd. development at Ahmednagar, he went ahead and founded ACCURA ENGINEERS,
having built up area of 1350 sq ft and Plot area 15000 sq ft.
The first Assignment came from Ralli Wolf Ltd., Ahmednagar where the tough task of
developing critical Precision Turned Component in house, which proved the capability of Accura
Engineers.
Accura Engineers has done Tooling Jobs of L&T, Ahmednagar, which needed Precision Milling
for Armature Grinding Fixture, which was seen by a Senior Personnel of Crompton Greaves
Ltd., which initiated the vendor ship process of Crompton Greaves Ltd., Ahmednagar.
Today, for Crompton Greaves Ltd., Ahmednagar, we are doing 100% supplies of fully machined
shafts for one of the Motor Division for motors and pumps.
Brooke CG, Ahmednagar, a 100% EOU, we supply more than 50% of fully machined shafts for
electric motors.
We maintain quality records of each and every batch of the material dispatched as per the
compliance for the above mentioned ISO certified companies.
Calibration of measuring instruments and gauges is a routine feature and most of the measuring
instruments and gauges are digital for better accuracy.

14

COMPANY PRODUCTDrilling Machines

Drilling Machines
We bring forth for our clients Drilling Machines, which are known for high performance and
sturdy construction. Efficient use of raw material in the manufacturing process has made these
machines energy efficient and durable. These machines are easy to operate and meet the
requirements of automobile and engineering industries.

15

Milling Machines
Our clients can avail from us a wide range of Milling Machines, which is acclaimed for sturdy
construction and long functional life. These precisely engineered machines occupy less floor
space and are mainly used in engineering industry. Before the final delivery, we test these
machines on well-defined quality parameters such as performance and power consumption.

16

Facing & Centering Machine

Home Products Facing & Centering Machine

Model

CFAM

500

1000

We make you feel the difference of peerless automatic facing machine at one stop destination
i.e. Steeltech Automations. We manufacture centering facing machine using optimum quality
raw materials thereby guarantying our customers of our authenticity. High precision and long
life of this centering machine make this machine highly demanded in the global market. We are
regarded as one of the famous centering machine manufacturers and exporters from India. We
ensure easy accessibility of centering & plunge facing machines, and at the most economical
prices.
This machine are very useful in after cutting processes of rods. The centering plunge facing
machine is used to make the cut rod smooth & equal as these rods when cut into pieces are not
smooth
&
equal.
The standard specifications can be summarized as follows

17

`CHAPTER-3
3.1 Concept Working Capital
3.2 Factors influencing working capital requirement
3.3 Concept Operating cycle
3.4 Working capital finance

18

CONCEPTS OF WORKING CAPITAL:

There are two concepts of working capital.
1. Gross working capital
2. Net working capital

Gross Working Capital:

Gross working capital refers to the firms investment in current assets (total of all
current assets of a business firm). Current assets are the assets which can be converted
into cash within an accounting year without reducing its value and include the following

Stock,

Cash & bank balances

Short-term securities,

Debtors, (accounts receivables) and

Bills receivables

Net Working Capital:

It refers to the difference between current assets and current liabilities. Current assets
are the assets which can be converted into cash within an accounting year. And current
liabilities are those claims of outsiders which are expected to mature for payment within
an accounting year and include

Creditors (accounts payable),

Bills payable
19

Short term loans, and

Outstanding expenses.
Net working capital can be positive or negative. A positive net capital will
arise when current assets exceed current liabilities. A negative net working
capital occurs when current liabilities are in excess of current assets.
Formula:
Net Working Capital = Current Assets Current Liabilities

o FINANCING OF CURRENT ASSETS:

The investment decisions in this area are basically concerned with deciding the optimum
extent to which the funds should be invested in current assets. The funds are required to carry on
the business on a regular and smooth basis.

The decisions regarding working capital

management attempt to ensure the balance between the two principles i.e. liquidity on one hand
and profitability on the other. There should be judicious mix of long-term and short-term funds
also for financing current assets. According to moderate approach the amount invested in
permanent current assets should be financed by long term funds and the amount invested in
fluctuating or temporary working capital should be financed by short term funds.

Cash & bank balances

Short-term securities,

Debtors, (accounts receivables) and

Bills receivables

Net Working Capital:

It refers to the difference between current assets and current liabilities. Current assets
are the assets which can be converted into cash within an accounting year. And current
liabilities are those claims of outsiders which are expected to mature for payment within
an accounting year and include

Creditors (accounts payable),

Bills payable
20

Short term loans, and

Outstanding expenses.
Net working capital can be positive or negative. A positive net capital will
arise when current assets exceed current liabilities. A negative net working
capital occurs when current liabilities are in excess of current assets.
Formula:
Net Working Capital = Current Assets Current Liabilities

o FINANCING OF CURRENT ASSETS:

The investment decisions in this area are basically concerned with deciding the optimum
extent to which the funds should be invested in current assets. The funds are required to carry on
the business on a regular and smooth basis.

The decisions regarding working capital

management attempt to ensure the balance between the two principles i.e. liquidity on one hand
and profitability on the other. There should be judicious mix of long-term and short-term funds
also for financing current assets. According to moderate approach the amount invested in
permanent current assets should be financed by long term funds and the amount invested in
fluctuating or temporary working capital should be financed by short term funds.
Definition:
Working Capital is the excess of current assets over current liabilities of any
business.

FACTORS AFFECTING WORKING CAPITAL:

i.

Nature of Business:
In some business organizations the sales are mostly on cash basis and the
operating cycle is also very short. In these concerns, the working capital requirement is
comparatively less.

Mostly service giving companies come in this category.

In

manufacturing concerns, usually the operating cycle is very long and the firm has to give
credit to customers for increasing sales. In such case working capital requirement is
more.
21

ii.

Production Schedules:
Working capital requirements also fluctuate according to the production policy.
Some products have a seasonal demand but in order to eliminate the fluctuations in
working capital, the manufacturer plans the production in a steady flow throughout a
year. It will even out the fluctuations in working capital.

iii.

Market Conditions:
Due to competition in the market, demands for working capital fluctuate. In a
competitive environment a business firm has to give liberal credit to customers.
Similarly, it will have to maintain a large inventory of finished goods to serve the
customers promptly. In this situation large amount of working capital will be required.
On the other hand when a firm is in sellers market, it can manage with a small
amount of working capital because sales can be made on cash basis and there will be no
need to maintain large inventory as customers can be serviced with delay.

iv.

Seasonal fluctuations:
A firm which is producing products with seasonal demand requires more working
capital during peak seasons while the demand for working capital will go down during
slack seasons.

v.

Growth and Expansion of Business:

The need for working capital of the firm increases as it grows in terms of sales or
fixed assets which in turn need to invest in current assets which will result in increase in
working capital needs.

vi.

Efficiency of the Firm:

22

Operating efficiency of the firm relates to optimum utilization of resources at

minimum cost. Thus, when working capital is better utilized and cash cycle is reduced, it
decreases working capital needs.

vii.

Credit Policy:
The working capital requirements depend to a great extent on the credit policy
followed by a firm for its debtors. A liberal policy results in huge funds blocked in
debtors, which enhances need for working capital and if credit policy is followed without
inquiring the credit worthiness of customers, there is problem in recovery. So, working
capital requirement increases.

viii.

Sales Growth:
As sales grow, working capital also goes up. When sales start growing, a firm
will have to expand its production facilities which will require more investment in fixed
assets and consequently in current assets which increases working capital needs.

ix.

Dividend Policy:
Company has to pay dividends in cash as per company act 1956. If liberal policy
is followed, working capital increases and working capital will be reduced if dividend
policy is conservative.

Sources of working capital

The typical sources of working capital are summarized below1. Funds from operations (adjusted net income)
2. Sales of non-current assets
sale of long term investment (shares, bonds/debentures etc)
sale of tangible fixed assets like land, building, plant or equipments.
Sale of intangible fixed assets like goodwill, patents or copyrights.

23

3. Long term financing

Long term borrowings (institutional loans, debentures, bonds etc)
Issue of equity and preference shares.
4. Short term financing such as bank barrowings.

Uses of working capital

The typical uses of working capitals are as follows1. Adjusted net loss from operations
2. Purchase on non current assets.
Purchase of long term investments like shares, bonds/ debentures etc.
Purchase of tangible fixed assets like land, building, plant, machinery equipments
etc.
Purchase of intangible fixed assets like goodwill, patents, copyrights etc.
3. Repayment of long term debt and short term debt.
4. Redemption of redeemable preference shares.
5. payment of cash dividend.

Capital Management
Management of inventory assumes importance due to the fact that investment in inventory
constitutes one of the major investments in current assets.
The various forms in which a manufacturing concern may carry inventory are :-

24

1) Raw Material: - These represent inputs purchased and stored to be converted into finished
products in future by making certain manufacturing process on the same.
2) Work in Progress:- These represent semi-manufactured products Which need further
processing before they can be treated as finished products.
3) Finished Goods: - These represent the finished products ready for sale in the market.
4) Stores and Supplies: - These represent that part of the inventory which does not become
a part of final product but are required for production process.
They may be in the form of cotton waste, oil and lubricants, soaps, brooms, light bulbs etc.
Normally, they form a very minor part of total inventory and do not involve significant
investment.

WORKING CAPITAL CYCLE

25

C
A
S
H
DE
BT
OR
S

R AW
M AT E
R IA L

F IN IS H
ED
GOOD
S

W ORK
IN
PRO GR
ESS

Cash flows into around and out of a business. It is the businesss life blood and every managers
primary task is to keep it flowing and to use the cash flow to generate profits. If a business is
operating profitability, then it should, in theory, generate cash surpluses. If it doesnt generate
surpluses, the business will eventually run out of cash and expire.
The faster a business expands the more cash it will need for working capital and investment. The
cheapest and best sources of cash exist as working capital right within business. Good
management of working capital will generate cash will help improve profits and reduce risks.
Bear in mind that the cost of providing credit to customers and holding stocks can represent a
substantial proportion of a firms total profits.
CONCEPT OF OPERATING CYCLE

26

The net working capital is the difference between current assets and current liabilities. A firm
acquires current assets to convert them into cash so that the current liabilities can be satisfied. On
the other hand, fixed assets such as land and building, etc. are acquired with long term objective.
The amount of capital invested in fixed assets is recovered after a long period of time. On the
other hand, amount blocked in current assets is expected to recover as early as possible. The
concept of operating cycle is based on this aspect.
The Operating cycle definition, also known as cash operating cycle or cash conversion cycle or
asset conversion cycle, establishes how many days it takes for a company to turn purchases of
inventory into cash receipts from its eventual sale. Operating cycle has three components of
payable turnover days, inventory turnover days and accounts receivable turnover days. These
come together to form the complete measurement operating cycle days. The operating cycle
formula

and

operating

cycle

analysis

stems

logically

from

these.

.
Operating cycle: The concept of operating cycle implies the time period that is required from the time cash is put
in the business along with other inputs to the time it is recovered from the amount of sales made
by the firm.
A firm puts cash as an input and the inputs like raw materials are purchased with the help of
cash. The raw material is converted into finished product and for this additional cash may be
required. The finished product is converted into sale and if the sale is made for cash, the
operating cycle is complete as cash is recovered back.
On the other hand, if sales are on credit, sales are converted into debtors and debtors are
converted into cash.

The Length of the operating cycle depends upon several factors. Those factors are as follows.

27

(i) Length of the manufacturing process :If the manufacturing process is quite lengthy, the operating cycle will be
prolonged. On the other hand, if the manufacturing process is of shorter
duration, the length of the operating cycle will also be of a shorter duration. For
example, in case of hotels and restaurants, the manufacturing process is
relatively short which reduces the duration of operating cycle. In case of heavy
engineering industries, since the manufacturing process itself is very lengthy,
the operating cycle also becomes very long.

(ii) Holding period of inventories: On an average for how long the firm holds inventory is also one of the factors
affecting operating cycle. If the firm holds inventory of raw material for a longer
duration due to safety precautions, operating cycle is prolonged.

Firms following hand to mouth policies regarding inventories of raw materials will have a
shorter operating cycle. Similarly, in case of work-in-progress, if the time duration is long before
being converted into finished product, operating cycle will be of a longer period.
In case of finished goods inventory also, the same principle exists. If finished goods
are quickly converted into sales, operating cycle will be shorter. But if finished
goods inventory is not converted into sale quickly and liberal credit is extended to
the customers, operating cycle becomes length.

28

Operating Cycle Calculation

Operating cycle calculations are completed simply with this formula:
Operating cycle = DIO + DSO - DPO
Where
DIO represents days inventory outstanding
DSO represents day sales outstanding
DPO represents days payable outstanding
Operating Cycle Calculation
Calculating operating cycle may seem daunting but results in extremely valuable information.
DIO = (Average inventories / cost of sales) * 365 DSO = (Average accounts receivables / net
sales) * 365
DPO = (Average accounts payables / cost sales) * 365
Operating Cycle Applications
The operating cycle concept indicates a companys true liquidity. By tracking the historical
record of the operating cycle of a company and comparing it to its peer groups in the same
industry, it gives investors investment quality of a company. A short company operating cycle is
preferable since a company realizes its profits quickly and allows a company to quickly acquire
cash that can be used for reinvestment. A long business operating cycle means it takes longer
time for a company to turn purchases into cash through sales. In general, the shorter the cycle,
the better a company is since less time capital is tied up in the business process.

29

CHAPTER-4

4.1 Calculation of Working Capital

4.2 Working capital with Sales,Sundery Debtor,Inventory,Sundery Creditor

30

WORKING CAPITAL OF ACCURA ENGINEERS

Year
Particulars

2010

2011

2012

24,35,167.20

30,92,742.04

33,42,206

1,28,99,923.82

1,42,29,436.1
7

75,09,777.38

1,28,192.89

1,99,402.59

3,88,223.95

1,80,56,733.16

1,96,58,781.8
0

1,14,91,569.33

Loans and Advances

3,00,000

48,500

1,67,000

TOTAL(A)

3,38,20,017.07

3,72,28,862.6

2,28,98,776.66

1,20,92,371.08

65,43,297.65

84,17,544.44

7,94,634

6,99,897

10,70,200

1,28,87,005.08

72,43,194.65

94,87,744.44

2,09,33,011.99

2,99,85,667.9
5

1,34,11,032.22

A)Current Assets
Inventories
Sundry Debtors
Cash and Bank Balance
Other Current Assets

B)Current Liabilities
Creditors & other Liabilities
Provisions
TOTAL(B)
NET WORKING
CAPITAL(A-B)

31

WORKING CAPITAL AND SUNDRY CREDITOR

AS ON 31st March

Particular

2009-10

2010-11

2011-12

Sundry Creditor

88,74,657.08

23,18,223

52,47,881.44

2,09,33,011.9 2,99,85,667.9 1,34,11,032.2

Working capital
As a % of W.C

42.40

7.73

39.13

The creditors contribution in the working capital is increasing showing that we are operating
more on credit rather than cash purchases which mean the requirement of the working capital

32

will be low. If we increase the current liabilities of the company the requirement of the working
capital reduce.

WORKING CAPITAL AND DEBTORS

As on 31st March

Particular

2009-10

2010-11

2011-12

Sundry Debtors

1,28,99,923.82

1,42,29,436.17

75,09,777.38

2,09,33,011.9 2,99,85,667.9 1,34,11,032.2

Working capital
As a % of W.C

61.62

47.45

56

The debtors are 47.45% of the working capital in the year 2010-11 but it has
increase up to the 56% in current year. It bad sign that the debtors is increasing
33

percent of working capital and which is also reduce the requirement working
capital. We see in the further analysis of the debtors that the debtors collection
period is reducing current year

Working Capital and Sales

As on 31st March

Particular

2009-10

2010-11

2011-12

2,09,33,011.9 2,99,85,667.9 1,34,11,032.2

Working capital

Sales
As a % of Sales

5,09,80,849.86
41.06

49,17,761.51
609.74

5,94,62,397.37
22.55

The working capital requirement as a percentage of sales is decreased as compared

to the last year. Previously it was 609.74% of sales but in the current year the
34

working capital requirement has decrease to 22.55% of sales this decrease is the
not good sign. But it resembles that the company is able to generate more sales in
less amount of working capital.

If Working Capital and Inventory

As on 31st March

Particular

2009-10

2010-11

2011-12

Inventories

24,35,167.20

30,92,742.04

33,42,206

2,09,33,011.9 2,99,85,667.9 1,34,11,032.2

Working capital
As a % of W.C

11.63

10.31

24.92

The inventory is the main component of the working capital. It greatly affects the working
capital . Its contribution in the working capital is increasing. This must be controlled. We can
35

analyse that inventory is increasing drastically and blocking the fund so we must take proper step
to control the inventory. If we increase the current assets of the company than working capital
also increasing.

36

CHAPTER-5
5.1 Data interpretation &ratio analysis
5.2 Operating cycle

37

(I)

OTHER SUPPORTING RATIOS:

Current Ratio
Introduction:

38

Current Assets include cash, current investments, debtors, inventories, loans & advances &
prepaid expenses. Current Liabilities represents liabilities that are expected to mature in the next
12 months.
The standard current ratio is 2:1
The current ratio measures liability of the firm to meet its current liabilities. Current assets gets
converted into cash during the operating cycle of the firm & provide the funds needed to pay
current liabilities.
The higher the current ratio, the greater the short-term solvency. A firm with high proportion
of current assets in the form of cash & debtors is more liquid than one with high proportion of
current assets in the form of inventories.
Current Assets
Current ratio =

--------------------------Current Liabilities

Table 8: Current Assets/Current Liabilities

Particulars

2013-2014

2014-2015

2015-2016

Current Assets

1,80,56,733.16

1,96,58,781.80

1,14,91,569.33

Current Liabilities

2,38,69,469.64

1,70,73,447.68

98,65,326.71

39

Ratio
1.8
1.6
1.4
1.2
Ratio

1
0.8
0.6
0.4
0.2
0
2009-10

2010-11

2011-12

Interpretation: 1) In Accura Engineers the ratio is 1.16 in current year as compare to the 2011-12 ratio
is increasing & as compare to 2009-10 ratio is decreasing.
2) The company tries to meet its standard ratio.
The proportion of above current ratios indicates that the liquidity position of the company is very
high and it is sharply increases from last year.

Quick Ratio
Introduction:
Quick ratio also called acid test ratio, establishes a relationship between quick or liquid assets
& current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably

40

soon without a loss of value. Cash is most liquid asset & inventories are considered to be less
liquid.
Current Assets - Inventory
Quick ratio =

-----------------------------------------Current Liabilities

In Accura Engineers: -

Table 9: Quick Assets/Current Liabilities

41

Particular
Quick ssets

2013-2014
1,56,21,565.96

2014-2015
1,65,66,039.76

2015-2016
18,50,636.67

Current Liabilities

19,04,541.24

25,87,058.38

60,89,504.44

Ratio

8.20

6.40

0.30

Ratio
9
8
7
6
Ratio

5
4
3
2
1
0
2009-10

2010-11

2011-12

Interpretation:1) In 2009-10 ratio is 8.20, in 2010-11 is 6.40 and 2011-12 it is 0.30.

2) Ratio is dicreased in 2011-12 as compare to 2009-10 & 2010-11.

Introduction:
The inventory turnover reflects efficiency of inventory management. The higher the ratio, more
efficient the management of inventories & vice-versa.

42

The high inventory turnover may be caused by a low level of inventory which may result
in frequent stock outs and loss of sales & customer goodwill.
Cost of Goods Sold
Inventory Turnover ratio = --------------------------Average Inventory

In Accura Engineers

Table 4: Important Ratio on inventory

Particulars

2013-14

2014-15

2015-16

Net Sales

5,09,80,849.86

49,17,761.51

5,94,62,397.37

43

Average Inventory
Inventory Turnover Ratio

18,28,719.1
27.88

30,92,742.04
1.59

32,17,473.97
18.48

Inventory Turnover Ratio

30
25
20
Inventory Turnover Ratio
15
10
5
0
2009-10

2010-11

2011-12

Interpretation:In Accura Engineers in 2011-12 the ratio is 18.48 in current and year 2010-11 it is
1.59. The ratio is increase in current year means company has invested low
amount in inventories. High Inventory turnover ratio increase the inventory
holding period which is good for operating cycle and working capital

INVENTORY HOLDING PERIOD

Particulars
Months in a
year Inventory
Turnover Ratio

2013-14
12
27.88

44

2014-15
12
1.59

2015-16
12
18.48

InventoryHoldi
ng period

0.43

7.55

0.65

Debtors Turnover Ratio

Introduction
This ratio measures how rapidly receivables are collected. A high ratio is
indicative of shorter time lag between credit sales and cash collection. A low ratio
shows that debts are not being collected rapidly.

Debtors Turnover Ratio = Net Credit Sales

--------------------------Average Debtors
Particulars

2013-2014
5,09,80,849.8

2014-2015

2015-2016
5,94,62,397.3

Net Credit Sales

Avrage Debtors

75,09,777.38

Ratio

6.79

0.35

4.61

49,17,761.51
7
1,42,29,436.1 1,28,99,923.8

Net Credit Sales = Gross Credit Sales Returns

Average Debtors (Including B.R.) =

Opening Stock + Closing Stock
---------------------------------------------2
Average Collection Period is the average amount of time needed to collect
accounts receivables

45

Debtors Turnover Ratio

8
7
6
5

Ratio

4
3
2
1
0
2009-10

2010-11

2011-12

Debtors Collection Period / Average Collection Period/

Average Debt Collection Period =
Months (Days) in year
--------------------------------Debtors Turnover Ratio

Particular
Months in a year

2013-2014

Debtors Turnover

12

Ratio
Debtors Collection

6.79

Period (In Months)

1.77

2014-2015
12

2015-2016
12

0.35

4.61
34.28

INTERPRETATION
46

2.60

A higher turnover ratio and shorter collection period, a better is the trade credit
management and better is the liquidity of debtors, as short collection period and high turnover
Ratio imply prompt payment on the part of debtors. In short high turnover is preferable. In case
of ACCURA ENGINEERS Ratio is increasing. It has increased from 0.35 to 4.61. It means time
lag between credit sales & cash collection is reducing. It is good signal for the future of the
company. The Accura Engineers is in the auxillary product indstury so, debtors are collected
when the final product is sale in the market.

Creditors Turnover Ratio

47

INTRODUCTION
The Creditors Turnover Ratio is an important tool of analysis as firm can reduce
its requirement of current assets by replying on suppliers credit. The extent to whuch trade
creditors are willing to wait for payment can be approximated by the creditors turnover ratio
A low ratio reflects liberal credit turms granted by suppliers, while a high ratio
shows that accounts are to be settled rapidly.
Net Credit Purchases
Creditors Turnover Ratio = ------------------------------Average Creditors

Particulars
Net Credit

2013-2014
3,89,65,966.9

2014-2015

2015-2016
4,23,83,384.0

Purchases

30,92,742.04

Average Creditors

88,74,657.08

23,18,223

52,47,881.44

Ratio

4.39

1.32

8.07

Net Credit Purchases = Gross Credit Purchases-Returns

Average Creditors (Including B.P.)=

Opening Stock+closing Stock
-------------------------------------------------2

Creditors Payment Period =

12 Momths
-------------------------48

Creditors Turnover Ratio

Particular
Months in a year

2013-2014

Creditors

12

Turnover Ratio
Creditors Payment

4.39

Period (In Months)

2.73

2014-2015
12

2015-2016
12

1.32

8.07
9.09

1.49

Creditors Turnover Ratio

9
8
7
6
Ratio

5
4
3
2
1
0
2009-10

2010-11

2011-12

INTERPRETATION

This graph shows that ratio is increasing. It has increased from 1.32 to 8.07 in the year 2011-12.
High ratio shows the low creditor payment period it means there is reduction in the creditors
payment period It is affect on cash cycle of the company or Management of working capital.
49

OPERATING CYCLE
Introduction
The concept of operating cycle implies the time period that is required from the
time cash is putt in the business along with other inputs to the time it is recovered from the
amount of sales made by the firm. A firm put cash as an input and the inputs like raw materials
are purchases with the help of cash. The raw material is converted in to finished goods product
50

and for this additional cash may be required. The finished product is converted into sales and if
the sale made for cash, the operating cycle is complete as cash recovered back. On the other
hand, if sales are on credit, sales are converted into debtors and debtors are converted into cash.
The length of the operating cycle depends upon several factors.

The summing up of the 3 Turnover ratios known as a cash cycle

Inventory Holding Period

Add: Debtors Collection Period
Less: Creditors Payment Period
-------------------------------------Cash Cycle

Particular
Inventory holding
period
Add:-Debtor
Collection Period
Operating cycle
period
Less:-Creditors

2013-2014
0.65

2014-2015
7.55

2015-2016
0.43

2.60

34.28

1.77

3.25

41.83

2.2

1.49

9.09

2.73

51

payment period
Cash cycle period

1.76

32.74

0.53

Sales
2011-12
Inventory holding period
Add Debtor collection
period
Operating cycle
Less creditor payment
period
Cash cycle

Interpretation :
52

The above table shows that operating cycle in year 2013-14 decrease as from 32.74 to 1.76 it is
good in the year 2014-15 the Inventory holding period of the company is increase which mainly
affect the operating cycle.
1. The debtor collection period of the company is decrease from 2.60 to
34.28 in current year as compare to last year is good for company
2. The creditors payment period in 2010-11 9.09 month and year 2011-12
it has decrease up to 1.49 it is not good it shows that the company pay
his creditor early compare to last year

53

Working Capital Turnover Ratio

Introduction :The difference between net current assets and current liabilities excluding bank
borrowings is called networking capital (NWC) or net current assets (NCAA).
The net working capital is sometimes used as a measure of firms liquidity. The
measure of liquidity is relationship rather than the difference between current
assets & current liabilities. Net Working Capital measures the firms potential
reservoir of fund. It can be related to net asset.
Net Working Capital
Working Capital Turnover ratio = ---------------------------------Sales
In Accura Engineers
Particulars
Working
Capital

S
al
es
Ratio

2013-14

2014-2015

2015-2016

2,09,33,011. 2,99,85,667. 1,34,11,032.

99

95

22

5,09,80,849.8

5,94,62,397.3

49,17,761.51

0.41

6.10

0.22

54

Ratio2
2011-12

Ratio2

2010-11

2009-10

Interpretation :-

The working capital turnover of the company 2010-11 was 6.10 has quietly
decrease in 2011-12 up to 0.43 it resembles that the company is able to generate
more sales in less amount of working capital.

55

CHAPTER-6
6.1 Finding & Suggestion
6.2 Conclusion
6.3 Bibliography
6.4 Annexure

56

FINDINGS
After studying the components of working capital management system of ACCURA
ENGINEERS, it is found that the company has a sound and effective policy and his performance
is very good even in this bad recession situation company has manage to post good profit.
Company is competing well at the domestic as well as international level and it is the among low
cost producer of foregoing in the world only because of its proper management of finance,
specially the short term finance known as the working capital.

The company is a matured one and it has contributed well in the countrys growth and
development will also continue to perform and contribute to the whole nation. We can say that
the companys management is an effective one and knows well the management of finance, it is
working capital management system is very good because of which only the company had got
the status of foregoing company.

The net working capital of ACCURA ENGINEERS increase from the previous year
2010-11 to 2011-12 for the reason of the investment in inventory and Debtors are
increases as compare to previous year.
There should always be an attempt to reduce the length of operating cycle, total as well as
each element.
The stock of raw material is considerably greater than previous year and even the
industries standard, so there is need for stock control producers to be reviewed

57

 The work-in progress conservation period has been increased from previous year and it is
not close to industry standard. so company has to look in to this matter.
Debtors collection period is increases compare to last year which is not good sign of the
company. It is advisable to company to improve the collection period more effective
control system should be introduced and the dealers may be offered incentives from the
payments.
The value of creditors is within the companys standard which indicates company pay to
their creditors within credit period.

It does not have good receivable management and is unable to manage it. The company
sales has decreased from the previous year but unable to control the debtors.
Payables management is concerned; the company has an efficient system/process of
payables management.
Current ratio is increase in the year 2011-12 as compared to last year 2010-11 for the
reason of increase investment in debtors.
Average collection period of company has been increased from 87 days to 95 days which
means debtors are not paying within credit period allowed, funds are tied up for much
more longer period and it hampers the liquidity position of the company.

58

SUGGESTIONS
1. The ratio is increase in current year means company has invested low amount
in inventories. High Inventory turnover ratio increase the inventory holding
period which is good for operating cycle and working capital
2. High ratio shows the low creditor payment period it means there is reduction in the
creditors payment period It is affect on cash cycle of the company or Management of
working capital.
3. The company had reduced the Debtor collection period as compare to last year
but it not satisfactory there is need to mange the Debtor efficiently.

59

CONCLUSION
Reason for the positive working capital
The main reason for the positive working capital is that the company cannot generate cash very
quickly as :

With the low inventory turnover ratio , inventory is not quickly converted in cash not
good efforts were made to keep the level of inventory at optimal levels by following best

techniques of inventory management

The debtors are not kept at the minimum levels as it were increased significantly from the

year.
The current liabilities have shown as increase trend but not increase much as current
assent increase.

Working capital management involves the management of the firms day to day, so a large
proportion of a finance managers time is devoted to short-term financial management problem
such as how mach liquidity to maintain, credit limits for customers, inventory management and
payable policies . Form the above discussion; it is clear that working capital management in
Accura Engineers. is not effective. Most of the improvement techniques for management of
various components of current assets and liabilities, including timely analysis of ratio are not in
place. The following can be concluded about the company.

It does not have good receivable management and is unable to manage it. The company
sales has increased from the previous year but unable to control the debtors. It implies
that debtors are not paying promptly, which hampers the liquidity position of the
company. The average collection period has been increased from 22 days to 41 days
60

which needs to be improved, which is an alarming figure for the company. However the
debt over six months is controlled and consistent.
Recommendation: The company should pay more attention towards is receivable
management. The company should reduce the collection period by offering cash discount
and strict credit terms to their dealers. Large proportions of company debtors are
unsecured although they are good not still carry a risk for company. They should also
adopt more strict policies or penalties for later payers.

It is good that ACCURA ENGINEERS uses the ABC analysis for its inventory managements
but does not have proper inventory management in place. The

point to ne noted that the share of inventory in current assets is close to 16% to 29%
which needs to be improved. The raw material holding period is of 45 days which has
increased drastically from previous year and inventory turnover ratio has declined to 1.59
times. This may be due to weak inventory management process and insufficiency of
selling the products, which means inventory increases at much faster rate than sales.
Recommendation: The Company needs a regular review and more attention to improve the
inventory ratio by finding better methods such as FSND analysis and making more efforts in
increasing sales as sales promotion, advertisement etc. which will improve the liquidity position
of company.
As far as payables management is concerned, the company has an efficient system /
process of payables management. The company has separate departments of materials
requirement planning and procurement as well as for quality assurance. Payables provide
spontaneous source of finance and can be utilized for minimizing the cost of capital. The
payment period has been decreased form to previous year.
61

Recommendation: Company should try to extend the credit payment period by utilizing liberal
credit terms form the market or avail the cash discount facility, if discount facility provides more
return than cost of capital.

Accura Engineers has good market share and its been increasing every year. Sales
growth in terms of percentage is good to industry growth. Inventory and receivables are
increasing at faster rate than sales.
Recommendation: As the competition in the industry is increasing, it is recommended to the
company should also try to implement regional financial policies in terms of incentives given to
the dealers tec. This could help the company to increase is level of sales and capture a still
higher market share.

A module or flow chart of working capital handling should be documented. This chart should
clearly reflect the various components of working capital as managed be various management
professionals.

This can also explore a possibility of better synergy between among the

concerned management.

62

BIBLIOGRAPHY
BOOKS:
1. I.M.Pandey, Financial Management, Vikas Publishing House PVT Ltd,
Ninth Edition,2005
2. C.R.Kothari,Reserch Methodology New age International Publisher,2004
3. Prasanna Chandra , Financial Management (Theory & Practice)
WEBSITES:
www.jbmauto.com www.google.com
www.jabauto.comwww.jbm auto.com
www.jbm www.jbm

www.jbm auto.net

ANNEXURE

63

BALANCE SHEET OF ACCURA ENGINEERS

AS ON 31st MACH 2015, 2014, 2013
PARTICULARS

Schedul

Amount as at

Amount as at

Amount as at

31-03-2015

31-03-2014

31-03-2013

1,83,20,111.57

1,54,73,880.57

1,07,24,213.54

31,59,552.16
2,14,79,663.73

45,12,460
1,99,86,340.57

23,53,020.83
1,30,77,234.37

1,71,06,624.93
66,83,696.16

1,81,44,926.93
49,15,101.51

1,52,84,490.13
54,60,244.64

40,59,766.36
61,45,036.18

49,16,013.89
41,72,093.18

34,29,173.08
36,05,480

33,42,206
75,09,777.38
3,88,223.95
20,629,905
1,67,000
3,20,37,312.33

30,92,742.04
1,42,29,436.17
1,99,402.59
14,285,474
48,500
3,18,55,554.8

24,35,167.20
1,28,99,923.82
1,28,192.89
13,680,357
3,00,000
2,94,43,640.71

Net Current Assets

94,87,744.44
10,70,200
1,05,57,944.44
1,14,91,569.33

72,43,194.65
6,99,897
79,43,091.65
1,96,58,781.80

1,28,87,005.08
7,94,634
1,36,81,639.08
1,80,56,733.16

Total

3,47,43,230.44

4,19,75,801.91

3,69,46,703.29

no.

A. Sources of fund:
1) Shareholders funds:
a)Share capital
2)Loan funds:
a)Secured loans
TOTAL
B.Aplication of funds
1)Fixed assets
a)Gross block
b)Less: Depreciation
c)Net Block
2)Investments
3)Current assets, loans &

6
7

advances
a)Inventories
b)Sundry debtors
c)cash &Bank balance
d)Other Current Assets
e)Loans& Advances
Less: Current Liabilities
&provisions
a) Current Liabilities
b)Provisions

64

PROFIT &LOSS A/C OF ACCURA ENGINEERS

FOR THE YEAR ENDED 2013,2014,2015
PARTICULAR

For the year

For the year

For the year

ended 31st

ended 31st

ended 31st

Opening Stock
Purchase Account
Direct Expenses
Gross Profit c/f

march 2013
12,22,271
3,89,65,966.92
77,67,534.50
54,60,244.64
5,34,16,017.06

march 2014
30,92,742.04
30,92,742.04
2,660
49,15,101.51
80,10,503.55

march 2015
30,92,741.94
4,23,83,384.06
1,06,44,781.21
66,83,696.16
6,28,04,603.37

Sales Accounts
Closing Stock

5,09,80,849.86
24,35,167.20

49,17,761.51
30,92,742.04

5,94,62,397.37
33,42,206

65

5,34,16,017.06

80,10,503.55

6,28,04,603.37

Indirect Expenses
Net Profit

39,85,440.39
34,29,173.09
74,14,613.47

36.73
49,16,013.89
49,16,050.62

32,24,246.30
40,59,766.36
72,84,012.66

Gross Profit b/f

Indirect Income

54,60,244.64
19,54,368.83
74,14,613.47

49,15,101.51
949.11
49,16,050.62

66,83,696.16
6,00,316.50
72,84,012.66

66