The project "WORKING CAPITAL MANAGEMENT OF PMP INDIA PVT LIMITED" would not have been possible without the kind assistance and guidance of many persons who indeed were helpful, co-operative, kind and hospitable during entire course of my assignment. I take this opportunity to express my acknowledgement and deep sense of gratitude for rendering valuable assistance and guidance to me by following personalities for successful completion of my summer training. . My whole hearted thanks to entire staff of PMP India Pvt. Ltd. for their kind cooperation and assistance in order to take my training successfully. My grateful thank also to Mr.Lovey Aggarwal for their co-operation and valuable guidance during tenure.


A student undergoing a master course needs to be exposed to the realities in the field which puts to test the class room learning. Knowledge cannot be gained only on the basis of theoretical understanding from the book. A practice inside is necessary for the learning process to be complete and effective. I took my training in very well known and well managed organization PMP India Pvt.Ltd, Where I got ample opportunity to give overall working of the organization. Working Capital Management, the project which I did is an important part of financial management. It is most powerful tool for interpreting the current financial health of organization. In the forthcoming pages, an attempt has been made to present a comprehensive report of my study conducted on Working Capital Management of PMP India Pvt.Ltd.



Ltd towards their day to day operations. inventory. interactions The overall results were generally based on observations. OBJECTIVES The foremost objective of my work was to study the various policies that fall under working capital management and also see the how is the approach of finance department of PMP India Pvt. The company deals with automobile parts. Descriptive Research Data Source Primary Data. analysis and interpretation done during the industrial training and project undertaking. For this full production process was shown to me and various creditors and debtors policies were also told to me. secondary data Research Instrument group discussions. METHODOLOGY Research Type Exploratory. 4 .Executive summary The project undertaken was on “working capital management of PMP INDIA PVT LIMITED”. receivables management were also studied to completely accomplish the study. Other important objectives were to observe the impact of working capital cycle and long production process on each other. Other important aspects like cash.

RECOMMENDATIONS Company should pay more attention towards advertisement.FINDINGS In marketing very less importance is given to advertisement. For period in which company provides material to the parties early. it should be counted in FOI period of creditor and debtor policy. Company’s marketing strategy has gone lame on the fact that company is having good reputation built in the past which will work for them in future also. Company had some shortcoming in debtor policy which disturbs the working capital cycle. 5 . Most of the ratios were accounting to good financial health of PMP India Pvt. Company gives material to some parties before their requirement date and for this time period company suffers losses and earns no rate of interest. Ltd. Proper cash management system should be introduced to the company so that required amount of cash is always available to the company.



WORKING CAPITAL MANAGEMENT MEANING:Capital required for business can be classified under two main categories: Fixed capital Working capital Every business needs funds for two purposes for its establishment and to carry out its day to day operations. Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land &Building, Furniture etc. Funds are also needed for short term purposes for the purchase of raw material, payment of wages and other day to day expenses. These funds are known as working capital. In simple words, working capital refers to that part of the firm capital which is required for financing short term or current assets such as cash, marketable securities, debtors and inventories. Funds thus invested in current assets keep revolving fast and are being constantly converted into cash and this cash flows out again in exchange for others current assets. Hence it is also known as revolving capital. In the words of SHUBIN, “Working Capital is the amount of funds necessary to cover the cost of operating the enterprise.” Acc to Genestenberg, “Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another, for example cash to inventories, inventories to receivables, receivables into cash.”


CONCEPTS OF WORKING CAPITAL There are two concepts of working capital:Balance sheet concept Operating cycle or Circular flow Concept. On the basis of balance sheet Working capital may be classified in two ways: ON THE BASIS OF CONCEPT. ON THE BASIS OF TIME.









Gross working capital also referred to as working capital means

the firm’s investment in current assets.i.e
Net working capital
Net working capital refers to the difference between current assets and current liabilities. i.e. ------CURRENT ASSETS CURRENT LIABILITIES

CURRENT ASSETS: Current assets are those assets which in the ordinary course of business can be converted into cash or held in the business for the short time only. Constituents of Current Assets:STOCK OF RAW MATERIAL WORK IN PROGRESS FINISHED GOODS TRADE DEBOTRS PREPAYMENTS CASH BALANCES CURRENT LIABILITIES: Current Liabilities refers to short term debts of the business. It is money owned by a business which will need to be repaid within the next 12 months. Constituents of Current Liabilities:TRADE CREDITORS SHORT TERM LOANS BANK OVERDRAFTS DIVIDEND DUE FOR PAYMENT TAX DUE TO PAY WITHIN THE NEXT 12 MONTHS.

e. The 11 . Both concepts have its own merits. work in process. finished goods and cash balance. It indicates the margin of protection available to the short term creditors i. which is continuously required by the enterprise. Every management is more interested in the total current assets with which it has to operate than sources from where it is made available. It is an indicator of the financial soundness of an enterprise. There is always a minimum level of current assets. It is also useful in determining the rate of return on investment in working capital… The net working capital is preferred for following reason:It is qualitative concept which indicates the firm’s ability to meet its operating expenses & short term liabilities. This minimum level of current assets is called permanent or fixed working capital as this amount is permanently blocked in current assets. For example. every firm has to maintain a minimum level of raw material. excess of Current assets over current liabilities. The gross concept takes into consideration the fact that every increase in the funds of the enterprise would increase its working capital. The Gross concept is preferred for the following reasons:It enables the enterprise to provide correct amount of working capital at the right time.BALANCE SHEET LIABILITIES Creditors Loans Bank overdraft Advances Total AMOUNT ASSETS Debtors Stock Cash Prepayments Total AMOUNT - The Gross working capital concept is financial or going concern where as Net working capital is the accounting concept of working capital. It suggests the need for financing a part of the working capital requirement out of permanent sources of funds Permanent or Fixed Working Capital It is the minimum amount. which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets.

from receivable to cash and so on. This type of capital is called seasonal working capital. depression etc. Temporary or Variable working capital It is the amount of working Capital which is required to meet the seasonal demands and some special exigencies. Most of the enterprises have to provide additional working capital to meet the seasonal demands and special needs. rise in prices.permanent working capital can be further classified as regular working capital and reserve working Fixed working capital Capital required ensuring circulation of current assets from cash to inventories. Reserve working capital is the excess amount over the requirement for regular working capital. from inventories to receivables. which may be provided for contingencies. Variable working capital 12 . may arise at unstated periods such as strikes.

The diagram is concerned with day to day activities. OPERATING WORKING CAPITAL CYCLE: The Circular flow of concept of working capital is based upon this operating or working capital cycle of a firm. Credit sales create book debts for collection. -Manufacture of the product which includes conversion of raw material into work in progress into finished goods. power & fuel etc. labour. Variable working capital Fixed working Capital Sometimes fixed capital may vary with the expansion. diversification and growth of business and then it is fixed for the long period. have funds constantly flowing into and out of them. -Sales of the product either for cash or credit. The cycle starts with the purchase of raw material & other resources and ends with the realization of cash from the sale of finished goods. “The period of time which elapses between the point at which cash begins to be expended on the production of a product and the collection of cash from the customer” The operating cycle of a manufacturing company involves three phases: -Acquisition of resources such as raw material.Temporary working capital differs from permanent working capital in sense that it is required for the short periods and cannot be permanently employed gainfully in the business. 13 .

In due course this stock will be used in production. When the finished goods are sold on credit. Each of the areas stock. Work will continue on the WIP until it eventually emerges as the finished product. cash and trade creditors shown the in and out of the fund. The business will have to make payments to government for taxation. Dividends may be paid.The chain starts with the firm buying raw material on credit. Some shares may be redeemed for cash. Long term loan creditors may provide loan finance. work will be carried out on the stock. loans will need to be repaid from time to time Interest obligations will have to be met by the business. and it will become part of the firm’s work in progress (WIP). They will eventually pay so that cash will be injected into the firm. labour costs and overheads will need to be met. WORKING CAPITAL CYCLE 14 . Fixed assets will be purchased and sold. debtors are increased. Of course at some stage trade creditors will need to be paid. trade debtors. As production progresses. Shareholders (existing or new) may provide new funds in the form of cash. Lessors of fixed assets will be paid their rent.


There is an operating cycle involved in the sales and the realization of cash. To provide credit facility to customer… To maintain the inventories of raw material. To pay wages and salaries. To meet the selling cost like packaging. During this time lag working capital is required for the following reasons: Purchase of raw material.The main objective of financial management is to maximize the shareholders wealth. stores and spares and finished goods. Therefore there is need of working capital in form of current assets to deal with the situation arising of the lack of immediate realization of the cash against goods sold. To incur day to day expenses and overhead cost such as fuel. work in progress. And for this it is important to generate sufficient profits. 16 . There is invariable time gap between the sales of good and the receipt of cash. The extent to which these profits can be earned depends upon the magnitude of sales however do not convert into cash instantly. advertising etc. components and spares. power and office expenses.

The production could be kept either steady by accumulating inventories during slack periods with a view to meet high demand during the peak season or the production could be curtailed during the slack season 17 . and as such no funds are tied up in inventories and receivables. Greater the size of a business unit. inefficient use of available Resources and other economic disadvantages of small size. Production Policy: In certain industries the demand is subject to wide fluctuations due to seasonal variations. generally larger will be the requirements of working capital. the process with the shortest production period should be chosen. however. the working capital requirements increase in direct proportion to the length of manufacturing process. However in some cases even a smaller concern may need more working capital due to high overhead charges. Longer the process period of manufacturing time. the character of their operations. if there are alternative processes of production. E. Retail stores require a variety of goods to satisfy varied and continuous demand of their customers. the following are important factors generally influencing the working capital requirements: Nature or character of business: The working capital requirements of a firm basically depend upon the nature of its business. as such they need large amount of working capital. depend upon the production policy. Manufacturing Process/Length of Production Cycle: In manufacturing business. in such cases.FACTORS DETERMINING THE WORKING CAPITAL The working capital requirements of a concern depend upon a large number of factors such as nature and size of business. Public utility undertaking like electricity. not products. and cash. water supply and railway need very limited working capital because they offer cash sales only and supply services.g. The working capital requirements. Therefore. Size of Business/Scale of Operations: The working capital requirements of a concern are directly influenced by the size of its business which may be measured in terms of scale of operations. the length of production cycle etc. the raw materials and other supplies have to be carried for a longer period manufacturing in the process with progressive increment of labor and services costs before the finished product is finally obtained.

Price Level Changes: Changes in working capital also effect the working capital requirements. yet in the fast growing concern. debtors and receivables and ultimately realization of cash and this cycle continues again from cash to purchase of raw material and so on. Thus the working capital requirements of such a dealer shall be higher than that of a provision store. A huge amount is. Generally. Concern that purchases its requirements on credit requires less working capital and vice. Working Capital Cycle: In a manufacturing concern. A firm having a high rate of stock turnover will need lower amount of working capital as compared to a firm having a low rate of turnover. They have to buy raw material in bulk during the season to ensure an uninterrupted flow and process them during the entire year. Rate of Growth of Business: The working capital requirements of a concern increase with growth and expansion of its business activities. which give rise to more working capital requirements. Generally the rising prices will require the firm to maintain larger 18 . For example. conversion of finished stocks into sales. its conversion into stocks of finished goods through work in progress with progressive increment of labour and service costs. Although it’s difficult to determine the relationship between growth in the volume of business and the growth of working capital in the business.versa. the working capital cycle starts with the purchase of raw material and stores. blocked in the form of material inventories during such season. we shall require larger amount of working capital. during the busy season. thus. the turnover is slow. Rate of stock turnover: There is a high degree of inverse co-relationship between the quantum of working capital and the velocity or speed with which the sales are affected. Seasonal Variations: In certain industries raw material is not available throughout the year. If the policy is to keep production steady by accumulating inventories it will require higher working capital. a firm requires larger working capital than in the slack season.and increased during the peak season. in case of precious stone dealers. Credit policy: Credit policy of the concern its dealings with creditors and debtors influence the requirement of working capital.

19 .The effect of price changes may be different for different concerns. A firm that maintain a high rate of cash dividend irrespective of its generation of profits needs more working capital that retains larger part of its profits and does not pay so high rate of cash dividend. as more funds will require maintaining the same current assets . irregularities of supply. asset structure. monopoly conditions etc. management ability. Earning Capacity and Dividend Policy: Some firms have more earning capacity than others due to quality of their products. also influence the requirements of working capital. import policy. such firms with high earning capacity may generate cash profits from operations and contribute to their working capital. Other Factors: Certain other factors such as operating efficiency. banking facilities etc. The dividend policy of a concern also influences the requirements of its working capital. importance of labor.amount of working capital.

Under the conservative plan the firm finances the permanent assets and also a part of the temporary assets with long term financing. In the period when the firm has no need for temporary current assets than the long term fund can be invested in the tangible securities to conserve the liquidity. The relative short term finances make the firm more risky. 20 . Stock of goods to be sold off in 30 days may be financed with the 30 days commercial paper or bank loan.METHODS OF WORKING CAPITAL The following are the methods of the working capital: MATCHING APPROACH: The firm can adopt a financial plan which matches the expected life of assets with the expected life of the source of the fund raised to finance assets. Thus a ten year loan may be raised to be financed with an expected life of ten year. Some extremely aggressive firms may even finance a part of their fixed assets with the short term finances. CONSERVATIVE APPROACH: A firm in practice may adopt a conservative approach in financing its current as well as fixed assets. Under the aggressive approach the firm finances a part of the permanent current assets with the short term finances. AGGRESSIVE APPROACH: An aggressive policy is to be followed by the firm when it used more short term finances than warranted by matching plan.

Management of Working Capital Nandini Sharma "Management of short term assets and short run sources of finance is described as working capital management. a company should strike a balance between liquidity and profitability. it has been seen that if a company desires to take a greater risk for bigger profits and losses. Conventionally. The impact of working capital policies on profitability has been examined by computing coefficient of correlation and regression analysis between profitability ratio and some key working capital policy indicator ratios. 21 . Shah It is felt that there is the need to study the role of working capital management policies on profitability of a company. It aims at protecting the purchasing power of assets and maximizing the return on investment. this policy is likely to result in a reduction of the sales volume. it increases the level of its working capital. The goal of working capital management is to manage each of the firm's current assets and current liabilities in such a way that an acceptable level of working capital is maintained. Failure of business is undoubtedly due to poor management of working capital. Working capital management is concerned with all decisions and acts that influence the size and effectiveness of working capital.REVIEW OF LITERATURE Impact of Working Capital Management Policies on Corporate Performance—An Empirical Study Sushma Vishnani Bhupesh Kr. It is concerned with the determination of appropriate levels of current assets and their efficient use as well as the choice of financing mix for raising the current resources. Hence. In this paper an effort has been made to make an empirical study of Indian Consumer Electronics Industry for assessing the impact of working capital policies & practices on profitability during the period 1994–95 to 2004–05. it reduces the size of its working capital in relation to its sales. "Proper management of working capital is very important for the success of a concern. therefore of profitability. However. If it is interested in improving its liquidity. The manner of management of working capital to a very large extent determines the success of operations of the concern. Shortage of working capital is so often advanced as the main cause of failure of an industrial concern.

Waxer’s (2003) study of multiple firms employing Six Sigma® finds that it is really a “get rich slow” technique with a rate of return hovering in the 1. 22 . inventory. Six Sigma® methodologies help companies measure and ensure quality in all areas of the enterprise. An optimal level would be one in which a balance is achieved between risk and efficiency.5 percent range. However. There appear to be many success stories. Furthermore.4 million to $600. When used to identify and rectify discrepancies. A recent example of business attempting to maximize working capital management is the recurrent attention being given to the application of Six Sigma® methodology. accelerates the payment cycle. improves customer satisfaction and reduces the necessary amount and cost of working capital needs. Working capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash will soon be required (Current Liabilities).000. Krueger. Business viability relies on the ability to effectively manage receivables. bad debts declined from $3. including Jennifer Towne’s (2002) report of a 15 percent decrease in days that sales are outstanding. Much managerial effort is expended in bringing non-optimal levels of current assets and liabilities back toward optimal levels. Six Sigma® reduces Days Sales Outstanding (DSO).2 – 4. University of Wisconsin-La Crosse Program The importance of efficient working capital management (WCM) is indisputable. The objective of working capital management is to maintain the optimum balance of each of the working capital components. resulting in an increased cash flow of approximately $2 million at Thibodaux Regional Medical Center. Firms are able to reduce financing costs and/or increase the funds available for expansion by minimizing the amount of funds tied up in current assets. and payables.An Analysis of Working Capital Management Results Across Industries Greg Filbeck. Schweser Study Thomas M. inefficiencies and erroneous transactions in the financial supply chain.

23 .

It also looks into to the government taxes excise duty etc.Dealing with financial institution for short term financing of the company.The same will be delivered to the L/C opening bank. Wool top supply to spinning department for conversion into yarn for making fabric. Banking transaction including day dealing with the banks and updating the books of account. Realization activities including for short term and long term financing of debtors after the sale of goods on credit. General accounts This department maintains all the books of accounts. It maintains the annual accounts that are audited secretly. MIS also handles the budgeting that is based on the last two year experience and the prediction of the next three year based on that it also works out of the company policy and helps in its implementation The supplier will get the L/C and arrange shipment of the material as per order and negotiates the documents through bank. MIS-Management INFORMATION SYSTEM MIS fives a periodic report to about the financial matters of the company to the head office and board of direction.FINANCE DEPARTMENT Finance department looks into the cash inflow and outflow of the company finance department headed by assistant vice president who responsible for three main activities like. 24 .

25 .

26 .

27 .


To study the various ratios related to inventory.OBJECTIVE OF THE STUDY Objective setting is the initial stage or starting point of any project to be undertaken. receivable and payable. It is essential to know what objectives means from the literally or the study point of view. 29 . The main objectives of the study are: To study the working capital management of PMP INDIA PVT LTD. To develop a practical approach towards problem solving by applying theoretical knowledge. To study the factors affecting the working capital.

magazines. The data related to financial statements and processes is collected from finance department. im pandey of financial management. Some production data is collected from various departments. Primary data Secondary data The primary data refers to the data which is collected directly. it is generally more accurate.RESEARCH METHODOLOGY Research Methodology is a way to systematically solve the research problem. This research on working capital may be referred to as exploratory research in which problems and findings are generated from the calculations. here data is collected from annual report of company for financial analysis. DATA COLLECTION Data is collected in two ways. One needs to be very careful while collecting this form of data. 30 . Some data was provided by company itself. questionnaires etc. Some of the data is also collected from websites. In the end suggestions and recommendations are made to make research meaningful and worthy to improvise on the same. It is collected by observations. It may be understood as a science of study how research is done systematically. It is generally collected from websites. And rest of the required data is collected from books like prasanna Chandra. It is costly in the terms of time. journals etc. Secondary data refers to the data which is already collected by somebody. When some deduction is made from data then a problem is located regarding the same and reasons for the same are also searched for. interviews. Here primary data is collected from the employees of PMP INDIA PVT LTD.

as it’s not revised to present situation. Inspite of all the care efforts there are some limitations such as: Financial resources are limited. 31 . So that the study could present a true picture.LIMITATIONS OF THE STUDY Although full efforts have been made to complete and comprehensive the study on working capital of PMP INDIA PVT LTD. As data taken is secondary. in which long time period was given to see production process of the unit. so it cannot be said to give constant conclusions. Company planned training schedule. The time of research was not that much sufficient that could be regarded as opportunity to analyze WCM of such organization.


stock sundry debtors cash Stock consists of raw material and components stores and spare parts stock in process finished goods Debtors consist of debt over six months other departments Cash includes in hand cash current account fixed account 33 .WORKING CAPITAL MANAGEMENT In PMP INDIA PVT TD there are three main types of current assets.

34 .

payment is made direct'. In DP. Goods are taken back in the later case. The centers of unit are HDFC Bank and Corporation Bank. Payments are received mostly by this method. In this time period no interest is charged from the suppliers. And the items having major defects are not sent for sales. Suppliers can make payment: 10lac upto 30Days 10 to 50 lakh upto 45 Days & above 50 lakh a time period of 60 Days. It can be made by cheque. Time period given depends upon the amount of payment that he suppliers have to pay. He does not give the money at that time but he make promise to pay the payment.FINANCIAL POLICIES OF COMPANY DEBTORS POLICIES IN OCM Material is supplied to the party when the parties pay the invoices. Bank give the documents on the bases of suppliers promise to pay. A specific time period is given to the suppliers to pay the payment for the goods. The policy is different for different suppliers depending upon the parties. Through bank payment can be made by two ways that are as follows: DA (Documents against Acceptance) DP (Documents against Payment) In DA. This is a risky way of payment for the company. The two ways are as follows: Through Bank Direct Payment THROUGH BANK: Suppliers can make the payment through Bank. Bank take payment from the supplier and give him the documents. DIRECT PAYMENT: In this mode. 10% discount is given to the items that have minor defects. SALES POLICY FOI (FREE OF INTEREST POLICY): These are for the suppliers of the company. 35 . Invoices are paid by the suppliers by 2 ways. draft. bank give the documents to the suppliers n supplier accepts the documents. CREDIT NOTES These are given to the customers. and at the centers. direct payment is made by the suppliers.

01 to 10.01 to 5.00 10. And interest is given to the parties that make early payment. The parties that make late payment.00 8.00 The suppliers have to pay 12% interest per annum as a security deposit.00 15.51 to 3.00 25. 36 .50 3.00 3.50 2. It is as follows: Amount (in lakhs) Incentives (in %) 2. If the parties make payment after the 15 Days then 15% interest is given to the supplier. INCENTIVE POLICY To promote the sales.00 4.50 5.01 to 8.01 to 50.00 2.00 5.01 to 25.INTEREST POLICY The parties that make late payment interest is charged from them. interest is charged from them as follows: If the payment is made within 60 Days after the due date then 15% interest is charged from then If the payment is made after 60 Days then interest charged is 18%. The parties that make early payment interest is given as follows: If the parties make payment within 15 Days then 18% interest is given to those suppliers. incentives are given to the suppliers depend upon their amount of payment.00 & Above'50 1.50 4.00 to 15. It is between 1 to 5 %.00 3.

it depends upon the quality of the material they will sold. SIGNIFICANT ACCOUNTING POLICIES 1. 3. Their commission are calculated automatically by seeing their code and the code of the material they sold. if the agent sell material of high quality they are paid more commission. Whenever it is not possible to determine the quantum of accrual with reasonable certainty e. They have to first visit these agents. And if they sell low quality they are paid low commission. 2. Accounting policies not referred to otherwise are consistent and in consonance with generally accepted accounting principles. balance is checked. Rebate/discount other than usual allowances accounted for as and when incurred. here Pb stands for Punjab and C is for the quality of the material. Agent is responsible to receive the payment from the party. The company follows mercantile system of accounting and recognizes significant items of income and expenditure on accrual basis. Every party has a ledger account. Fixed assets Fixed Assets are stated at their original cost (including other expenses related to acquisition and installation) less depreciation. And materials are also given codes. returns and claims. An impairment loss recognized in prior is reversed if there has been change in the estimate of the recoverable amount. There's a agent in a state. Pb C. refund of custom/excise duty etc. Eg. these continue to be accounted for on settlement basis. Material is sold by these agents to different parties. Booking of material (with Commission starts from 2 to 7 %.g.POLICY RELATED TO AGENT’S COMMISSION Agents are the sales reprehensive of the company. To check the invoice and payment. Sales Sales are reported net of turnover/trade discounts. It is duty of the agent to receive the payment from the party. insurance and other claims.. Parties can not buy material directly from the company. Agents are given code. 4. Impairment of assets An asset is treated as impaired when the carrying cost of the same exceeds its recoverable amount. Basis of preparation of financial statement The financial statements have been prepared on a going concern basis under the historical cost convention. 37 .

Borrowing costs Interest cost relating to funds borrowed for acquisition of fixed assets is capitalized up to the date asset put to use.5. scrap and by-products valued at net realizable value. 8. specified in schedule xiv of the Companies Act. 9. Treatment of expenditure during construction period Expenditure during construction/erection period is allocated to the respective assets on completion of such construction or erection. 1956. if any. Valuation of inventories Inventories are valued at lower of cost and net realizable value. as the case may be. Investments Long term investments are stated at cost less provision for diminution in value other than temporary. on pro-rata basis. Depreciation Depreciation has been provided on fixed assets (except in case of lease hold land which is being amortized over the period of lease ) on Straight Line Method in accordance with the rates. at cost or below cost. Current investments are valued on category basis. and funds borrowed for other purposes is charged to the Profit & Loss account. Foreign currency transaction Any income or expense on account of exchange difference either on settlement or on transaction is recognized in the Profit & Loss Account except in cases where they relate to the loans and liabilities incurred for acquisition of fixed assets in which case they are adjusted to the carrying cost of such Assets. Cost is computed on weighted average basis. 6. 7. 10. 38 . except waste. Finished goods and process stock include cost of conversion and other costs incurred in bringing the inventories to the present location and condition.

5% for a deposit for 1 year. but while purchasing the material in bulk quantity the company tries to obtain maximum discounts offered by suppliers. we will consider different sources of finance from which the company gets its working capital. TRADE CREDIT: . An advance from customers against orders is a short term source of finance for PMP INDIA PVT LTD. Parties make the advance payment before receiving the material. 39 . In cumulative scheme interest is being compounded at monthly basis.SOURCES OF FINANCE Firstly. In purchase of raw material no credit is allowed. The company has fixed deposits scheme with option for quarterly payment of interest or payment of interest at the time of maturity along with principle amount. However in both the cases maximum rate of interest is 10. such as quantity & cash discount.PMP INDIA PVT LTD has strong financial base it has got very good reputation in the market. FIXED DEPOSIT: .Advances also form a part of working capital at PMP INDIA. Company makes regular payment of interest as well as of principle amount. It is considered to be one of best paymaster among the suppliers.5% for a deposit for 3 years and minimum rate of interest is 9. The entire fixed deposit scheme is computerized.Fixed deposit is another source of finance for the company. who in turn do not hesitate in extending normal credit period to the company.Trade credit is the credit extended by the supplier in the normal course of business. ADVANCES: .

It is sanctioned by commercial banks to boost exports. The major portion of working capital is provided by commercial banks. They provide a wide variety of loans tailored to meet the specific requirements of a concern. Packing credit is available in Indian Rupees as well as in foreign currency. product exported etc. It is available at concessional rate of interest as compared to rates charged by banks on cash credit account.Foreign Bills Negotiation: After submission of export documents to the bank the pre shipment credit is converted into post shipment credit. Tenure of documents depends on factors like country. The company can operate cash credit account within sanctioned credit limits.WORKING CAPITAL BORROWINGS FROM BANKS: Commercial banks are the most important source of short term finance. PMP INDIA has the following banks from which it takes the cash credit. or against acceptance. & IN FOREIGN CURRENCY FOREIGN BILLS NEGOTIATION DISCOUNTING OF INLAND BILLS UNDER LETTER OF CREDIT SHORT TERM LOANS a) Cash Credit: Cash credit is an arrangement by which a bank allows his customers to borrow money up to certain limit against hypothecation of inventories. The different form in which the banks normally provide loans and advances are as follows:CASH CREDIT PACKING CREDIT IN INDIAN RS. Packing Credit: Packing credit is also popularly known as pre shipment credit. receivables etc. c). For this bank charges interest on the last balance of everyday. Packing credit account is nullified against presentation of export documents to the bank. Company negotiates the export 40 . Usually export documents are drawn at sight. HDFC BANK CORPORATION BANK UNION BANK OF INDIA BANK OF INDIA STATE BANK OF INDIA PUNJAB NATIONAL BANK b).

At the time of negotiation bank charges interest for the unexpired period from the company along with negotiation charges.)Short term loans: Working capital borrowings from banks are secured by the hypothecation of entire present and future tangible assets of the company and also personally guaranteed by the directors of the company. to its supplier the bank assumes the liability of its customers for the purchases made under the L/C Arrangement. In case the customer fails to pay the amount. on the due date. Letter Of Credit: . d). 41 . so it becomes the source of finance for them.Discounting of Inland Documents Drawn Under Letter of Credit: The company supplies goods to the customers against inland letter of credit drawn in favor of OCM by customer.A Letter Of Credit popularly known as L/C is an under taking by a bank to honor the obligation of its customer up to a specified amount. which gets liquidated after realization of export documents. e. After dispatch of material to the customer the presents the documents to the bank for discounting and receives the amount from the bank. f). OCM also accepts the payment from their customers on behalf of L/C. should the customer failed to do so.documents and avail post shipment credit from the banks.

This cycle involves purchase of raw materials and stores. conversion of finished stocks into sales. the working capital cycle starts with the purchase of raw material and ends with the realization of cash from the sale of finished products. debtors and receivables and ultimately realization of cash and this cycle continues again from cash to purchase of raw material and so on.WORKING CAPITAL CYCLE IN PMP INDIA PVT LTD Working Capital Cycle: In a manufacturing concern. 42 . its conversion into stocks of finished goods through work in progress with progressive increment of labor and service costs.

spares. 30 days. Goods are received at gate and then gate entry is done. Raw Material: The major portion of company’s working capital consists of inventories. Finance department enters these bills on day to day basis. Indent is sent to material department for procurement.25 crore. stores. Working capital is needed for following purposes: For the payment of direct labor. spares. 2. Usually credit period offers by suppliers are 15 days. This normally in one lot accounts to Rs. List of bills due for payment is obtained from computer. chemicals for manufacturing . Finished goods:Finished goods are sold to their customers or debtors. payment terms etc. Power supply . Stores and Spares: Stores. chemicals are various constituents of inventory of stores and spares. quality. Company purchases machinery. Work in process: When raw material is purchased the next step is the processing of the material. Consequently payment is made on the basis of installments decided at the time of deal. waste paper.APPLICATION OF FUNDS The major portion of company’s working capital consists of inventory. Finance department enters these bills in computer giving indication of due date of payment. spares. Other than this stock and spares normally account to minimum of 4 crore at anytime.raw material takes around 20 to 40 days to reach at unit from domestic as well as international market. Bills duly processed by material department are received in finance department where they are passed for payment. 4. They call quotations from various suppliers and place order to the supplier who offers better price. Fortnightly payment to suppliers is made on 10th and 25th of every month. 60 days. The debtor policy mentioned above shows the time period offered to pay back. finished goods and work in progress etc. Material purchased has to process also. for future needs. now we will discuss them separately: 1. 3. 43 . oils and lubricants. packing material.

DATA ANALYSIS AND INTERPRETATION Calculation of gross working capital Stock PARTICULARS RAW MATERIAL WORK IN PROCESS FINISHED STOCK STORES END SPARES WASTE AND SCRAP TOTAL STOCK 2006 29541657 39385321 173344236 32494380 331750 275097344 2007 25381734 35845838 138497501 3036954 549592 230644319 2008 83170779 70624168 103458859 33284652 829249 291367657 Debtors 44 .

Particulars Over 6 months Other debtors Less : Provision for doubt debtors Total debtors 2006 47784158 165657116 35964581 177476693 2007 55639817 120134422 44008482 131765757 2008 81444414 341898394 41467189 381875624 Cash 45 .

15% 2008 750002175 53.Particulars Cash in hand On current account Fixed deposit Total cash 2006 276837 745530 22000 1044367 2007 71645 4555244 64404693 69031582 2008 221360 2739552 40162000 43122912 Loans and Advances : Particulars Total loans and advances 2006 35744752 2007 22907167 2008 33635982 Gross working Capital : Particulars 2006 GWC 489363156 Growth rate (base year 2006) 2007 454348825 -7.26% 46 .

47 .

or it can be said that company is still recovering. After a steep fall in gross working capital in year 2007 the company again jumped to good required working capital. The company witnessed some bad response from his creditors and debtors also. which earlier in 2007 gone down because of company was running under losses. which again is good for company to effectively use its cash in day to day operations. recession struck badly in 2007 as company mostly deals in international market. The debtors of the company have turned up with positive response.45% INTERPRETATION: In the above calculations it is seen that condition of the company is becoming better in 2008. In all the three years 2008 is proving to be better year in financial terms 48 . Cash is now not left idle in 2008. Company got business opportunities from abroad and 2008 again company had a sound working capital to keep operations running. It means company is getting more orders to be placed in future.64% 2008 750002175 265573692 484428483 70.Net working capital : Particulars Current assets Current liabilities NWC Growth rate 2006 489363156 205166434 284196722 - 2007 454348825 188480460 265868365 -6. It can be clearly seen that stock has gone up for the company in the year 2008 as compared to previous two years.. Company has recovered from his downfall.

Investing surplus cash The surplus cash balance should be properly invested to earn profits. the cash outflows should be decelerated. The cash inflows should be accelerated while. They also provide a short term investment outlet for excess cash has to be invested while the deposit has to be borrowed cash management seeks to accomplish this cycle. Optimum cash level The firm should decide about the appropriate level of cash balances.CASH MANAGEMENT Cash is the most important current assets needed for the uninterrupted and efficient flow of various operations of a firm. drafts and demand deposits in banks. Such as cheques. at a minimum cost at the same time it also seeks to achieve liquidity and control. However a broader meaning of it includes near cash assets marketable securities and time deposits. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balances. It is also the ultimate output that is expected to be realized by selling of the product or service of a particular firm. Cash planning Cash inflows and outflows should be planned to project cash surplus or depict for each part of the planning period. 2. The firm should decide about the division of such cash balance between alternative short term investment opportunities such as bank deposits. 4. 1. Managing cash flows The flow of cash should be so managed. Cash budget should be prepared for this purpose. In banks that are characterised as being reserve pool of liquidity that can be readily sold and converted into cash. marketable securities or intercorporate lending. Cash basically is the business at all times. In a narrower sense cash is used to cover currency and generally accepted equivalent of a cash. 49 . as far as possible. 3. In order to cash the uncertainity regarding the cash flow production an efficient cash management should follow following steps.

in case of delay in payment of the expiry of this period. However cash discount available on prompt payment should also availed off. firstly the firm grants a free of interest period to its customers. Speeding collection of accounts receivable This refers to the quick collection of receivables without loosing future sales. 3. Stretching accounts payable This implies that the firm pay its accounts payable as late as possible without damaging its credit standing. no interest is charged from the customers.MOTIVES FOR HOLDING CASH The firm need to hold the cash may be attributed to the following three motives: Transaction motive Precautionary motive Speculative motive Compensation motive Basic strategies of Compsny to manage the cash 1. During this period. This is 15 to 20 days depending on the reputation of the customer. The average collection period of receivable can be reduced by changes in the credit terms. decreasing the production cycle or increasing the finished goods. To ensure speedy collection of receivables. 2. Sometimes the company announces some special offers to specify the debt recovery which is bound by a particular condition that the customer would be required to pay particular percentage of the total payment. Initially to be entered 50 . . credit standards and collection policies. The following rates are charged 22-45 days 18% 45-65 days 20% 60-75 days 22% 75-90 days 24% 90 onwards 26% Secondly cash discount is offered to the customers by the firm regularly. Although. Efficient inventory production management Another strategy is to increase the Inventory turnover rate avoiding stock out for shortage of stock by increasing the raw material turnover.

37 which has helped PMP INDIA LTD in the time of real need.37 2008 43122912 265573692 0.5 where PMP INDIA lacks.005 2007 69031582 18848046 0 0. PMP INDIA has always returned its loans and other liabilities in time. Calculation of cash position ratio: Formula: = Cash C. which is positive sign for PMP INDIA.L. Earlier 20 banks offering the facility of cash collection. now the number has increased to 27. Thirdly. Because of this it holds good reputation from long time. In the 2007 ratio was 0. But as company didn’t ever stored much cash in hand. and has always invested somewhere to prevent cash being idle. CASH POSITION RATIO PARTICULARS CASH CURRENT LIABILITIES CASH POSITION RATIO 2006 1044367 20516643 4 0. but according to rule of thumb firm must have at least ratio of 0. So it can be concluded that cash reserved with company is generally reserved out of every task that needs to be accomplished in time.for the cash discount. the firm has increased the customer management services network.16 INTERPRETATION: Cash position ratio in all the three years is not able to reach rule of thumb. It is matter of worry. 51 .

205166434 188480460 265573692 Ratios 1. Quick Assets 214265812 223704506 458634518 C.17 :1 52 . 1:1 which again is satisfactory far the company.L. The current ratio in all the three years is above rule of thumb i.e.A.OTHER RATIOS: Current ratio : Year 2006 2007 2008 C. Quick ratio is also above the rule of thumb.82 :1 Quick ratio : Year 2006 2007 2008 INTERPRETATION: Both the above ratios are speaking for good financial health.L. which is considered to be satisfactory for the firm.e.41 :1 2.04 :1 1. 2:1. i. 489363456 454348825 750002175 C.38 :1 2. These all ratios show that liquidity is sound and tells that company is fully able to meet any current obligations. 205166434 188480460 265573692 Ratios 2. This also covers the shortcomings of the cash ratio.18 :1 1.

INVENTORY MANAGEMENT Inventory contribution the most significant part of the current assets of PMP INDIA for effective management of inventory and therefore the whole procedure of inventory management is carried on in a systematic manner. Fire insurance Flood risk policy Earthquake policy 53 . the following policies are there. For insuring the building. furniture. Decision relating to the procurement of inventory are primarily by the executive of the production purchase and marketing department In case of contingencies following policies are obtained. Whenever raw material is purchased transit insurance is done. fixtures etc.

CALCULATION OF INVENTORY TURNOVER RATIO INVENTORY TURNOVER RATIO: Inventory Turnover Ratio = Cost of Sales Average Inventory Conversion period = 365 Inventory Turnover Ratio Inventory turnover ratio (ITR) establishes the relationship between the sales during a period and the average amount of inventory carried during that period. The raw material is procured twice or thrice a day in case of a stores and spares and other miscellaneous items. Firstly a sales conference is held twice a year where dealers from country and abroad are invited for bookings or order or the finished items for each season.INVENTORY PROCUREMENT IN PMP INDIA PVT LIMITED In order to forecast the future requirement of inventory .it follow a very systematic procedure. This These order are communicated to the purchase department of arrangement are done to set the finance from the banks. For this purpose banks issue letter of credit in favour of PMP INDIA. Then on the basis of demand of a particular variety feed back from the market future trends as well as the suppliers of last season. Material procurement = 45 days Operation = 73 days Days given to debtors = 21 days 139 days Hence the company maintains its inventory level keeping in view the operating cycle and lead time and accordingly maintains its buffer stock and sets its reorder point. These 73 days of operating cycle will takes place when raw material is already available. A sales plan is prepared by the production planning and control department headed by the deputy general manager. But in case the company has to purchase outside the whole operating cycle will take almost 140 days. 54 . summer and winter once the booking are done .

99 times 2007 522133945 173344236 138497501 151738513 3. So company is getting good response from market for its products and it is more efficient in converting raw material to finished good. Here it is definitely beneficial as sales made were high and stock was also high in 2008.44 times 2008 966065240 138497501 103458859 120978180 7.99 times INTERPRETATION: Inventory turnover ratio has improved as compared to previous two years. It is good for the company. 55 . Inventory conversion period seems to be reduced in the year 2008.Particulars Sales Opening stock Closing stock Average inventory ITR 2006 436858856 1444170 1649795254 87394203 4.

etc.RECEIVABLE MANAGEMENT Receivables are defined as debt owned to the firm by the customers arising from the sales of goods or services in the ordinary course of business. 3. It has two broad dimensions Credit standards Credit standards are the criteria which a firm follows in selecting customers for the purpose of credit extension. The firm may have tight credit standards or loose credit standards. Collection cost This involves the administration cost incurred in collecting the accounts receivable such as maintaining the staff. In other words receivables represent an extension of credit to customers allowing them a reasonable period of time in which to pay for the goods they have received. The sale of goods on credit is an essential part of the modern competitive economic system credit sales are of ten treated as a marketing tool aid the sale of goods. Cost benefit involved The major categories of cost associated with the extension of credit and accounts receivables are: 1. 56 . Capital cost This is the cost that a firm has to incur due to the time lag between making sales and receiving payment meanwhile meeting its own obligation like payments of wages. 4. Key decision areas in management of receivables Credit policy The first decision area is the determination of the credit policy. and also expenses involved in acquiring credit information from outside parties. procuring raw material etc. Thus the objective of receivable management is to promote sales and profit until that point is reached where the return on investment in further funding of receivables is less than the cost of funds raised to finance to that additional credit however extension of credit involves risk also sold on credit. 2. postage. It is also variable to the customers as it arguments their resources it is particularly appearing to those customers who cannot borrow from other sources or find it expensive or cumbersome to do so. Delinquency cost These are the costs that arise when the firm makes extra effects on collecting receivables when they become due for payments. Default cost This involves the bad debts that have to be written off as they cannot be realized.

which will be less than the normal credit period. The collection efforts aim at accelerating collections from slow payers and reducing bad debt looses. Collection policy A collection policy is needed because all customers do not pay the firm's bills in time. These stipulations include Credit period The length of time which is extended to customers is called the credit period. Cash discount A cash discount is a reduction in payment offered to customers induce them to repay credit obligations within a specified period of time.5 2008 381875624 484428483 78. The collection policy should ensure prompt and regular collections.8 57 . It is generally stated in terms of a net date. There are two aspects of the quality of customers. the time taken by customers to repay credit obligations and the default rate.Credit analysis Credit standards influence the quality of the firm's customers. Credit terms The stipulations under the firm sells to customers are called credit terms. It is usually expressed as a percentage of sales.4 49. CALCULATION OF DEBTOR TURNOVER RATIO: DEBTORS TURNOVER RATIO Debtors turnover ratio= Sales Average debtors Collection Period = 365 Debtor’s turnover ratio Percentage of debtors turnover in NWC Particulars 2006 2007 Debtors 177476693 131765757 NWC 284196722 265868365 percentage 62.

53 144 DAYS INTERPRETATION: DTR ratio is best in year 2007. 2008 seems to be better than other good busuiness year that is 2006. More of the collection is to be made from foreign.96 92 DAYS 2008 2.53 PARTICULARS DTR AVERRAGE COLLECTION PERIOD 2006 2. Overall it is not good for company.397 2008 381875624 966065240 2. So leaving 2007.Particulars Debtors Sales DTR (Times) 2006 177476693 436858856 2.46 148 DAYS 2007 3.46 2007 131765757 52133945 0. 58 . This is another reason for long collection time. But it is not that it was profitable for the firm. In the year 2007 company didn’t had much to collect from outside because of lack of business.


e. Analysis were made on the basis of the data of year 2006. 2008. Time was another constraint. The data and ratios went more supportive in the year 2008 as compared to previous two years. the basics of the working capital management are explained in detail. In cash management company was having different policies for speeding cash recovery. Then the factors determining working capital and working capital cycle are explained. fixed and variable working capital. Then every single aspect of working capial management was covered. Very less tools were used in analysis of the company. It covers meaning. importance of working capital management. 3.The main purpose of this project undertaken was to study the working capital management of PMP INDIA PVT LTD. Working capital management at PMP INDIA PVT LTD is having strong other objectives of training were also to be kept in mind. Research was more of an exploratory research which showed valuable results. In inventory and receivables management both turnover ratios were good as per nature of business and requirement of business. The different financial policies adopted by the company are really supporting the company. The study had various limitations. 2007. Overall the crux of the study says company had sound financial base and is recovering from recession good. Afterwards types of working capital are explained i. This is because of nature of business. Firstly. Working capital cycle which starts from the purchase of raw material to the realization of cash involves a long time span. Research methodology and scope of the study is given in chapter no. CONCLUSION 60 . need.

growth rate in gross working capital. The company is matured one and it has contributed well in the countries growth and development and will continue to perform and contribute to the whole nation In conclusion we can say that the companies management is effective one and knows well the management of finance. All the ratios were speaking for strong financial output brought to the company in the year 2008.Company has managed to pose good profit. That’s why it’s working capital management system is very good .It is found that the company has a sound and effective policy and its performance is very good. even in this bad recession situation.After studying the components of working capital management system .So we can say that the position of company is good. Company has shown increase in current ratio.Company is competing well ar the domestic as well as at international level.sales of company and debtors have also increased in 2008 as compared to working capital in the year 2008. SUGGESTION 61 .

The main advantage of lock box system would be: The banks of PMP INDIA can handle the remittances prior to deposits at lower cost. the company would be able to control the schedule tightly and it would be easier to make disbursement on the right day . SWOT ANALYSIS 62 . This job could still be banks without delaying the collection. the company can adopt the lock box system. So far such decisions are centralized and lie in the hands of the head office. There needs to be more decentralized in this respect so that more could be invested in short term securities. The processing time of such remittances is reduced since their collection process faster than if PMP INDIA would have processed them for internal accounting purpose prior to their deposits in the box. so that a smaller cash balance would be needed at each branch and secondly . The company should make disbursement from a centralized account . This cash should not be left idle and should be invested . which can be realized at any time to pay time to pay the short term liabilities The company's ratio analysis shows too much of surplus liquidity in the hands of the company. The major advantage of accelerating the collection is reduce the firm's total financing requirements.For cash management the company largely upon the short term sources of order to speed up accounts receivable. Instead there should be a more systematic procedure of investing in the short term securities. And by transferring the clerical function to the bank. The would ensure quick recovery of receivables. the firm may reduce its cost.

small units are rather lacking back. the brand is perceived to be a premium and reliable brand because of its presence in the market for over eight decades. THREATS BIBLIOGRAPHY 63 . The company's capacity is too high thus the fixed cost remains the same at any amount of production. The company spends less money on advertisement. And thus PMP INDIA can take advantage of this situation. WEAKNESSES The main weakness of PMP INDIA is a conventional distribution channel.STRENGTH The biggest strength of PMP INDIA is its latest technology and imported machinery. OPPORTUNITIES in today's phase of recession. versatility is synonymous to PMP INDIAIn North India. Moreover. The company relies mainly on the agents for sales promotion.

K.Pandey.M. 64 . “Financial Management” vikas publications. Gupta and R. Sharma.K.BOOKS I. Prasanna Chandra. C. S. kalyani publishers. “Financial Management Theory and Practice”.R. KOTHARI. “Financial Management”. “Research methodology”.

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