A

SUMMER TRAINING
REPORT

ON
ANALYSIS OF WORKING CAPITAL

CONDUCTED AT

IN PARTIAL FULFILMENT FOR THE DEGREE OF

POST GRADUATE IN BUSINESS MANAGEMENT
(SESSION 2009-2011)

SUBMITTED TO: SUBMITTED BY:

Tilak Maharashtra University, Pawan khatana

Gultekdi, Pune: 41103 (AIT) GURGAON

P.R.N. 07209007821
 A) Acknowledgement

I express my sincere gratitude towards Ms. Monika Bhatia, Faculty guide, for
his able guidance, continuous support and cooperation through my project, without
which the present work would not have been possible.

I would like to thank Dr. M.S. Mamik (Dean, AIT) for giving me such a
wonderful opportunity to widen the horizon of my knowledge.

I am grateful to Mr. R.K. Yadav, Placement Officer for providing me with an

excellent guidance, constant supervision and encouragement without whose
guidance this report could not have been completed

Finally I would like to thank college authorities of ANSAL INSTITUTE OF

TECHNOLOGY, GURGAON to provide me necessary information and facilities
to efficiently go about my project.

PAWAN KHATANA
09-MBA-AIT-154
 Preface

The concept of writing the summer training project is one of the essential features
for Masters of Business Administration—Finance, at Ansal Institute of
Technology. It enables a student to apply his mind, time and labor for going deep
into the understanding and applications of the functions in an organization.

Contemporary business world is becoming increasingly complex and

unpredictable. To compete is such a turbulent business environment organizations
need to relentlessly adopt strategies towards value creation. It is these strategies,
which enables organizations to build sustainable competitive edge.

The project titled “ANALYSIS OF WORKING CAPITAL”. This project

involves all the aspects like marketing, financing, strategy implementation and
many more.

I am highly indebted to Ms. Monika Bhatia, Faculty guide, who gave me this
opportunity and to Mr. VINOD KUMAR (SR.MANAGER), who gave me the
guidelines to do summer training in vatika and I am heartily grateful for his
valuable guidance that enabled me to learn a lot.

I would like to thanks Dr. M.S. Mamik, Dean, Ansal Institute of Technology
(AIT) for his guidance and support to complete the project
 CONTENTS

Chapter Chapter Name Page

number number
1. Rationale of the study
2. Objective of the study
 Title of the project
 Objective of the study
 Scope of the study
3. Company’s profile
 Formation of the company
 The company
 Mission
 Objective
 Milestones achieved
 Diversification

4. Review of literature
5. Research methodology
 Research design
 Data collection sources
 Sampling plan
6. Data interpretation and analysis
7. Findings
8. Limitation
9. Expected contribution from the study
10. Bibliography
 CHAPTER - 1

RATIOANALE OF THE STUDY

The study of working capital is very much required to know the hidden & accurate
information of a firm. For this only I choose this project a part of my MBA
program. The working capital is the life-blood and nerve centre of a business plan

Analysis of working capital are prepared primarily for decision-making. They plot
dominant of in setting the framework of managerial decisions. But the information
in the working capital not an end itself as so no meaningful can be drawn from
these statement alone.
The purpose of analysis of working capital is to diagnose the information
which contained in working capital so as to judge the profitability, working capital
ratios, quick ratios, current assets ratios and financial soundness of a firm. The
analysis of working capital is essential to bring out the mystery behind the
figures in working capital. Working capital analysis is an attempt to determine the
significance and meaningful financial statement data so that forecast may be made
of the future earning, ability to pay interest and debt maturities and also the
profitability of a sound dividend policy. Current year’s ratios are compared with
those of previous year and if some weak spots are thus located remedial measures
are taken to correct them.
It gives information to the financial institution for providing the finance to the
company .It gives information to the taxation authorities.It gives information to the
researchers for conducting research in respect of profitability , efficiency ,
financial soundness and growth of that company
 CHAPTER. 2
OBJECTIVES OF THE STUDY
Title of the project

The title of the project is the main and vary important part of the project as it
gives the first impression of the project to the reader , it is the title of the project
that gives the interests in the project and creat first time image of the project in
mind of the reader .Taking care of the above facts we have started the project with
the following title.

“ANALYSIS OF WORKING CAPITAL ”

Objective of the study

The main objective of the study is at first to gain some practical knowledge
regarding the functioning of company which is very necessary to fully
understand the system regarding working capital & hence it fulfill the
purpose of the internship under MBA programme.

 To understand how effective is the system, facility, marketing strategy and

consumers desire from the vatika.
 To spot out strengths and weakness of company.
 To give suggestions for the improvement of existing system so that it could be
implemented effectively with minimum cost and time.
SCOPE OF THE STUDY

It very important to make judgment about the position of any business by way

of analyzing the working capital of one year To get view about the business

happiness, the past data of some year relating to the problem are studied and trend

is determined. The present study covers a period of years from 2003 – 2007. A

large period may prove inconvenient while a short period would not give desired

results. A period of four to six years is to be considered to be the optimum one.

The present study has been undertaken to analyze the working capital is being

managed in the company and how far it contributes to the overall objective of

maximization of shareholders wealth and the organization wealth.

 CHAPTER . 3
PROFILE OF THE COMPANY
Vatika is a leading construction company in India . The plant of Vatika Pvt. Ltd.
Gurgaon was established in the year 1986 . It is situated 25 km from Delhi, in
industries-oriented environment of Gurgaon (Haryana). Vatika Pvt. Ltd. having its
registered at New Delhi, was Primarily formed for construction , sales and
marketing operations in India. The company has got three regional offices at
mumbai , delhi & gurgaon . the turnover of Vatika is 800-1000 crore in 2008-09.
The market value of Vatika pvt. Ltd. Is worth Rs.3500 crore in acquisition,
innovation and expansion.The specialization of this co.is to make .Commercial
centres ,Residence villas, Parks,Retail spaces

Vatika Pvt. Ltd. Has Government's approval for making , selling & marketing of
the following :- Commercial centres .Residence villas ,Business parks
Commercial parks .Retail spaces .Hospitality .Facility management .there are many
area where Management is committed to :-Customer Orientation :- To fulfill
the requirement of our & external customer.PROCESS ORIENTATION : To
optimize and harmonize interrelated process rather than individual functions.
PREVENTIVE BEHAVIOUR :- To prevent the mistakes to happen.

There are many areas in which the company isTo achieve customer satisfaction
index of 60% with in 3 years. To conform with the budgetary plan for
production , shrinkage and efficiency.To confirm with " annual PPM plan "To
bring down number of accidents by 20% every year by following the safety
norms. To maintain training index of 0.5%
Company also perform the many areas related To ensure health & safety of its
employees, prevent pollution and protect the environment by complying with
relevant legal requirement.Prevent behavior which is integral to the quality
policy shall be the guiding principle for implementation.To conserve natural
resources by optimum utilization minimization wastage of Raw Material , water
energy & other associated factors which are used in construction affecting the
environment.This policy shall be deployed at all level of the orgn. and interested
parties through awareness / training about EHS aspect and hazards and motivate
them for active participation.

The company have there vision also

The expectations and targets of the company are reflected in its policy and
continous efforts for expending its share ih the market . The VATIKA India Ltd.
Vision 2007 proves to be the statement of its goals and would shape its future in
India .Vision 2007 are :-Vatika leader in construction .Vatika is the most respected
brand name in the country

And the company mission areBatter technology,Better quality ,Better

tommarow .COMPANY VALUES :-Customer focus .Commitment of excellence
.Openess , fairness , trust .Team Spirit .Commitment to total quality .Cost and
timecconsciousness .Innovation and creativity .Respect for individual integrity .

EMPLOYEES :-

MR ANIL BHALLA ( chairman & managing director ) . vatika started in

manufacturing business centres , homes , hospitality , retail spaces , facility
management etc. Now more than 3000 empolyees are working in vatika . In
gurgaon there are 400-500 employees are still working .BOARD OF DIRECTOR
MR ANIL BHALLA( chairman & managing director ),MR GAUTAM
BHALLA(whole time director ),MR VINAY KAPOOR ( director )
,MRS DIVYA B( executive director ) MR PANKAJ PAL ( chief executive
director)VATIKA is one of the leading construction co. in india with its
headquarter at new delhi. It is a company working with strong international
outlook, competent

MILESSTONES ACHIVEMENT
 Vatika is the only company in india in the consumer validated
category from the real estate sector have been awarded” superbrand
ranking “
 Received the “corporate building award in march 2007
 Vatika also awarded by HUDA for the “EXCELLENCE IN
HORTICULTURE PRESERVATION “
 Vatika also developed 21 urban colonies in gurgaon and delhi
 Vatika also launched of over one million sq. fit work space both in
gurgaon and delhi.
 CHAPTER. 4
THEROTICAL PERSPECTIVE
 Working Capital Management

Every business needs investment to procure fixed assets, which remain in use for a
longer period. Money invested in these assets is called ‘Long term Funds’ or
‘Fixed Capital’. Business also needs funds for short-term purposes to finance
current operations. Investment in short term assets like cash, inventories, debtors
etc., is called ‘Short-term Funds’ or ‘Working Capital’. The ‘Working Capital’
can be categorized, as funds needed for carrying out day-to-day operations of
the business smoothly. The management of the working capital is equally
important as the management of long-term financial investment.

Every running business needs working capital. Even a business which is fully
equipped with all types of fixed assets required is likely to collapse, if it does not
have;
a) Adequate supply of raw materials for processing;
b) Cash to pay for wages, power and other costs;
c) Creating a stock of finished goods to feed the market demand regularly; and,
d) The ability to grant credit to its customers.
Working capital is thus like the lifeblood of a business. The business will not
be able to carry on day-to-day activities without the availability of adequate
working capital.

Working Capital management is concerned with the problems that arise in

attempting to manage the current assets, the current liabilities and the relationship
that exists between them.
The current assets refers to those assets which in the ordinary course of business
can be, or will be converted into cash within one year without undergoing
diminution in the value and without disrupting the operations of firm. The major
current assets are:-
 Cash
 Marketable Securities
 Accounts Receivables
 Inventory

The Current Liabilities are those liabilities which are intended, at their inception, to
be paid in the ordinary course of business, within a year, out of current assets or
earnings of the concern. The basic current liabilities are:-
 Accounts Payable
 Bills Payable
 Bank Overdraft
 Outstanding Expenses

The term Working Capital may be used in two different ways.

 Gross Working Capital (or total Working Capital): The gross working
capital refers to the firm’s investment in all the current assets taken together.
 For example, if a firm has a cash balance of Rs. 50000, debtors of Rs. 70000
and inventory of raw material and finished goods has been assessed at Rs.
100000, then the gross working capital of the firm is Rs. 220000.

 Net Working Capital: The term net working capital may be defined as the
excess of total current assets over total current liabilities. The extent, to
which these current liabilities are delayed, the firm gets availability of funds
for that period.

Gross Working Capital= Sum Total of Current Assets

= RM + WIP + FG + Debtors + Cash and Bank Balance
Net Working Capital= Difference between current assets and current
Liabilities
RM + WIP + FG + Debtors + Cash and Bank Balance
- Creditors – Direct wages - Overheads

The Operating Cycle and Working Capital Needs

The working Capital requirement of firm depends, to a great extent upon the
operating cycle of the firm. The operating cycle may be defined as the time
duration starting from the procurement of goods or raw materials and ending
with the sales realization. The length and nature of the operating cycle may differ
from one firm to another depending upon the size and nature of the firm.
In case of manufacturing concern, this series starts from procurement of raw
materials and ending with the sales realization of finished goods. There is a time
gap between happening of the first event and happening of the last event. This time
gap is called the operating cycle.

Thus, the operating cycle of a firm consists of the time required for the completion
of the chronological sequence of some or all of the following:

i. Procurement of raw materials and services.

ii. Conversion of raw materials into work-in-progress.
iii. Conversion of work-in-progress into finished goods.
iv. Sale of finished goods (cash or credit).
v. Conversion of receivables into cash.

Cash
Creditors

Debtors Raw material

Working
Value Expenses Value
Addition Addition

Finished Goods Work in Process

Figure:1 – Working capital Cycle

Explanation of diagram

Working capital cycle involves conversions and rotation of various

constituents/components of the working capital. Initially ‘cash’ is converted into
raw materials. Subsequently, with the usage of fixed assets resulting in value
additions, the raw materials get converted into work in process and then into
finished goods. When sold on credit, the finished goods assume the form of debtors
who give the business cash on due date. Thus ‘cash’ assumes its original form
again at the end of one such working capital cycle but in the course it passes
through various other forms of current assets too. This is how various components
of current assets keep on changing their forms due to value addition. As a result,
they rotate and business operations continue. Thus, the working capital cycle
involves rotation of various constituents of the working capital.

VATIKA’s Operating Cycle

The operating cycle of VATIKA is as follows:-
 Procurement of raw material
The operating cycle for a company primarily begins with the purchase of raw
materials, which are paid for after a delay representing the creditor's payable
period. VATIKA is a consumer INFRASTRUCTURE manufacturer. Some raw
materials are procured from outside, some manufactured by its own.
Sometimes it may happen that company needs product in the form of raw material
manufactured by its own SBU’s. In this case stock is transferred within the
company but it won’t be considered as actual sale and no sale tax levied but it is
liable to pay excise duty since excise duty is paid on production and it is the
liability of manufacturer.

 Conversion of Raw material into finished goods

These purchased raw materials are then converted by the production unit into
finished STAGE is known as the inventory period.

Labor
Labor is vital for conversion of inputs into finished STEP.
There are three types of labour here
Skilled Labour
Here a labour hour rate is fixed and the number of hours required to perform
that work is determined and on the basis of this labor expenses are
determined. This is treated as fixed overheads.

Casual labour
This is not permanent labor. They are paid on daily basis to perform work of
a non-recurrent nature. They are sourced from the Contractors of the
Company.

Vendoring
 When there is a capacity constraint then a part of the work is done by
vendors and the parts manufactured by these vendors are assembled. This is
also called job work

 Conversion of Work-in-progress into finished STEP

 Sale of Finished STEP

Goods are sold either on cash basis or credit basis. Upon sale of finished
goods on credit terms, there exists a time lag between the sale of finished
goods and the collection of cash on sale. This period is known as the
accounts receivables period

 Conversion of Receivables into Cash

There are basically two ways available to vendors to pay their dues to
VATIKA.
These are:-
Cash Payment method
In this a vendor is supposed to clear his dues within a limited amount of
time and mode of payment must be highly liquid. The vendors can pay by
demand drafts, pay orders, or cheques of party which are subject to
realization.

Channel Financing
Channel financing is used to receive fast money from debtors. Most of the
firms generally sells goods or services on credit and it takes a little time to
 realize. Hence, receivables form an important part of working capital
management.

Liquidity versus Profitability- A Risk-Return Trade off

Net Working Capital has bearing on Profitability as well as risk. The term
Profitability used in this context is measured by profits after expenses. The term
Risk is defined as the probability that a firm will become technically insolvent
so that it will not be able to meet its obligations when they become due for
payment.
It is said that greater the amount of working capital the less risk prone the firm is
The decision on how much working capital is maintained involves a trade-off
because having a large working capital may reduce the liquidity risk faced by the
firm, but it can have a negative effect on the cash flows. Therefore, the net effect
on the value of the firm should be used to determine the optimal amount of
working capital.

The goal of Working Capital Management is to manage current assets and

liabilities in such a way that a satisfactory level of working Capital is
maintained.

The assessment of the working capital should be accurate even in the case
of small and micro enterprises where business operation is not very large. We
know that working capital has a very close relationship with day-to-day operations
of a business. Negligence in proper assessment of the working capital,
therefore, can affect the day-to-day operations severely. It may lead to cash
crisis and ultimately to liquidation. An inaccurate assessment of the working
capital may cause either under-assessment or over-assessment of the working
capital and both of them are dangerous.

CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL

 Growth may be stunted. It may become difficult for the enterprise to

undertake profitable projects due to non-availability of working Capital.
 Implementation of operating plans may become difficult and consequently
the profit goals may not be achieved.
 Cash crisis may emerge due to paucity of working funds.
 Optimum capacity utilization of fixed assets may not be achieved due to
non-availability of the working capital.
 The business may fail to honour its commitment in time, thereby adversely
affecting its credibility. This situation may lead to business closure.
 The business may be compelled to buy raw materials on credit and sell
finished INFRA. on cash. In the process it may end up with increasing cost
of purchases and reducing selling prices by offering discounts. Both these
situations would affect profitability adversely.
  Non-availability of stocks due to non-availability of funds may result in
production stoppage.

While underassessment of working capital has disastrous implications on

business, over assessment of working capital also has its own dangers.

CONSEQUENCES OF OVER ASSESSMENT OF WORKING CAPITAL

 Excess of working capital may result in unnecessary accumulation of

Inventories.
 It may lead to offer too liberal credit terms to buyers and very poor
Recovery system and cash management.
 It may make management complacent leading to its inefficiency.
 Over-investment in working capital makes capital less productive and
may reduce return on investment.

Working Capital: Policy

There is an inevitable relationship, between the sales and current assets. The actual
and forecasted sales have major impact on the amount of current assets which the
firm must maintain. So, depending upon the sales forecast, the financial manager
should also estimate the requirement of current assets.
There are three types of working capital policies which a firm may adopt i.e.
moderate working capital policy, conservative working capital policy, and
aggressive working capital policy. These policies describe the relationship between
sales level and the level of current assets.

Current assets

Conservative

Moderate

Aggresive

Sales level

Figure 2 : Different types of working Capital Policies

 In case of moderate working capital policy, the increase in sales level
will be coupled with proportionate increase in level of current assets
also e.g. if the sales increase or expected to increase by 10%, then the level
of current assets will also be increased by 10%.
In case of conservative working capital policy, the firm does not like to
take risk. For every increase in sales, the level of current assets will be
increased more than proportionately. Such a policy tends to
reduce the risk of shortage of working capital by increasing the safety
component of current assets. The conservative working capital policy also
reduces the risk of non payment to liabilities.
In case of aggressive working capital policy the increase in sales does not
result in proportionate increase in current asset. For example, for 10%
increase in sales the level of current asset is increased by 7% only.

This aggressive policy has many implications-

 The risk of insolvency of the firm increases as the firm maintains low
liquidity.
 The firm is exposed to greater risk as it may not be able to face unexpected
change, in the market
 Reduced investment in current assets will result in increase in profitability of
the firm

VATIKA and its Working Capital policy

 VATIKA follows conservative working capital policy i.e. for every
increase in sales level the level of current assets will be increased more
than proportionately. Such a policy tends to reduce the risk of shortage of
working capital by increasing the safety component of current assets. This
policy also reduces the risk of non payment of liabilities.

RECEIVABLES MANAGEMENT

The term Receivables is defined as debt owed to the firm by customers arising
from the sale of goods and services in the ordinary course of business. Receivables
are a type of loan extended by the seller to the buyer to facilitate purchase process.
When companies sell their products they sometimes demand cash on delivery, but
in most cases they sell goods on credit and allow a delay in payment. The
customers’ promise to pay for their purchases constitutes valuable assets; therefore
accountants enter these promises in their balance sheet as accounts receivables.
Most of the businesses today sell goods and services on credit and it takes times for
the receivables to realize. Hence Receivables management forms an important part
of working capital management.

Need of Receivables
The sale of goods on credit is an essential part of working capital management.
Credit sale are treated as marketing tool to aid sale of goods. As a marketing tool,
they are intended to promote sales and increase profits. Hence Receivables
management assumes significance in the context of overall working capital
management.
Objective of Receivables management
In a competitive environment, sometimes the firms are compelled and sometimes
the firms desire to adopt liberal credit policies for pushing up the sales. Higher
credit sales at more liberal terms will no doubt increase the profits of the firm, but
simultaneously also increases the risk of bad debts as well as result in more and
more funds blocking in the receivables. Thus, the objective of receivables
management is matching the cost of increasing sales with the benefits arising out
of increases sales with the objective of maximizing the return on investments of the
firm.

Cost of Receivables

i) Cost of Financing: The credit sales delays the time of sales realization and
therefore the time gap between incurring the cost and the sales realization is
extended. The firm on the other hand, has to arrange funds to meet its own
obligation towards payment to supplier, employees, etc. these funds are to be
procured at some explicit or implicit cost. This is known as the cost of financing
the receivables.

ii) Administrative Cost: A firm will be required to incur various costs in order to
maintain the record of credit customers before the credit sales as well as after the
credit sales.
iii) Delinquency Cost: This is the cost incurred if there is any delay in payment by
a customer.
 iv) Cost of default by Customers: If there is default by customers and the
receivables becomes, partly or wholly unrealizable, then this amount, known as
bad debt also becomes a cost to the firms.

Costs
Total cost of receivables

Default cost

Delinquency costs Cost of financing

Credit period (days)

Administrative Costs

Normal (20 days) Default (40 days)

Trade off on receivables

The trade off on receivables can be applied to find out whether to liberalize
credit terms or not. More liberal credit terms may be expected to generate higher
sales revenue and higher profits; but they increases the potential costs also as the
chances of bad debts increases and there will be decrease in liquidity of firms. On
the other hand a stringent credit policy reduces the profitability but may increase
the liquidity of the firms. Thus, a firm should try to frame its credit policy in such a
way as to attain the best possible combination of profitability and liquidity.
 Figure 4 :
Credit
Policy,
Profitability
and
Liquidity of
a firm

Determinants of Receivables
In any firm the quantum of receivables is determined by several factors.
1. The percentage of credit sales to total sales. Higher the sales higher will be
the receivables. But this is not under the control of financial manager.
2. The terms of sale i.e. the credit and collection policies. These also determine
the quantum of receivables. These are under the control of financial
manager.

So, the receivable management must be attempted by adopting a systematic

approach and considering the following aspects of receivables management:
 The Credit Policy
  The Credit Control
Credit Policy
A firm makes significant investment by extending credit to its customers and thus
requires a suitable and effective credit policy to control the level of total
investment in the receivables. The basic decision to be made regarding receivables
is to decide how much credit be extended to a customer and on what terms. This is
what is known as credit policy. The credit policy may be defined as set of
parameters and principles that govern the extension of credit to its customers. This
requires the determination of
i) Credit standard
ii) Credit terms

The Credit Standards: when a firm sells on credit, it takes a risk about the paying
capacity of the customers. Therefore to be on safer side, it must set credit standards
which should be applied in selecting customers for credit sales. The following
points should be noted while setting the credit standard for a firm:
 Effect of particular standard on sales volume.
 Effect of a particular standard on the total bad debts of the firm
 Effect of a particular standard on the total collection cost.

Credit Terms: It refers to set of stipulations under which the credit is extended
to the customers. The credit terms specify how the credit will be offered,
including the length of the period for which the credit will be offered, the
interest rate on the credit and the cost of default.
Credit period: It refers to the length of time over which the customers are allowed
to delay payments.
Lengthening the credit period increases the sales by attracting more and more
customers, whereas squeezing the credit period has the distracting effect. The firm
must consider the cost involved in increasing the credit period which will result in
increase in the investment in receivables.

Discount terms: The customers are generally offered cash discount to induce them
to make prompt payments. Different discount rates may be offered for different
periods e.g. 3% discount if payment made within 10 days; 2% discount if payment
made within 20 days. Both the discount rate and the period within which it is
available are reflected in the credit terms e.g.

3/10, 2/10, net 30 means

that a 3% cash discount if payment made within 10 days ; 2% discount if payment
made within 20 days; otherwise full payment by the end of 30 days from the date
of sale.

Practical Implementation
CREDIT TERMS:
Credit Period- The credit period at VATIKA is not constant. For some vendors, it
is 30 days, for others, it may be 45 days or 60 days. This depends entirely on
company’s policies. It can be different for different vendors.

Cash discount- The cash discount offered by VATIKA is 2% to 1.75%, depending

upon cash discount period.
Cash discount period- The cash discount period allowed by VATIKA is 1 to 3
days.

This can be summarized as follows:

Credit Discount Period Credit Discount
(days) (%)
1 2
3 1.75
30/45/60 0

There are basically two ways available to vendors to pay their dues to VATIKA.

These are:
Cash:
In cash payment method, a vendor is supposed to clear his dues within a limited
amount of time. And the mode of payment must be highly liquid (Cheque or
Demand Draft).

There are three options available with the vendors:

i) Blank Cheque Arrangement: In Blank Cheque arrangement, the vendors provide
VATIKA blank Cheques drawn on the name of VATIKA. As soon as the material
is received and invoice is generated, VATIKA is allowed to fill the relevant
amount pertaining to the transaction that took place between VATIKA and its
vendor. This Cheque can be
Cleared on the same day the invoice is generated.

ii) Cheque Arrangement: In simple Cheque arrangement, on

Generation of invoice, a cheque is issued by the vendor drawn on
the name of VATIKA.

iii) Demand Draft (D.D.): Here, a demand draft is drawn on the name
of VATIKA , by the vendor, as soon as invoice is generated.

Control of Receivables

Once the credit has been extended to a customer as per credit policy, the next
important step in the management of receivables is the control of receivables. The
things to be taken into consideration are:-
1. The collection Procedure: The firm should have a built in system under which
customer may be reminded a few days in advance about the bill becoming due.
The collection procedure of the firm should neither be too lenient nor too strict. A
strict collection policy can affect the goodwill and damage the growth prospects of
the sales. If the firm has a lenient credit policy, the customers with a natural
tendency towards slow payment may become even slower to settle his accounts.
Thus, the objective of collection procedure and policies should be to speed up the
slow paying customers and reduce the incidents of bad debts.

2. Monitoring of Receivables:-
The financial mangers should keep a watch on the credit worthiness of all the
individual customers as well as the total credit policy of the firm.
 A common method to monitor receivables is the collection Period or number
of day’s outstanding receivables.

Average collection period= Average Receivables

 Credit sales per day
Another technique for monitoring the Receivables is known as aging schedule. The
quality of the receivables of a firm can be measured by looking at the age of
receivables. The older the receivables, the lower is the quality and greater the
likelihood of a default. In the aging schedule, the total outstanding receivables on
particular days are classified into different age groups together with percentage of
total receivables that fall in each age group.
For example, the receivables of a firm, having a normal credit period of 30 days
may be classified as follows:

Age Group %of total outstanding

(Number of Days) Receivables
Less than 30 days 60%
31-45 days 20%
46-60 days 10%
61 and above 10%

Here the firm has a credit period of 30 days and 60% of the total receivables are
less than 30 days old. 20% of the receivables are over due by 15 days, 10% of the
receivables are overdue but 30 days and 10% are over due by more than 30 days.
This type of aging schedule can provide a kind of an early warning suggesting
i) Deterioration of receivables quality
ii) Where to emphasize the appropriate corrective actions

3. Lines of Credit: It is the maximum amount a particular customer may have as

due to the firm at any time. Different lines of credit may be allowed to different
customers. As long as the customer’s unpaid balance remains within this maximum
limit, the account may be routinely handled. However if new order is going to
increase the indebtedness of a customer beyond his line of credit, then the case
must be taken for an approval for a temporary increase in the line of credit.

4.Accounting Ratios: Two accounting ratios may be calculated in particular may

be calculated to find out the changing pattern of receivables. These are
i) Receivables Turnover Ratio
ii) Average collection Period

Both the ratio should be calculated on a continuous basis to monitor the

receivables. The ratios so calculated for the firm must then be compared with the
standard for that industry or with past ratios of the same firm.

Payable Management

As the firm sells goods on credit it may also procure/purchase raw material and
finished SITES on credit basis. The payment for these purchases may be postponed
for the period of credit allowed by suppliers. So, the supplier of the firm in fact
provides working capital to the firm for the credit period.
For example, a firm makes a credit purchase of Rs. 60000 per month and the
credit allowed by supplier is two month, then the working capital supplied by
creditors is Rs. 120000 (i.e. Rs. 60000*2months). It means the firm would be
getting the supplies without however, making the payment for two months. The
postponement of payment to the creditors makes the firm to utilize this money
elsewhere or help the firm to sell on credit without blocking its own funds.

Since, Working Capital is the difference between current assets and current
liabilities and creditors form an important part of current liabilities. So, a
firm can save a considerable amount if these creditors are managed. The
extent, to which the payment to these current liabilities is delayed, the firm gets the
availability of funds for that period. So, a part of the funds required to maintain
current assets is provided by current liabilities and the firm will be required to
invest the funds in only those current assets which are not financed by current
liabilities. So, the aim of the firms is to realize its debtors as fast as possible but too
pay its creditors as late as possible.

Creditors can be managed by discounting of bills.

Bill Discounting is a relatively new concept in India. When a firm buys goods on
credit the supplier will state a final payment date . To encourage firm to pay before
final payment date , the supplier will offer a cash discount for prompt settlement.
Now it’s the decision of firm whether to avail or not that discount facility provided
by supplier. For that they should see whether it is profitable for them or not.

By using discounting of bills technique huge sums of money can be saved, by just
paying the discounted amount in time. Big firms, ( like VATIKA ), which have
huge cash reserves, generally, get into a contract with financial institutions or
banks( like ICICI bank or VATIKA finance Ltd.). These financial institutions pay
the suppliers the requisite amount on behalf of these firms and they charge some
interest on the amount paid by them to the suppliers from these firms.

Benefits of Discounting of Bills

Discounting of Bills makes it easy to decide whether the discount being

allowed by the supplier is worth taking or not.
Also, it make possible to calculate savings being received on account of
availing discount, in monetary terms
It also helps in improving relationship between vendors/suppliers.
It’s an indirect cash inflow , because the company is going to pay less than
what it was supposed to pay initially
The cash thus saved can be invested elsewhere.
It’s a win-win situation for both-the company as well as suppliers as the
suppliers will be getting money much before the stipulated time and the
company is able to enjoy the benefits of discount offered by the suppliers.
 CHAPTER.5

RESEARCH METHODOLOGY

RESEARCH METHODOLOGY
 Research Methodology is a way to systematically solve the research

problem. In it, step-by-step methods are followed to solve a particular problem. It

refers to a search for knowledge. It can also be defined as a scientific and

systematic search for pertinent information on a specific topic. In fact, research is

an art of scientific investigation.

Redman & Mory defines research as “systematized effort to gain new

knowledge.”

RESEACH DESIGNS:

Research Design is the way in which the research is carried out. It works as a blue

print. Research Design is the arrangement of conditions for the collection and

analysis of data in a manner that aims to combine relevance to the research purpose

with economy in procedure.

TYPES OF RESEARCH DESIGN:

Basically, there are three types of Research Designs. These are:

Exploratory Descriptive & Diagnostic Experimental

Research Design Research Design Research Design

 Exploratory Research Design:

In it , a problem is formulate for precise investigation and working

hypothesis are developed.

 Descriptive & Diagnostic Research Design:

In Descriptive Research Design, those studies are taken which are

concerned with describing the characteristics of a particular individual

or a group.

In Diagnostic Research Design, those frequency are determined with

which something occurs or its association with something else.

Experimental Research Design:

In it, casual relationships between the variables are tested. It is also

known as Hypothesis Testing Research Design.

The present project is descriptive in nature. The major purpose of

descriptive research is the description of state of affairs, as it exists at

 present. The main characteristic of this method is that the researcher has no

control over the variables; he can only report what has happened or what is

happening.

DATA COLLECTION:

The data can be of two types:

 Primary Data

 Secondary Data

The study is based on both primary and secondary data.

Primary Data: Primary data are those data , which is originally

collected afresh.

In this project, Questionnaire Method has been used for gathering required

information. However, some assistance was provided to respondents in filling it.

Secondary Data: Secondary Data are those data which are already

collected and stored and which has been passed through statistical research.

In this project, secondary data has been collected from following

sources :-

Annual Report
Articles in Journal, Magazines.

Books

Other material and report published by company

 CHAPTER .6
DATA ANALYSIS & INTERPRETATION

Data Analysis and interpretation

Component wise gross working capital and net working are depicted:

This chapter consists of data analysis and the interpretation , there of the data has
been collected and analyzed as per the research methodology and according to the
objectives of the project.

year inventor Debtors Loan & Cash Others Gross Current Net
y & advance and current working liabilities working
receivable s &bank assets capital & capital
s provision
s
2005- 2418.94 4119.36 2555.68 155.47 243.50 9492.95 5289.17 4203.78
06 (25.5 %) (943.4%) (26.9%) (1.6%) (2.6%) (100%)
 2006- 3045.11 8110.34 3666.05 153.94 207.50 14582.9 11342.44 3240.50
07 (20.9%) (55.6%) (21%) (1.1%) (1.4%) 4
(100%)
2007- 2535.16 7059.05 4809.12 1486.61 122.53 16012.4 12155.00 3857.47
08 (15.8%) (44.1%) (30%) (9.3%) (0.8%) 7
(100%)
2008- 2793.43 8070.23 61688.2 232.63 36.14 17300 14148.48 3151.58
09 (16.14% (26.65%) 2 (1.34%) (.21%) (100%)
) (35.65%
)

RATIOS FORMULAS 2007-08 2009-08

Current ratios Total current assets/ 17035.85/12155=1.4 1.22
total current liab.
quick ratios ( total current asst- 17035.85- 1.02
inventory)/total 2535.16/12155=1.19
current liab.
Working capital Inventory+receivable 2535.16+7181.58- .02
ratio s-payble sales 11094.53/68.35=-.2
Stock turn over(in Average 3045.11+2535.16*365/53917 30
days) stock*365/cost of .88
goods sold =38
Receivables ratios Debtors*365/sales 7059.05*365/68256.29 =38 43

CURRENT RATIOS: it can be observed that current ratios of vatika varied

between 1.4:1 and 1.22: 1 during the periods of 2007-08 to 2008-09

QUICK RATIOS: quick ratios also decrease as per years increase .its
directly effects the all the inventory

WORKING CAPITAL RATIOS: Working capital ratios also increase as

per the year increase
STOCK TURN OVER: stock turn over ratios decrese as per year increse

So with the help of this data we easily find the position of the company and
also take the next day decision

CHAPTER.7
 FINDINGS AND CONCLUSION

It is essential for an organization to keep a check on its financial position , as by

this the profitability of the business ,etc. are analyzed . by this the solvency of the
business can be viewed. Through the financial analysis . if the company , the users
of the account could check the growth of the company . The management could
take efficient decisions regarding the financial position of the business.

In the end of the project, I came on the followings conclusion

 The financial position of the firm is strong that is it can payoff its depts. On
time

 In the past five years the profitability of the business has increased. The
increase in the profits is more than the increase in the sales
.

 The firm is solvent enough to meets its interest cost and repayments
schedules associated with its long term indebtedness’.

 The performance of the company is good in the last five years. the increase
in the cost of raw materials is less than the increase in sales and overall
profits are more than the total cost.

 The organization is utilization its recourses efficiently.

 CHAPTER.8
EXPECTED CONTRIBUTION FROM THE STUDY

Analysis of financial statement and working capital of organization reveals many

strong and weak point of the vatika.
As far As the current ratio of the organization is concerned , it was decreasing up
to the last year and at present it is 1.4
Although the current ratio of the company should be1.22 is considered is to be
good but this ratio is not too good for the company.

The current assets turnover has decrease in 05-06 so the company should try to
improve its current ratio through increase in sales or reducers un-necessary cost of
the company.

There is increase in current liabilities of the company 300 crore. Which is not
good for the company image.

There is big fluctuation working capital turn over ratio . this ratio was -.2 in 05-06
and in 06- 07 suddenly went up to .-2 again in 07-08 there is a big change and its
decline to 5-71. This is because the sales does not increase as the same ratio as
working capital increase. so the company is should manage there working capital
and should properly estimates for an amount foe sales-

BIBLIOGRAPHY

Websites

 www.google.com
 www.wikipedia.com
 www.vatika.com
BOOKS

FINANCIAL MANAGEMANT
i.m Pandy, edition 2009

WORKING CAPITAL MANAGEMENT

By J.D. AGGARWAL, edition 2009