An Industrial training report submitted in partial fulfillment of the requirement for the degree of BBA

Submitted by: Arun Kumar kanojia BBA – VI (SEM) Roll No.: 92261011



I hereby declare that project titled ―WORKING CAPITAL MANAGEMENT‖ is an original piece of research work carried out by me under the guidance and supervision of Mr. SUNIL THAKUR. The information has been collected from genuine & authentic sources.

The work has been submitted in partial fulfillment of the requirement of BBA programme (Batch 2009-2012) of BABA FARID COLLEGE.


ARUN KUMAR KANOJIA BBA 6th semester ROLL NO - 92261011



―If words are considered as symbol of Approval and Token of appreciation then let the words play the heralding role of expressing my sincere gratitude and thanks‖. Any accomplishment requires the effort of many people and this work is no different. I am indebted to Mr. Sunil Thakur but for whose guidance and patience I would have not been able to accomplish this task. I also owe a great thanks to him for providing me an opportunity to go through summer training, and providing me this golden opportunity to be a part of the said esteemed college and letting me work on this project.






























































The research conducted was descriptive in nature. The survey was conducted to analyze the employee training in NetMax Technologies Bathinda. The survey was to find out most of employees Satisfy with training provided in the NetMax technologies. With these objectives in mind, a survey was conducted in the Bathinda region. Questionnaire method was used to obtain the required information. Convenient sampling was used as the mode of conducting the survey. Care was taken that the respondents were as diversified as possible, with all the regions being given equal weight age and the sample size being suitably divided among various regions. A sample size of about 50 employees was taken for this purpose. After the survey was complete, the data was first sorted, and then analyzed on the chosen parameters. This analyzed data was later converted into various forms of graphs such as pie-charts. This was to make results easily comprehensible by anyone going through the report. This also made it easy to draw conclusions based on the research and provide a presentable format of the report. Later on all this information was compiled in the form of a presentable and comprehensible data. My Project is the study of working capital management. The study was conducted at the NetMax technologies Bathinda. During the project I interviewed the executives & staff to collect the data, & also made use of company records & annual reports. The data collected were then compiled, tabulated and analyzed. Working Capital Management is a very important facet of financial management due to:  Investments in current assets represent a substantial portion of total investment.  Investment in current assets & the level of current liabilities have to be geared quickly to change sales.  Some the points to be studied under this topic are:  How much cash should a firm hold?  What should be the firms credit policy?  How to & when to pay the creditors of the firm?  How much to invest in inventories? By studying about the company s different areas I came to know certain things like:  Acid test ratio is more than one but it does not mean that company has excessive liquidity.  Standard current ratio is 2:1 and for industry it is 1.33:1. NetMax technologies ratios satisfactory.  Debtors of the company were high; they were increasing year by year, so

 more funds were blocked in debtors. But now recovery is becoming faster.  Working capital turnover ratio is continuously increasing that shows increasing needs of working capital


 To identify the financial strengths & weakness of the company.  Through the net profit ratio & other profitability ratio, understand
profitability of the company


 Evaluating company s performance relating to financial statement analysis.  To know the liquidity position of the company with the help of current ratio.  To find out the utility of financial ratio in credit analysis & determining the
financial capacity of the firm .


Industrial Profile
Information Technology is one of the most important industries in the Indian economy. The IT industry of India has registered huge growth in recent years. India's IT industry grew from 150 million US Dollars in 1990-1991 to a whopping 50 billion UD Dollars in 2006-2007. In the last ten years the Information Technology industry in India has grown at an average annual rate of 30%. The liberalization of the Indian economy in the early nineties has played a major role in the growth of the IT industry of India. Deregulation policies adopted by the Government of India have led to substantial domestic investment and inflow of foreign capital to this industry. In 1970, high import duties had forced IBM to leave India. However, after the early nineties, many multinational IT companies, including IBM, have set up their operations in India. During the ten year period 1992-2002, the Indian software industry grew at double the rate as the US software industry.

 Some of the major reasons for the significant growth of the IT industry of India are: Abundant availability of skilled manpower.  Reduced telecommunication and internet costs.  Reduced import duties on software and hardware products.  Cost advantages.  Encouraging government policies.

 Some of the major companies in the IT industry of India are: Tata Consultancy Services (TCS)   Infosys Wipro

 IBM  HP  HCL

 Cognizant Technology Solutions (CTS)


India's IT industry caters to both domestic and export markets. Exports contribute around 75% of the total revenue of the IT industry in India. The IT industry can be broadly divided into four segments: IT services  Softwares (includes both engineering and Research and Development)  ITES-BPO  Hardware


Information Technology Industry
Information technology, and the hardware and software associated with the IT industry, are an integral part of nearly every major global industry. Information technology, and the hardware and software associated with the IT industry, are an integral part of nearly every major global industry. The information technology (IT) industry has become of the most robust industries in the world. IT, more than any other industry or economic facet, has an increased productivity, particularly in the developed world, and therefore is a key driver of global economic growth. Economies of scale and insatiable demand from both consumers and enterprises characterize this rapidly growing sector. The Information Technology Association of America (ITAA) explains 'information technology' as encompassing all possible aspects of information systems based on computers. Both software development and the hardware involved in the IT industry include everything from computer systems, to the design, implementation, study and development of IT and management systems. Owing to its easy accessibility and the wide range of IT products available, the demand for IT services has increased substantially over the years. The IT sector has emerged as a major global source of both growth and employment

 Features of the IT Industry at a Glance: Economies of scale for the information technology industry are high. The marginal cost of each unit of additional software or hardware is insignificant compared to the value addition that results from it.  Unlike other common industries, the IT industry is knowledge-based.  Efficient utilization of skilled labor forces in the IT sector can help an economy achieve a rapid pace of economic growth.

The IT industry helps many other sectors in the growth process of the economy including the services and manufacturing sectors.


 The role of the IT Industry
The IT industry can serve as a medium of e-governance, as it assures easy accessibility to information. The use of information technology in the service sector improves operational efficiency and adds to transparency. It also serves as a medium of skill formation.

Information technology in India
The Indian Information Technology industry accounts for a 5.19% of the country's GDP and export earnings as of 2009, while providing employment to a significant number of its tertiary sector workforce. More than 2.5 million people are employed in the sector either directly or indirectly, making it one of the biggest job creators in India and a mainstay of the national economy. In 2010-11, annual revenues from IT-BPO sector is estimated to have grown over US$76 billion compared to China with $35.76 billion and Philippines with $8.85 billion. India's outsourcing industry is expected to increase to US$225 billion by 2020. The most prominent IT hub is Bangalore. The other emerging destinations are Chennai, Hyderabad, Coimbatore, Kolkata, Kochi, Pune, Mumbai, Ahmedabad , NCR . Technically proficient immigrants from India sought jobs in the western world from the 1950s onwards as India's education system produced more engineers than its industry could absorb. India's growing stature in the Information Age enabled it to form close ties with both the United States of America and the European Union. However, the recent global financial crises has deeply impacted the Indian IT companies as well as global companies. As a result hiring has dropped sharply and employees are looking at different sectors like the financial service, telecommunications, and manufacturing industries, which have been growing phenomenally over the last few years. India's IT Services industry was born in Mumbai in 1967 with the establishment of Tata Group in partnership with Burroughs. The first software export zone SEEPZ was set up here way back in 1973, the old avatar of the modern day IT Park. More than 80 percent of the country's software exports happened out of SEEPZ, Mumbai in 80s. Each year India produces roughly 500,000 engineers in the country, out of them only 25% to 30% possessed both technical competency and English language skills, although 12% of India's population can speak in English. India developed a number of outsourcing companies specializing in customer support via Internet or telephone connections. By 2009, India also has a total of 37,160,000 telephone lines in use, a total of 506,040,000 .


mobile phone connections, a total of 81,000,000 Internet users—comprising 7.0% of the country's population, and 7,570,000 people in the country have access to broadband Internet— making it the 12th largest country in the world in terms of broadband Internet users. Total fixed-line and wireless subscribers reached 543.20 million as of November, 2009.

 Formative years (till 1991)
The Indian Government acquired the EVS EM computers from the Soviet Union, which were used in large companies and research laboratories. In 1968 Tata Consultancy Services— established in SEEPZ, Mumbai by the Tata Group—were the country's largest software producers during the 1960s. As an outcome of the various policies of Jawaharlal Nehru (office: 15 August 1947 – 27 May 1964) the economically beleaguered country was able to build a large scientific workforce, third in numbers only to that of the United States of America and the Soviet Union. On 18 August 1951 the minister of education Maulana Abul Kalam Azad, inaugurated the Indian Institute of Technology at Kharagpur in West Bengal. Possibly modeled after the Massachusetts Institute of Technology these institutions were conceived by a 22 member committee of scholars and entrepreneurs under the chairmanship of N. R. Sarkar. Relaxed immigration laws in the United States of America (1965) attracted a number of skilled Indian professionals aiming for research. By 1960 as many as 10,000 Indians were estimated to have settled in the US. By the 1980s a number of engineers from India were seeking employment in other countries. In response, the Indian companies realigned wages to retain their experienced staff. In the Encyclopedia of India, Kamdar (2006) reports on the role of Indian immigrants (1980 - early 1990s) in promoting technology-driven growth: The United States’ technological lead was driven in no small part by the brain power of brilliant immigrants, many of whom came from India. The inestimable contributions of thousands of highly trained Indian migrants in every area of American scientific and technological achievement culminated with the information technology revolution most associated with California’s Silicon Valley in the 1980s and 1990s. The National Informatics Centre was established in March 1975. The inception of The Computer Maintenance Company (CMC) followed in October 1976. Between 1977-1980

the country's Information Technology companies Tata Infotech, Patni Computer Systems and Wipro had become visible. The 'microchip revolution' of the 1980s had convinced both Indira Gandhi and her successor Rajiv Gandhi that electronics and telecommunications were vital to India's growth and development. MTNL underwent technological improvements. Between 1986-1987, the Indian government embarked upon the creation of three wide-area computer networking schemes: INDONET (intended to serve the IBM mainframes in India), NICNET (the network for India's National Informatics Centre), and the academic research oriented Education and Research Network (ERNET).

 1991–2001

Regulated VSAT links became visible in 1985. Desai (2006) describes the steps taken to relax regulations on linking in 1991: In 1991 the Department of Electronics broke this impasse, creating a corporation called Software Technology Parks of India (STPI) that, being owned by the government, could provide VSAT communications without breaching its monopoly. STPI set up software technology parks in different cities, each of which provided satellite links to be used by firms; the local link was a wireless radio link. In 1993 the government began to allow individual companies their own dedicated links, which allowed work done in India to be transmitted abroad directly. Indian firms soon convinced their American customers that a satellite link was as reliable as a team of programmers working in the clients’ office. Videsh Sanchar Nigam Limited (VSNL) introduced Gateway Electronic Mail Service in 1991, the 64 kbit/s leased line service in 1992, and commercial Internet access on a visible scale in 1992. Election results were displayed via National Informatics Centre's NICNET. The Indian economy underwent economic reforms in 1991, leading to a new era of globalization and international economic integration. Economic growth of over 6% annually was seen between 1993-2002. The economic reforms were driven in part by significant the internet usage in the country.

The new administration under Atal Bihari Vajpayee—which placed the development of Information Technology among its top five priorities— formed the Indian National Task Force on Information Technology and Software Development. Wolcott & Goodman (2003) report on the role of the Indian National Task Force on Information Technology an D Software Development: Within 90 days of its establishment, the Task Force produced an extensive background report on the state of technology in India and an IT Action Plan with 108 recommendations. The Task Force could act quickly because it built upon the experience and frustrations of state governments, central government agencies, universities, and the software industry. Much of what it proposed was also consistent with the thinking and recommendations of international bodies like the World Trade Organization (WTO), International Telecommunications Union (ITU), and World Bank. In addition, the Task Force incorporated the experiences of Singapore and other nations, which implemented similar programs. It was less a task of invention than of sparking action on a consensus that had already evolved within the networking community and government. The New Telecommunications Policy, 1999 (NTP 1999) helped further liberalize India's telecommunications sector. The Information Technology Act 2000 created legal procedures for electronic transactions and e-commerce. Throughout the 1990s, another wave of Indian professionals entered the United States. The number of Indian Americans reached 1.7 million by 2000. This immigration consisted largely

of highly educated technologically proficient workers. Within the United States, Indians fared well in science, engineering, and management. Graduates from the Indian Institutes of Technology (IIT) became known for their technical skills. Thus GOI planned to establish new Institutes especially for Information Technology to enhance this field. In 1998 India got the first IT institute name Indian Institute of Information Technology at Gwalior. The success of Information Technology in India not only had economic repercussions but also had far-reaching political consequences. India's reputation both as a source and a destination for skilled workforce helped it improve its relations with a number of world economies. The relationship between economy and technology—valued in the western world—facilitated the growth of an entrepreneurial class of immigrant Indians, which further helped aid in promoting technology-driven growth.

India is now one of the biggest IT capitals in the modern world. The economic effect of the technologically inclined services sector in India—accounting for 40% of the country's GDP and 30% of export earnings as of 2006, while employing only 25% of its workforce—is summarized by Sharma (2006): The share of IT (mainly software) in total exports increased from 1 percent In1990 to 18 percent in 2001. IT-enabled services such as BackOffice operations, remote maintenance, accounting, public call centers, medical transcription, insurance claims, and other bulk processing are rapidly expanding. Indian companies such as HCL, TCS, Wipro, and Infosys may yet become household names around the world. Today, Bangalore is known as the Silicon Valley of India and contributes 33% of Indian IT Exports. India's second and third largest software companies are head-quartered in Bangalore, as are many of the global SEI-CMM Level 5 Companies. And Mumbai too has its share of IT companies that are India's first and largest, like TCS and well established like Reliance , Patni, LnT Infotech, i-Flex, WNS, Shine, Naukri, Jobspert etc. are head-quartered in Mumbai. And these IT and dot com companies are ruling the roost of Mumbai's relatively high octane industry of Information Technology. Such is the growth in investment and outsourcing; it was revealed that Cap Gemini will soon have more staff in India than it does in its home market of France with 21,000 personnel+ in India. On 25 June 2002 India and the European Union agreed to bilateral cooperation in the field of science and technology. A joint EU-India group of scholars was formed on 23 November 2001 to further promote joint research and development. India holds observer status at CERN while a joint India-EU Software Education and Development Center is due at Bangalore.


India's IT industry (USD bn)
Particulars FY 2004 FY 2005 FY 2006 FY 2007 FY 2008

IT Services






- Exports






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Engineering services, R&D and Software products






- Exports






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Total IT industry (including hardware)







Top 10 ITS Hubs in India

ranking City 1 Bangalore

Description Popularly known as the capital of the Silicon Valley of India is currently leading in Information Technology Industries in India.



It is the second largest exporter of Software. It has the largest operations for Indias top software company TCS



Hyderabad which has good infrastructure and good government support is also a good technology base in India. The Government of AP Has built a separate township for IT Industry called the HITEC City.



Pune, a major industrial point in India.



It is the Manchester of South India. Among major metromarkets Coimbatore (up 31% precent) MAY 11(Bangalore showed the slowest rate of annual growth at 4 percent driven by reduced demand in the BPO/ITES sector), It Become an Upcoming Major IT hub of India.



The National Capital Region of India comprising Delhi, Gurgaon, Faridabad, Noida, Greater Noida and Ghaziabad are having ambitious projects and are trying to do every possible thing for this purpose.



Popularly known as the commercial, entertainment, financial capital of India, This is one city that has seen tremendous growth in IT and BPO industry, it recorded 63% growth in

2008. TCS, Patni, LnT Infotech, I-Flex WNS and other companies are headquartered here.



Kolkata is a major IT hub in eastern India. All major IT companies are present here. The city has tremendous potential for growth in this sector with upcoming areas like Rajarhat.



Famously known as "Gateway of South India”. Trivandrum, the capital of kerala is a green metropolis and tier I city. GOK provides a good platform for IT development in the city with India's largest IT park Technopark and dedicated Technocity SEZs.



This rapidly growing industrial hub houses a lot of IT/ITES and BPO giants. Genpact, Connexions IT services, Deutsche Bank and EXL BPO, Infosys’s, Tech Mahindra, and Wipro are here. There are plans to build the largest IT SEZ in India by Mahindra under the Mahindra World City.


India IT Industry
The Indian information technology (IT) industry has played a major role in placing India on the international map. Over the last few years the IT and BPO sector in India has become one of the major contributors to the country's growth. The IT/ BPO industry in India has contributed directly and indirectly to the economy by providing employment, generating revenues and creating value. The Indian IT industry is mainly governed by IT software and services such as System Integration, Software experiments, Custom Application Development and Maintenance (CADM), network services and IT Solutions. According to the findings of National Association of Software and Service Companies (Nasscom) the revenues of the Indian ITBPO industry will aggregate up to US$ 88.1 billion for the FY2011. The IT software and services sector alone will account for revenues upto US$ 76.1 billion for the same year. The export revenues earned by the sector will reach US$ 59 billion in FY2011 making the sector a holder of 26 per cent of market share of the total Indian export industry. The number of people employed with the sector will also increase to 2 million employees. Within the realm of exports the IT Services division grew at a rate 22.7 per cent in FY2010. It was the fastest growing sector accounting to aggregate export revenues of US$ 33.5 billion.

 Top IT Companies

As per the latest reports published by Dataquest, The top 20 IT companies in India which comprise both hardware and software accounted for accumulated revenues of $2 billion in 2009-10.

 Top IT Companies in India
Below is a list of the top IT Companies in India in 2010 showing their revenue and growth rate.

Hewlett-Packard India HCL Infosystems Ltd Ingram Micro India Redington IBM India Dell India Wipro Intel India Microsoft India SAP India: Acer India Oracle India APC-MGE Emerson Network Power India Lenovo India Cisco Systems India Tulip Telecom LG India Samsung India

Rs 14,992 crore Rs 11,836 crore Rs 8,824 crore Rs 7,024 crore Rs 5,888 crore Rs 5,275 crore Rs 5,268 crore 4,690 crore Rs 3,575 crore Rs 3,204 crore Rs 2,749 crore Rs 2,700 crore Rs 2,620 crore Rs 2,500 crore Rs 2,396 crore Rs 2,324 crore Rs 1,965 crore Rs 1,798 crore Rs 1,664 crore

Growth Rate
16 percent -4 percent -6 percent 7 percent 2 percent 24 percent 9 percent Not available 14 percent 46 percent 38 percent 11 percent -1 percent NA -3 percent 0 percent 22 percent 39 percent 29 percent


Profile of NetMax Technologies
NetMax Technologies is an organization which was established in 2001 in the field of network training, support & embedded system design solution. Its mission is ―To provide world class solution in advance‖. NetMax Technologies is a leader in network support, embedded systems, and software & web development services. NetMax Technologies group of companies is divided into two: NetMax Technologies (Core) & NetMax Web solutions. It is a private company and its site is www.netmaxtech.com. Its headquarter is in Sco 198-200 3rd floor sec 34a Chandigarh. An ISO 9001:2008 Certified Organization providing service in field of Education, Software Development, Web site Development, Hosting Services since almost a decade now and that proves our quality service because quality is the only thing that can with stand the test of time. Its products are CCNA,CCNP,MCITP,LINUX,PHP,.NET,JAJA,8051,PIC,AVR,PLC,ARM,and REBOTICS. Net max Web solutions, is an ISO 9001:2008 Certified Web Development and Software development unit of NetMax Technologies established in 2001 in Chandigarh. We have been serving a wide variety of clients, ranging from Corporate, Software Development, Educational Institutions, to other Business houses.

An ISO 9001:2008 Certified Organization providing service in field of Education, Software Development, Web site Development, Hosting Services since almost a decade now and that proves our quality service because quality is the only thing that can with stand the test of time.


Privately Held

Company Size:- 11-50 employees


Website:- http://netmaxtech.com

Industry:- Professional Training & Coaching

Founded:- 2001 Headquarters:Sco 198-200 3rd floor Sec 34a Chandigarh, Chandigarh 160022(India)

We since then have been the prime institution in the field of Training and Education in Chandigarh and North India Region. With over 1000 students under going training every year in field of IT and Electronics we have proven our worth. Only Quality can withstand the test of time in today’s highly demanding market and we expanding since our establishment from one office to five offices in four different cities since almost a decade ago prove our worth. With professionals hired to provide training to the student, we aim to give the real industry environment to the student so that they be ready for it.


NetMax Technologies provides industrial training to BTech/MCA/BCA/Diploma students to make them proficient in following fields Advance Networking

JAVA development

PHP Programming and Web Development

Microsoft System Administration

PLC and SCADA Automation Technologies

.NET development

Embedded systems


NetMax Technologies (Core) takes care of IT support, embedded systems R& D & Implementation services, whereas NetMax web solutions is a web & software development company that takes care of Software development & web service solutions. It offers a vast portfolio of IT solutions to customers spread across Punjab, Haryana & Himachal Pradesh. NetMax Technologies is a pioneer in the field of IT education in north India. NetMax Technologies set up education centre in Chandigarh (Punjab) and followed them with centers in Patiala, Jalandhar, Ludhiana & Bhatinda in the years that followed. In 2005, NetMax Technologies introduced corporate training programs which as an initiative were highly appreciated by the industry and corporate alike We are looking for someone who is smart, innovative, web savvy, hard working and has strong experience in SEO and internet marketing. The successful candidate will be passionate about great client service and will show it in their actions, their attitude, and their execution. NetMax Technologies offers a vast portfolio of IT solutions to customers spread across Punjab, Haryana & Himachal Pradesh. NetMax Technologies was set up in 2001 by young

Indian entrepreneurs. It has pioneered the concept of high quality IT education in North India and has trained over 10,000 plus networking, embedded systems & software professionals in the country.

 Area of Focus:NetMax Technologies focus areas include network support, network implementation, embedded system research & development and robotics. NetMax Technologies addresses the needs of well-defined industry segments such as BPO’s, IT & ITES, and government Agencies like CSIO & TBRL etc. It has alliances with global IT majors such as Microsoft, CISCO and Red Hat. Lately; it has started programs like Android Apps. Development in association with Google along with Cloud computing believed to be the only organization in India running them on professional level.

 Support Area (Network Solutions)
 LINUX / UNIX networks  SUN networks  CISCO devices (Routers, Switches, Firewalls, Cache Engine, RAS etc)  Bandwidth Manager Software and hardware  Radio Links  Security Solutions NetMax Provide six weeks, six months and one year industrial training a in various fields. Each training is designed according to market needs and student requirements. You can choose from following available options for Industrial Training:     Networking Software Development Embedded System PLC

6 Week Industrial Training is Available in:


 Software Development: JAVA, C Sharp, ASP, .Net, Android, PHP  Network Administration: Cisco, CCNA, Linux, Microsoft MCITP  Electronics & Embedded: 8051, PIC, AVR, ARM, Or CAD

6 Month Industrial Training is Available in:      EMBEDDED: PLC, AVR, ARM CISCO: CCNP, CCVP,CCIP .NET: C Sharp, ASP .NET PHP: Advance PHP & CMS JAVA: Advance Java, Andriod

Courses available in NetMax

Networking: - NetMax provide the course of CCNA in networking.Natworking is the practice of linking two or more computing devices together for the purpose of sharing data. Networks are built with a mix of computer hardware and computer software. CCNA:-CCNA (Cisco Certified Network Associate) is the Cisco Academy Computer Networking Course with a curriculum designed to prepare computer networking students to pass the CCNA exam, or the ICND 1 and 2 certification exams. Here is an overview of CCNA and where it fits among the Cisco career certifications. Software: - Software is a general term for the various kinds of programs used to operate computers and related devices.Netmax provide two courses in software such as PHP and JAVA (core and advance). PHP Training PHP Training and Web Development PHP stands for PHP: Hypertext Preprocessor, with that PHP standing for Personal Homepage. PHP is an open-source language, used primarily for dynamic web content and server-side applications.

Java Training
JAVA is a programming language originally developed by James Gosling at Sun Microsystems and released in 1995. Java is a high-level, third generation programming language, like C, FORTRAN, Smalltalk, Perl, and many others. You can use Java to write computer applications that crunch numbers, process words, play games, store data or do any

of the thousands of other things computer software can do. Java technology’s versatility, efficiency, platform portability, and security make it the ideal technology for network computing. From laptops to datacenters, game consoles to scientific supercomputers, cell phones to the Internet, Java is everywhere!

Embedded System
An embedded system can be defined as a control system or computer system designed to perform a specific task. Common examples of embedded systems include MP3 players, navigation systems on aircraft and intruder alarm systems.NetMax provide the course in embedded system such as 8051, PIC, ARV, ARM, and REBOTICS. NetMax Technologies takes care of IT support, embedded systems R& D & Implementation services, whereas NetMax web solutions is a web & software development company that takes care of Software development & web service solutions. It offers a vast portfolio of IT solutions to customers spread across Punjab, Haryana & Himachal Pradesh. NetMax Technologies is a pioneer in the field of IT education in north India. NetMax Technologies set up education centre in Chandigarh (Punjab) and followed them with centers in Patiala, Jalandhar, Ludhiana & Bhatinda in the years that followed. In 2005, NetMax Technologies introduced corporate training programs which as an initiative were highly appreciated by the industry and corporate alike. NetMax Technologies provides industrial training to BTech/MCA/BCA/Diploma students in fields like Embedded systems, Robotics ,PLC and SCADA Automation Technologies, Advance Networking Technologies(CISCO) ,JAVA development, .NET development



Management is an art of anticipating and preparing for risks, uncertainties and overcoming obstacles. An essential precondition for sound and consistent assets management is establishing the sound and consistent assets management policies covering fixed as well as current assets. In modern financial management, efficient allocation of funds has a great scope, in finance and profit planning, for the most effective utilization of enterprise resources, the fixed and current assets have to be combined in optimum proportions. Working capital in simple terms means the amount of funds that a company requires for financing its day-to-day operations. Finance manager should develop sound techniques of managing current assets.

Working capital refers to the investment by the company in short terms assets such as cash, marketable securities. Net current assets or net working capital refers to the current assets less current liabilities. Symbolically, it means, Net Current Assets = Current Assets Current Liabilities.

The following are the most important definitions of Working capital: 1) Working capital is the difference between the inflow and outflow of funds. In other words it is the net cash inflow . 2) Working capital represents the total of all current assets. In other words it is the Gross working capital , it is also known as Circulating capital or Current capital for current assets are rotating in their nature. 3)Working capital is defined as The excess of current assets over current liabilities and provisions .In other words it is the Net Current Assets or Net Working Capital .

Working capital may be regarded as the lifeblood of the business. Without insufficient working capital, any business organization cannot run smoothly or successfully. In the business the Working capital is comparable to the blood of the human body. Therefore the study of working capital is of major importance to the internal and external analysis because of its close relationship with the current day to day operations of a business. The inadequacy or mismanagement of working capital is the leading cause of business failures. To meet the

current requirements of a business enterprise such as the purchases of services, raw materials etc. working capital is essential. It is also pointed out that working capital is nothing but one segment of the capital structure of a business. In short, the cash and credit in the business, is comparable to the blood in the human body like finance s life and strength i.e. profit of solvency to the business enterprise. Financial management is called upon to maintain always the right cash balance so that flow of fund is maintained at a desirable speed not allowing slow down. Thus enterprise can have a balance between liquidity and profitability. Therefore the management of working capital is essential in each and every activity.

Working Capital is the key difference between the long term financial management and short term financial management in terms of the timing of cash. Long term finance involves the cash flow over the extended period of time i.e 5 to 15 years, while short term financial decisions involve cash flow within a year or within operating cycle. Working capital management is a short term financial management. Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities & the inter relationship that exists between them. The current assets refer to those assets which can be easily converted into cash in ordinary course of business, without disrupting the operations of the firm.  Composition of working capital  Major Current Assets i. Cash ii. Accounts Receivables iii. Inventory iv. Marketable Securities

Major Current Liabilities  Bank Overdraft  Outstanding Expenses  Accounts Payable  Bills Payable

The Goal of Capital Management is to manage the firm s current assets & liabilities, so that the satisfactory level of working capital is maintained. If the firm can not maintain the satisfactory level of working capital, it is likely to become insolvent & may be forced into

bankruptcy. To maintain the margin of safety current asset should be large enough to cover its current assets. Main theme of the theory of working capital management is interaction between the current assets & current liabilities.

There are 2 concepts:  Gross Working Capital  Net Working Capital

Gross working capital: - It is referred as total current assets.Focuses on, Optimum investment in current assets: Excessive investments impairs firm s profitability, as idle investment earns nothing. Inadequate working capital can threaten solvency of the firm because of its inability to meet its current obligations. Therefore there should be adequate investment in current assets.  Financing of current assets: Whenever the need for working capital funds arises, agreement should be made quickly. If surplus funds are available they should be invested in short term securities. Net working capital (NWC) defined by 2 ways,  Difference between current assets and current liabilities  Net working capital is that portion of current assets which is financed with long term funds. 


If the working capital is efficiently managed then liquidity and profitability both will improve. They are not components of working capital but outcome of working capital. Working capital is basically related with the question of profitability versus liquidity & related aspects of risk.

Implications of Net Working Capital: Net working capital is necessary because the cash outflows and inflows do not coincide. In general the cash outflows resulting from payments of current liability are relatively predictable. The cash inflows are however difficult to predict. More predictable the cash

inflows are, the less NWC will be required. But where the cash inflows are uncertain, it will be necessary to maintain current assets at level adequate to cover current liabilities that are there must be NWC. For evaluating NWC position, an important consideration is trade off between probability and risk. The term profitability is measured by profits after expenses. The term risk is defined as the profitability that a firm will become technically insolvent so that it will not be able to meet its obligations when they become due for payment. The risk of becoming technically insolvent is measured by NWC. If the firm wants to increase profitability, the risk will definitely increase. If firm wants to reduce the risk, the profitability will decrease.


Working capital is required to run day to day business operations. Firms differ in their requirement of working capital (WC). Firm s aim is to maximize the wealth of share holders and to earn sufficient return from its operations.

WCM is a significant facet of financial management. Its importance stems from two reasons: Investment in current asset represents a substantial portion of total investment. Investment in current assets and level of current liability has to be geared quickly to change in sales. Business undertaking required funds for two purposes:  To create productive capacity through purchase of fixed assets.  To finance current assets required for running of the business. The importance of WCM is reflected in the fact that financial managers spend a great deal of time in managing current assets and current liabilities. The extent to which profit can be earned is dependent upon the magnitude of sales. Sales are necessary for earning profits. However, sales do not convert into cash instantly; there is invariably a time lag between sale of goods and the receipt of cash. WC management affect the profitability and liquidity of the firm which are inversely proportional to each other, hence proper balance should be maintained between two.  


To convert the sale of goods into cash, there is need for WC in the form of current asset to deal with the problem arising out of immediate realization of cash against good sold. Sufficient WC is necessary to sustain sales activity. This is referred to as the operating or cash cycle. A firm requires many years to recover initial investment in fixed assets. On contrary the investment in current asset is turned over many times a year. Investment in such current assets is realized during the operating cycle of the firm.


Each component of working capital (namely inventory, receivables and payables) has two dimensions ... TIME ......... and MONEY. When it comes to managing working capital TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect dues from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund future sales. It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water flowing down a plughole, they remove liquidity from the business

If you…………
Collect receivables (debtors) faster. Collect receivables (debtors) slower. Get better credit (in terms of duration or amount) from suppliers. Shift inventory (stock) faster. Move inventory(stock) slower.

You release cash from the cycle. Your receivables soak up cash. You increase your cash resourses. You free up cash. You consume more cash.

Operating cycle: The working capital cycle refers to the length of time between the firms paying the cash for materials, etc., entering into production process/stock & the inflow of cash from debtors (sales), suppose a company has certain amount of cash it will need raw materials. Some raw materials will be available on credit but, cash will be paid out for the other part immediately. Then it has to pay labour costs & incurs factory overheads. These three combined together will constitute work in progress. After the production cycle is complete, work in progress will get converted into sundry debtors. Sundry debtors will be realized in cash after the expiry of the credit period. This cash can be again used for financing raw material, work in progress etc. thus there is complete cycle from cash to cash wherein cash gets converted into raw material, work in progress, finished goods and finally into cash again. Short term funds are required to meet the requirements of funds

during this time period. This time period is dependent upon the length of time within which the original

Injection of cash

Cash withdrawals


GOOD SOLD Debtor generated & then cash received

PAYMENTS To suppliers for raw material To workers wages


Working capital cycle can be determined by adding the number of days required for each stage in the cycle. For example, company holds raw material on average for 60 days, it gets credit from the supplier for 15 days, finished goods are held for 30 days & 30 days credit is extended to debtors. The total days are 120, i.e., 60 15 + 15 + 15 + 30 + 30 days is the total of working capital. Thus the working capital cycle helps in the forecast,control & management of working capital. It indicates the total time lag & the relative significance of its constituent parts. The duration may vary depending upon the business policies. In light of the facts discusses above we can broadly classify the operating cycle of a firm into three phases viz.

1 Acquisition of resources. 2 Manufacture of the product and 3 Sales of the product (cash / credit). First and second phase of the operating cycle result in cash outflows, and be predicted with reliability once the production targets and cost of inputs are known.

However, the third phase results in cash inflows which are not certain because sales and collection which give rise to cash inflows are difficult to forecast accurately. Operating cycle consists of the following:  Conversion of cash into raw-materials;  Conversion of raw-material into work-in-progress;  Conversion of work-in-progress into finished stock;  Conversion of finished stock into accounts receivable through sales; and Conversion of accounts receivable into cash. In the form of an equation, the operating cycle process can be expressed as follows: Operating cycle = R + W + F + D - C R = Raw material storage period W = Work in progress holding period F = Finished goods storage period D = Debtors collection period C = Credit period availed


Operating cycle for manufacturing firm


Raw materials stock

Finished goods stock

Wages & overhead Sale Selling exp Trade creditor Trade debtors




Fixed assets

Loan creditors

Lease payments The firm is therefore, required to invest in current assets for smooth and uninterrupted functioning.


RMCP – Raw Material Conversion Period WIPCP – Work In Progress Conversion Period FGCP – Finished Goods Conversion Period ICP - Inventory Conversion Period Payables (PDP) – Payables Deferral Period NOC – Net Operating Cycle Goc – Gross Operating Cycle

Here, the length of GOC is the sum of ICP and RCP. ICP is the total time needed for producing and selling the products. Hence it is the sum total of RMCP, WIPCP and FGCP. On the other hand, RCP is the total time required to collect the outstanding amount from customers. Usually, firm acquires resources on credit basis. PDP is the result of such an incidence and it represent the length of time the firm is able to defer payments on various resources purchased. The difference between GOC and PDP is know as Net Operating Cycle and if Depreciation is excluded from the expenses in computation of operating cycle, the NOC also represents the cash collection from sale and cash payments for resources acquired by the firm and during such time interval between cash collection from sale and cash payments for resources acquired by the firm and during such time interval over which additional funds called working capital should be obtained in order to carry out the firms operations. In short, the working capital position is directly proportional to the Net Operating Cycle.

On the basis of financial statement of an organization we can calculate the inventory conversion period. Debtors / receivables conversion period and the creditors conversion period and based on such calculations we can find out the length of the operating cycle (in days) both gross as well as net operating cycle. As mentioned above, on the basis of information presented in the Balance sheet and CMA statement of NetMAx Technologies Limited, the length of gross as well as net operating cycle is calculated as follows:


Particulars Material Cost Labour Cost Direct Expenses Prime Cost + Manufactu ring Exp Cost of Production + Opening WIP - Closing WIP Cost of Goods Produced +Opening FG -Closing FG Cost of Goods Sold

2006-07 9132.58

2007-08 11099.03

2008-09 12084.02

2009-10 15771.59

3597.64 -12730.22 2103.89

3115.99 -14215.02 1977.51

3336.02 -15420.04 2080.21

3681.33 -19452.52 2733.89





284.22 1003.23 14115.1

1003.23 1025.54 16170.22

1025.54 1261.56 17264.23

1261.56 1327.47 22120.9

286.13 330.66 14070.57

330.66 115.71 16385.17

115.71 260.64 17119.3

260.64 315.02 22066.52

 Operating Cycle for the year 2009-10 a. RMCP = Average Stock x 360 = 54 days Annual Consumption Average Stock x 360 = 21 days Cost of Production Average Stock x 360 = 5 days Cost of Goods Sold






Debtors Conversion Period = Average Debtors x 360 = 123 days Cost of sales Payables Deferral Period = Average Creditors x 360 = 87 days


Cost of Goods Sold

Gross operating Cycle = 54 + 21 + 5 + 123 = 203 days Net Operating Cycle = 203 87 = 116 days Operating Cycle for the year 2008-09

1. 2. 3. 4. 5.

RMCP = 59 days WIPCP = 24 days FGCP = 4 days Debtors Conversion Period = 149 days Payable Deferral Period = 132 days.

Gross operating Cycle = 59 + 24 + 4 + 149 = 236 days Net Operating Cycle = 236 132 = 104 days

Operating Cycle for the year 2007-08 1 RMCP = 48 days 2 WIPCP = 23 days 3 FGCP= 5 days 4 Debtors Conversion Period = 181 days 5 Payable Deferral Period = 162 days. Gross operating Cycle = 48 + 23 + 5 + 181 = 257 days Net Operating Cycle = 257 162 = 95 days

Operating Cycle for the year 2006-07 a. RMCP = 64 days b. WIPCP = 27 days c. FGCP= 9 days

d. Debtors Conversion Period = 112 days e. Payable Deferral Period = 137 days. Gross operating Cycle = 64 + 27 + 9 + 112 = 212 days Net Operating Cycle = 212 137 = 75 days Types of working capital:  PERMANENT AND  VARIABLE WORKING CAPITAL

The need for current assets arises because of the operating cycle. The operating cycle is a continuous process and, therefore, the need for current assets is felt constantly. But the magnitude of current assets needed is not always a minimum level of current assets which is continuously required by the firm to carry on its business operations. This minimum level of current assets is referred to as permanent, or fixed, working capital. It is permanent in the same way as the firms fixed assets are. Depending upon the changes in production and sales, the need for working capital, over and above permanent working capital, will fluctuate. For example, extra inventory of finished goods will have to be maintained to support the peak periods of sales, and investment in receivable may also increase during such periods. On the other hand, investment in raw material, work-in-process and finished goods will fall if the market is slack.

The extra working capital, needed to support the changing production and sales activities is called FLUCTUATING, or VARIABLE, or TEMPORARY working capital. Both kinds of working capital PERMANENT and TEMPORARY - are necessary to facilitate production and sale through the operating cycle, but temporary-working capital is created by the firm to meet liquidity requirements that will last only temporary working capital. It is shown that permanent working capital is stable over time. While temporary working capital is fluctuating- sometimes increasing and sometimes decreasing. However, the permanent capital is difference between permanent and temporary working capital can be depicted through figure.

BALANCED WORKING CAPITAL POSITION The firm should maintain a sound working capital position. It should have adequate working capital to run its business operations. Both excessive as well as inadequate working capital


positions are dangerous from the firms point of view. Excessive working capital not only impairs the firms profitability but also result in production interruptions and inefficiencies.

The dangers of excessive working capital are as follows:  It results in unnecessary accumulation of inventories. Thus, chances of inventory mishandling, waste, theft and losses increase.  It is an indication of defective credit policy slack collections period. Consequently, higher incidence of bad debts results, which adversely affects profits.  Excessive working capital makes management complacent which degenerates into managerial inefficiency.  Tendencies of accumulating inventories tend to make speculative profits grow. This may tend to make dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits.

Inadequate working capital is also bad and has the following dangers:  It stagnates growth. It becomes difficult for the firm to undertake profitable projects for non- availability of working capital funds.  It becomes difficult to implement operating plans and achieve the firms profit target.  Operating inefficiencies creep in when it becomes difficult even to meet day commitments.  Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the firm s profitability would deteriorate.  The firm loses its reputation when it is not in a position to honour its short-term obligations.  As a result, the firm faces tight credit terms. An enlightened management should, therefore, maintain the right amount of working capital on a continuous basis. Only then a proper functioning of business operations will be ensured. Sound financialand statistical techniques, supported by judgment, should be used to predict the quantum of working capital needed at different time periods. A firm s net working capital position is not only important as an index of liquidity but it is also used as a measure of the firm s risk. Risk in this regard means chances of the firm being unable to meet itsobligations on due date. The lender considers a positive net working as ameasure of safety. All other things being equal, the more the net workingcapital a firm has, the less likely that it will default in meeting its currentfinancial obligations. Lenders such as commercial banks insist that the firmshould maintain a minimum net working capital position.

DETERMINANTS OF WORKING CAPITAL There are no set rules or formula to determine the working capital requirements of firms. A large number of factors, each having a different importance, influence working capital needs of firms. Also, the importance of factors changes for a firm over time. Therefore, an analysis of relevant factors should be made in order to determine total investment in working capital. The following is the description of factors which generally influence the working capital requirements of firms.        Nature of Business Sales and Demand Conditions Technology and Manufacturing Policy Credit Policy Availability of Credit Operating Efficiency Price Level Changes

Nature of Business:

Working capital requirements of a firm are basically influenced by the nature of its business. Trading and financial firms have a very small investment in fixed assets, but require a large sum of money to be invested in working capital. Retail stores, for example, must carry large stocks of a variety of goods to satisfy varied and continuous demand of their customers. Some manufacturing business, such as tobacco manufacturers and construction firm, also have to invest substantially in working capital and a nominal amount in fixed assets. In contrast, public utilities have a very limited need for working capital and have to invest abundantly in fixed assets. Their working capital requirements are nominal because they may have only cash and supply services, not products. Thus, no funds will be tied up in debtors and stock (inventories). Working capital requires most of the manufacturing concerns to fall between the two extreme requirements of trading firms and public utilities. Such concerns have to make adequate investment in current assets depending upon the total assets structure and other variables. Sales and Demand Conditions: The working capital needs of a firm are related to its sales. It is difficult to precisely determine the relationship between volume of sales and working capital needs. In practice, current assets will have to be employed before growth takes place. It is , therefore, necessary to make advance planning of working capital for a growing firm on a continuous basis.


A growing firm may need to invest funds in fixed assets in order to sustain its growing production and sales. This will, in turn, increase investment in current assets to support enlarged scale of operations. It should be realized that a growing firm needs funds continuously. It uses external sources as well as internal sources to meet increasing needs of funds. Such a firm faces further financial problems when it retains substantial portion of its profits. It would not be able to pay dividends to shareholders. It is, therefore, Imperative that proper planning be done by such companies to finance their increasing needs for working capital. Sales depend on demand conditions. Most firms experience seasonal and cyclical fluctuations in the demand for their products and services. These business variations affect the working capital requirements, specially the temporary working capital requirement of the firm. When there is an upward swing in the economy, sales will increase; correspondingly, the firm s investment in inventories and debtors will also increase. Under boom, additional investment in fixed assets may be made by some firms to increase their productive capacity. This act of firm will require further additions of working capital. To meet their requirements of funds for fixed assets and current assets under boom further additions of working capital. To meet their requirements of funds for fixed assets and current assets under boom period, firms generally resort to substantial borrowing. On the other hand, when there is a decline in the economy, sales will fall and consequently, levels of inventories and debtors will also fall. Under recessionary conditions, firms try to reduce their short term borrowings. Seasonal fluctuations not only affect working capital requirements but also create production problems for the firm. During periods of peak demand, increasing production may be expensive for the firm. Similarly, it will be more expensive during slack periods when the firm has to sustain its working force and physical facilities without adequate production and sales. A firm may, thus, follow a policy of steady production, irrespective of seasonal changes in order to utilize its resources to the fullest extent. Such a policy will mean accumulation of inventories during off season and their quick disposal during the peak season. The increasing level of inventories during the slack season will require increasing funds to be tied up in the working capital for some months. Unlike cyclical fluctuations, seasonal fluctuations generally conform to asteady pattern. Therefore, financial arrangements for seasonal working capital requirements can be made in advance. However, the financial plan or arrangement should be flexible enough to take care of some abrupt seasonal fluctuations.

Technology and Manufacturing Policy
The manufacturing cycle (or the inventory conversion cycle) comprises of the purchase and use of raw material the production of finished goods. Longer the manufacturing cycle, larger will be the firm working capital requirements. For example, the manufacturing cycle in the case of a boiler, depending on its size, may range between six to twenty- four

months. On the other hand, the manufacturing cycle of products such as detergent powder, soaps, chocolate etc. may be a few hours. An extended manufacturing time span means a larger tie- up of funds in inventories. Thus, if there are alternative technologies of manufacturing a product, the technological process with the shortest manufacturing cycle may be chosen. Once a manufacturing technology has been selected, it should be ensured that manufacturing cycle is completed within the specified period. This needs proper planning and coordination at all levels of activity. Any delay in manufacturing process will results in accumulation of work- inprocess and waste of time. In order to minimize their investment in working capital, some firms, especially firm Manufacturing industrial products have a policy of asking for advance payment from their customers. Non-manufacturing firms, service and financial enterprises do not have a manufacturing cycle. A strategy of constant production may be maintained in order to resolve the working capital problems arising due to seasonal changes in the demand for the firm product. A steady production policy will cause inventories to accumulate during the off- reason periods and the firm will be exposed to greater inventory costs and risks. Thus, if costs and risks of maintaining a constant production policy, varying its production utilized for manufacturing varied products, can have the advantage of diversified Activities and solve their working capital problems. They will manufacture the original product line during its increasing demand and when it has an off- season, other products may be manufactured to utilize physical resources and working force. Thus, production policies will differ from firm to firm, depending on the circumstances of individual firm.

Credit Policy The credit policy of the firm affects the working capital by influencing the level of debtors. The credit terms to be granted to customers may depend upon the norms of the industry to which the firm belongs. But a firm has the flexibility of shaping its credit policy within the constraint of industry norms and practices. The firm should be discretion in granting credit terms to its customers. Depending upon the individual case, different terms may be given to different customers. A liberal credit policy, without rating the credit-worthiness of customers, will be detrimental to the firm and will create a problem of collections. A high collection period will mean tie- up of large funds in book debts. Slack collection procedures can increase the chance of bad debts. In order to ensure that unnecessary funds are not tied up in debtors, the firm should follow a rationalized credit policy based on the credit standing of customers and periodically review the creditworthiness of the exiting customers. The case of delayed payments should be thoroughly investigated. Availability of Credit

The working capital requirements of a firm are also affected by credit terms granted by its creditors. A firm will need less working capital if liberal credit terms are available to it. Similarly, the availability of credit from banks also influences the working capital needs of the firm. A firm which can get bank credit easily on favorable condition will operate with less working capital than a firm without such a facility.

Operating Efficiency The operating efficiency of the firm relates to the optimum utilization of resources at minimum costs. The firm will be effectively contributing in keeping the working capital investment at a lower level if it is efficient in mcontrolling operating costs and utilizing current assets. The use of working capital is improved and pace of cash conversion cycle is accelerated with operating efficiency. Better utilization of resources improves profitability and, thus, helps in releasing the pressure on working capital. Although it,may not be possible for a firm to control prices of materials or wages of labour, it can certainly ensure efficiency and effective use of its materials, labour and other resources. Price Level Changes The increasing shifts in price level make functions of financial manager difficult. He should anticipate the effect of price level changes on working capital requirement of the firm. Generally, rising price levels will require a firm to maintain higher amount of working capital. Same levels of current as sets will need increased investment when price are increasing. However, companies which can immediately revise their product price levels will not face a server working capital problem. Further, effects of increasing general price level will be felt differently by firm as individual price may move differently. It is possible that some companies may not be affected by rising price will be different for companies. Some will face no working capital problem, while working capital problems of other may be aggravated.



Funds Requirements of company

Fixed Capital

Working Capital

Preliminary Expenses

Raw Material

Purchase of Fixed Assets


Establishment work exp

Goods in Process

Fixed working capital


Every company requires funds for investing in two types of capital i.e. fixed capital, which requires long-term funds, and working capital, which requires short-term funds.



Long-term source (Fixed working capital)

Short-term source (Temporary working capital)

a) Loan from financial institution b) Floating of Debentures c) d) e) d) Accepting public deposits Issue of shares Cash credit Commercial paper

a) Factoring b) Bill discounting c) Bank overdraft d) Trade credit

Sources of additional working capital include the following:       Existing cash reserves Profits (when you secure it as cash) Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts or lines of credit Term loans

If you have insufficient working capital and try to increase sales, you can easily over-stretch the financial resources of the business. This is called overtrading. Early warning signs include:

Pressure on existing cash


      

Exceptional cash generating activities e.g. offering high discounts for early cash payment Bank overdraft exceeds authorized limit Seeking greater overdrafts or lines of credit Part-paying suppliers or other creditors Paying bills in cash to secure additional supplies Management pre-occupation with surviving rather than managing Frequent short-term emergency requests to the bank (to help pay wages, pending receipt of a cheque).


Ordinary shares are also known as equity shares and they are the most common form of share in the UK. An ordinary share gives the right to its owner to share in the profits of the company (dividends) and to vote at general meetings of the company. Since the profits of companies can vary wildly from year to year, so can the dividends paid to ordinary shareholders. In bad years, dividends may be nothing whereas in good years they may be substantial. The nominal value of a share is the issue value of the share - it is the valuewritten on the share certificate that all shareholders will be given by the company in which they own shares. The market value of a share is the amount at which a share is being sold on the stock exchange and may be radically different from the nominal value. When they are issued, shares are usually sold for cash, at par and/or at a premium. Shares sold at par are sold for their nominal value only - so if Rs.10 share is sold at par, the company selling the share will receive Rs. 10 for every share it issues. If a share is sold at a premium, as many shares are these days, then the issue price will be the par value plus an additional premium.


Debentures are loans that are usually secured and are said to have either fixed or floating charges with them. A secured debenture is one that is specifically tied to the financing of a particular asset such as a building or a machine. Then, just like a mortgage for a private house, the debenture holder has a legal interest in that asset and the company cannot dispose of it unless the debenture holder agrees. If the debenture is for land and/or buildings it can be called a mortgage debenture. Debenture holders have the right to receive their interest payments before any dividend is payable to shareholders and, most importantly, even if a company makes a loss, it still has to pay its interest charges. If the business fails, the debenture holders will be preferential creditors and will be entitled to the repayment of some or all of their money before the shareholders receive anything. LOANS FROM OTHER FINANCIAL INSTITUTIONS The term debenture is a strictly legal term but there are other forms of loan or loan stock. A loan is for a fixed amount with a fixed repayment schedule and may appear on a balance sheet with a specific name telling the reader exactly what the loan is and its main details. SHORT TERM SOURCES FACTORING Factoring allows you to raise finance based on the value of your outstanding invoices. Factoring also gives you the opportunity to outsource your sales ledger operations and to use more sophisticated credit rating systems. Once you have set up a factoring arrangement with a Factor, it works this way: Once you make a sale, you invoice your customer and send a copy of the invoice to the factor and most factoring arrangements require you to factor all your sales. The factor pays you a set proportion of the invoice value within a pre-arranged time - typically, most factors offer you 80-85% of an invoice's value within 24 hours. The major advantage of factoring is that you receive the majority of thecash from debtors within 24 hours rather than a week, three weeks or evenlonger. INVOICE DISCOUNTING Invoice discounting enables you to retain the control and confidentiality of your own sales ledger operations. The client company collects its own debts. 'Confidential invoice discounting' ensures that customers do not know you are using invoice discounting as the client company sends out


invoices and statements asusual. The invoice discounter makes a proportion of the invoice available toyou once it receives a copy of an invoice sent. Once the client receives payment, it must deposit the funds in a bankaccount controlled by the invoice discounter. The invoice discounter will then pay the remainder of the invoice, less any charges.The requirements are more stringent than for factoring. Different invoice discounters will impose different requirements. OVERDRAFT FACILITIES Many companies have the need for external finance but not necessarily on a long-term basis. A company might have small cash flow problems from time to time but such problems don't call for the need for a formal long-term loan. Under these circumstances, a company will often go to its bank and arrange an overdraft. Bank overdrafts are given on current accounts and the good point is that the interest payable on them is calculated on a daily basis. So if the company borrows only a small amount, it only pays a little bit of interest. Contrast the effects of an overdraft with the effects of a loan. TRADE CREDIT This source of finance really belongs under the heading of working capital management since it refers to short-term credit. By a 'line of credit' they mean that a creditor, such as a supplier of raw materials, will allow us to buy goods now and pay for them later. Why do they include lines of credit as a source of finance? They ll, if they manage their creditors carefully they can use the line of credit they provide for us to finance other parts of their business. Take a look at any company's balance sheet and see how much they have under the heading of Creditors falling due within one year' - let's imagine it is Rs. 25,000 for a company. If that company is allowed an average of 30 days to pay its creditors then they can see that effectively it has a short term loan of Rs. 25,000 for 30 days and it can do whatever it likes with that money as long as it pays the creditor on time.


CASH MANAGEMENT: Cash management is one of the key areas of WCM. Apart from the fact that it is the most liquid asset, cash is the common denominator to which all current assets, that is, receivables & inventory get eventually converted into cash. Cash is oil of lubricate the ever-turning wheels of business: without it the process grinds to a shop. Motives for holding cash Cash with reference to cash management is used in two senses:  It is used broadly to cover currency and generally accepted equivalents of cash, such as cheques, drafts and demand deposits in banks.  It includes near-cash assets, such as marketable securities & time deposits in banks. The main characteristic of these is that they can be readily sold & converted into cash. They serve as a reserve pool of liquidity that provides cash quickly when needed. They provide short term investment outlet to excess cash and are also useful for meeting planned outflow of funds. CASH IS MAINTAINED FOR FOUR MOTIVES: A). Transaction motive: Transaction motive refer to the holding of cash to meet routine cash requirements to finance the transactions which a firm carries on in a variety of transactions to accomplish its objectives which have to be paid for in the form of cash. E.g. payment for purchases, wages, operating expenses, financial charges like interest, taxes, dividends etc. Thus requirement of cash balances to meet routine need is known as the transaction motive and such motive refers to the holding of cash to meet anticipated obligations whose timing is not perfectly synchronized with cash receipts.

B).Precautionary motive: A firm has to pay cash for the purposes which can not be predicted or anticipated. The unexpected cash needs at the short notice may be due to:Floods, strikes & failure of customer Slow down in collection of current receivables ,Increase in cost of raw material, Collection of some order of goods as customer is not satisfied The cash balance held in reserves for such random and unforeseen fluctuations in cash flows are called as precautionary balance. Thus, precautionary cash provides a cushion to meet unexpected contingencies. The more unpredictable are the cash flows, the larger is the need for such balance. C).Speculative motive:


It refers to the desire of the firm to take advantage of opportunities which present themselves at unexpected moment & which are typically outside the normal course of business. If the precautionary motive is defensive in nature, in that firms must make provisions to tide over unexpected contingencies, the speculative motive represents a positive and aggressive approach. The speculative motive helps to take advantages of:  An opportunity to purchase raw material at reduced price on paymentof immediate cash.  A chance to speculate on interest rate movements by buying securities when interest rates are expected to decline.  Make purchases at favorable price.  Delay purchase of raw material on the anticipation of decline in prices. OBJECTIVES OF CASH MANAGEMENT: I).To meet the cash disbursement needs  In the normal course of business firms have to make payment of cash on a continuous and regular basis to the supplier of goods, employees and so son. Also the collection is done from the de4btorw. Basic objective is to meet payment schedule that is to have sufficient cash to meet the cash disbursement needs of the firm. II).To minimize the funds committed to cash balances First of all if we keep high cash balance, it will ensure prompt payment together with all the advantages. But it also implied that the large funds will remain idle, as cash is the nonearning asset and firm will have to forego profits. On the other hand, low cash balance mean failure to meet payment schedule. Therefore we should have optimum level of cash balance. FACTORS DETERMININING CASH NEEDS: 1) Synchronization of cash - need for the cash balances arises from the non-synchronization of the inflows & outflows of cash. First need in determining cash needs is, the extent of nonsynchronization of cash receipts & disbursements. For this purpose cash budget is to be prepared. Cash budget point out when the firm will have excess or shortage of cash. 2) Short cash Cash period reveals the period of cash shortages. Every shortage of cash whether expected or unexpected involves a cost depending upon the security, duration & frequency of shortfall & how the shortage is covered. Expenses incurred as a shortfall are called short costs. There are following costs included in the short cash Transaction cost: this is usually the brokerage incurred in relation to the some short-term near-cash assets like marketable securities. Borrowing costs: these include interest on loan, commitment charges & other expenses relating to loan.

Loss of cash discount: that s a loss because of temporary shortage of cash. Cost associated with deterioration of credit rating. Penalty rates: By a bank to meet a shortfall in compensating balances.

1) Excess cash balance - cost associated with excessively large cash balances is known as excess cash balance cost. If large funds are idle the implication is that the firm has missed the opportunity to invest those funds and has thereby lost interest. This loss of interest is primarily the excess cost. 2) Procurement & Management cost cost associated with establishing and operating cash management staff and activities. They are generally fixed and accounted for by salary, handling of securitie setc. 3) Uncertainty the first requirement in cash management is Precautionary cushion to cope with irregularities in cash flows, unexpected delays in collection &disbursements, defaults and unexpected cash needs. Impact can be reduced through: Improved forecasting of tax payments, capital expenditure, dividends etc. Increased ability to borrow through overdraft facility. DETERMINING THE CASH NEEDS: Cash needs can be determined though preparing cash budget, for year, month, week etc.

Cash reports, providing a comparison of actual development with forecast figures, are helpful in controlling and revising cash forecasts on a continual basis The important cash reports are The daily cash reports Daily treasury reports The monthly cash report

Monitoring collection and receivables: The Finance Manager must control the levels of cash balance at various points in the organization. This task assumes special importance on account of the fact that there is generally tendency amongst divisional manager to keep cash balance in excess of their needs.

Hence a finance manager must devise a system whereby each division of organization retains enough cash to meet its day-to-day requirements without having surplus balance on hand. For this methods have to be employed to: Speed up the mailing time of payment from customers Reduce the time during which payments received by the firm remain uncollected and speed up the movement funds to disbursement banks.

For this purpose following can be helpful: 1. Prompt billing often there is time lag between the dispatch of goods or provision of service and the sending of bills. By preparing and sending the bills promptly, a firm can ensure earlier remittance. It should be realized that it is in the area of billing that the company control is high and there is a sizeable opportunity to free up cash. For this treasure should work with controller and others in : • • • Accelerating invoice data Mailing bills promptly Identifying payment locations.

2. Expeditious collection of cheques - expediting collection of cheques is important and there are to methods 1. Concentration banking, 2. Lock box method

Concentration banking: (decentralized collection) key elements are, The major bank account of the company is wet up with a concentration bank, generally situated in the same place where the company is head quartered. Customers are advised to mail their remittances to collection centre close to them. Payments collected in different collection centers are deposited in local banks which in turn transfer them to the concentration banks. Lock box method: Silent features are as follows

 A number of post office boxes are rented by the company in different locations.  Customers are advised to mail there remittances to the lock boxes.  Banks are authorized to pick up the cheques from the lock boxes and deposit them in the companies account.

Controlling payables/disbursements: by proper control of payables company can manage cash resources. This involves  Payment should be made as and when it fall due.  Centralized disbursement payables and their disbursements may be centralized. This helps in consolidating the funds at head office scheduling payments, reducing unproductive bank balance and investing surplus funds more effectively. Proper synchronization of inflows and outflows helps a company to get greater mileage from cash resources. Float: when firm issues cheques they reduce the balance in their books, but balance in banks book is not reduced till the payment is made by bank. This amount of cheques issued by the firm but not paid for by the bank is referred to as payment float . When the cheques are deposited with bank the firm increases the balance in its books. The balance in the banks book however is cleared. The amount of cheques deposited by the firm in the bank but not cleared is referred to as collection float. Difference between payment float and collection float is called as net float. When the net float is positive the balance in the books of bank is higher than the balance in the books of firm. When the firm enjoys the positive float (net) it may issue cheques even if it has an overdrawn bank account in its books. Such an action is referred to as playing the float it is considered risky.


It a firm maintains a small cash balance, it has to sell its marketable securities more frequently than if it holds a large cash balance. Hence trading or transaction costs will tend to diminish if cash balance becomes larger. However, the opportunity costs of maintaining cash rise as the cash balance increases. From the figure, the total costs of holding cash are at a minimum when the size of the cash balance is ―C‖. This represents optimal cash balance. Deployment of surplus funds: Company s often has surplus funds for short period of time before they are required for capital expenditure, loan repayment or some other purposes. At the one end they are invested in term deposit in bank and on other end are invested in equity shares. They can be invested in several options like Units of the unit 1964 scheme: This is the most important mutual fund scheme in India. It has the following featuresIt is a open ended scheme as it accepts funds from investors & also permits to withdraw their investments. The units have face value of Rs. 10.00/- The sale & purchase price of units are not squarely based on the net asset per unit, as should be the case for a truly open ended scheme.



Assessing the credit worthiness of customers Before extending credit to a customer, a supplier should analyze the five Cs of credit worthiness, which will provoke a series of questions. These are:  Capacity: will the customer be able to pay the amount agreed within the allowable credit period? What is their past payment record? How large is the customer's business capital. what is the financial health of the customer? Is it a liquid and profitable concern, able to make payments on time?  Character: do the customers management appear to be committed to prompt payment? Are they of high integrity? What are their personalities like?  Collateral: what is the scope for including appropriate security in return for extending credit to the customer?  Conditions: what are the prevailing economic conditions? How are these likely to impact on the customers ability to pay promptly? Whilst the materiality of the amount will dictate the degree of analysis involved, the major sources of information available to companies in assessing customers credit worthiness are: 1. Bank references. These may be provided by the customers bank to indicate their financial standing. However, the law and practice of banking secrecy determines the way in which banks respond to credit enquiries, which can render such references uninformative, particularly when the customer is encountering financial difficulties. 2. Trade references. Companies already trading with the customer may be willing to provide a reference for the customer. This can be extremely useful, providing that the companies approached are a representative sample of all the clients suppliers. Such references can be misleading, as they are usually based on direct credit experience and contain no knowledge of the underlying financial strength of the customer. 3. Financial accounts. The most recent accounts of the customer can be obtained either direct from the business, or for limited companies, from Companies House. While subject to certain limitations past accounts can be useful in vetting customers. Where the credit risk appears high or where substantial levels of credit are required, the supplier may ask to see evidence of the ability to pay on time. This demands access to internal future budget data. 4. Personal contact. Through visiting the premises and interviewing senior management, staff should gain an impression of the efficiency and financial resources of customers and the integrity of its management.

5. Credit agencies. Obtaining information from a range of sources such as financial accounts, bank and newspaper reports, court judgments, payment records with other

suppliers, in return for a fee, credit agencies can prove a mine of information. They will provide a credit rating for different companies.. 6. Past experience. For existing customers, the supplier will have access to their past payment record. However, credit managers should be aware that many failing companies preserve solid payment records with key suppliers in order to maintain supplies, but they only do so at the expense of other creditors. Indeed, many companies go into liquidation with flawless payment records with key suppliers. 7. Market position: the relative market strengths of the customer and supplier can be influential. For example, a supplier with a strong market share may be able to impose strict credit terms on a weak, fragmented customer base. 8. Profitability: the size of the profit margin on the goods sold will influence the generosity of credit facilities offered by the supplier. If margins are tight, credit advanced will be on a much stricter basis than where margins are wider.

    provides faster and more predictable cash flows; finance provided is linked to sales, in contrast to overdraft limits, which tend to be determined by historical balance sheets; growth can be financed through sales, rather than having to resort to external funds; the business can pay its suppliers promptly (perhaps benefiting from discounts) and because they have sufficient cash to pay for stocks, the firm can maintain optimal stock levels; management can concentrate on managing, rather than chasing debts; the cost of running a sales ledger department is saved and the company benefits from the expertise (and economies of scale) of the factor in credit control

 

   the interest charge usually costs more than other forms of short-term debt; the administration fee can be quite high depending on the number of debtors, the volume of business and the complexity of the accounts; By paying the factor directly, customers will lose some contact with the supplier. Moreover, where disputes over an invoice arise, having the factor in the middle can lead to a confused three-way communication system, which hinders the debt collection process; Traditionally the involvement of a factor was perceived in a negative light (indicating that a company was in financial difficulties), though attitudes are rapidly changing.


Working capital management is of critical importance to all companies.Ensuring that sufficient liquid resources are available to the company is a pre-requisite for corporate survival. Companies must strike a balance between minimizing the risk of insolvency (by having sufficient working capital) with the need to maximize the return on assets, which demands a far less conservative outlook.


Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. Consider the following:      Who authorizes purchasing in your company - is it tightly managed or spread among a number of (junior) people? Are purchase quantities geared to demand forecasts? Do you use order quantities, which take account of stock holding and purchasing costs? Do you know the cost to the company of carrying stock? Do you have alternative sources of supply? If not, get quotes from major suppliers and shop around for the best discounts, credit terms, and reduce dependence on a single supplier. How many of your suppliers have a returns policy? Are you in a position to pass on cost increases quickly through price increases to your customers? If a supplier of goods or services lets you down can you charge back the cost of the delay? Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in-time basis?

  


Managing inventory is a juggling act. Excessive stocks can place a heavy burden on the cash resources of a business. Insufficient stocks can result in lost sales, delays for customers etc. The key is to know how quickly your overall stock is moving or, put another way, how long each item of stock sit on shelves before being sold. Obviously, average stock-holding periods will be influenced by the nature of the business. For example, a fresh vegetable shop might turn over its entire stock every few days while a motor factor would be much slower as it may carry a wide range of rarely-used spare parts in case somebody needs them. Nowadays, many large manufacturers operate on a Just-In-Time (JIT) basis whereby all the components to be assembled on a particular today, arrive at the factory early that morning, no earlier - no later. This helps to minimize manufacturing costs as JIT stocks take up little space, minimize stock holding and virtually eliminate the risks of obsolete or damaged stock.Because JIT manufacturers hold stock for a very short time, they are able to conserve substantial cash. JIT is a good model to strive for as it embraces all the principles of prudent stock management. The key issue for a business is to identify the fast and slow stock movers with the objectives of establishing optimum stock levels for each category and, thereby, minimize the cash tied up in stocks. Factors to be considered when determining optimum stock levels include:     What are the projected sales of each product? How widely available are raw materials, components etc.? How long does it take for delivery by suppliers? Can you remove slow movers from your product range without compromising best sellers?

Remember that stock sitting on shelves for long periods of time ties up money, which is not working for you. For better stock control, try the following:      Review the effectiveness of existing purchasing and inventory systems. Know the stock turn for all major items of inventory. Apply tight controls to the significant few items and simplify controls for the trivial many. Sell off outdated or slow moving merchandise - it gets more difficult to sell the longer you keep it. Consider having part of your product outsourced to another manufacturer rather than make it yourself.

Review your security procedures to ensure that no stock "is going out the back door!" Higher than necessary stock levels tie up cash and cost more in insurance, accommodation costs and interest charges.


 To identify the financial strengths & weakness of the company.  Through the net profit ratio & other profitability ratio, understand
profitability of the company


 Evaluating company s performance relating to financial statement analysis.  To know the liquidity position of the company with the help of current ratio.  To find out the utility of financial ratio in credit analysis & determining the
financial capacity of the firm .



Primary Data:

The information is collected through the primary sources like:  Talking with the employees of the department.  Getting information by observations e.g. in manufacturing processes.  Discussion with the head of the department.

Secondary Data:

The data is collected through the secondary sources like:     Annual Reports of the company. Office manuals of the departmen. Magazines, Reports in the company. Policy documents of various departments.





Quick Assets

Quick Liabilities

Particulars Q.A Q.L A.T.R

2006-07 12136.80 8385.47 1.45

2007-08 12051.57 7917.32 1.52

2008-09 10880.77 8431.19 1.29

2009-10 10423.08 8605.39 1.21

2010-11 10996.5 9336.43 1.17

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2006-07 2007-08 2008-09 2009-10 2010-11 AR


INTERPRETATION: A quick ratio of 1:1 or more is considered as satisfactory or of sound liquidity position. In the year 2007-08, compared to previous year, quick assets and current assets decreased but the decreased rate of current liabilities is greater than the decreased rate of quick ratios, so quick ratio increased from 1.45 to 1.52. In 2008-09 and 09-10 there was a decrease in quick assets and increase in current liabilities, so quick ratio decreased from 1.52 to 1.29 and 1.29 to 1.21 in 2008-09 and 09-10 respectively. And It has further decreased to 1.17 in 2010-11

12 Months Inventory holding period = Inventory turnover ratio Particulars 2006-07 2007-08 5.30 12.00 2008-09 4.94 12.00 2009-10 5.26 12.00 2010-11 3.31 12.00

I.T.R Rs 6.26 (in Lacs) Period in 12.00 Months Rs (In Lacs) I.H.P 1.92






4 3.5 3 2.5 2 1.5 1 0.5 0 2006-07 2007-08 2008-09 2009-10 2010-11 I.H.P


In the year 2007-08 there was a decrease in inventory turnover ratio.This shows an increase in inventory holding period. In 2008-09there was an increase in holding period and in 200910it was 2.28 that suggests that there was an increase in sales and decrease in inventory turnover ratio. In the year 20 year 2010-11it is 3.63.



12 Months Debtors Collection Period = Debtors Turnover Ratio

Particulars 2006-07 Period in 12 months DT ratio 1.8 D.C.P month in 6.59

2007-08 12 2.15 5.58

2008-09 12 2.4 5

2009-10 12 3 4.04

2010-11 12 3 4

7 6 5 4 3 2 1 0 2006-07 2007-08 2008-09 2009-10 2010-11 D.C.P IN MONTH



There is an increase in both debtors and sales, so avg. collection period is decreasing year by year. That shows that recovery from debtors is improving.


12 MONTHS CREDITORS PAYMENT PERIOD= CREDITOR TURNOVER RATIO Particulars Periods in months C.T.R C.P.P 2006-07 12 1.10 10.90 2007-08 12 1.49 8.05 2008-09 12 2.24 5.35 2009-10 12 2.95 4.07 2010-11 12 3.43 3.50





6 C.P.P



0 2006-07 2007-08 2008-09 2009-10 2010-11

INTERPRETATION: In case of Netmax Technologies ltd. , There is continuous increase in purchases and continuous decrease in creditors, so payment period is decreasing year by year.

Total Debts Debt to equity ratio = Equity (SH. CAP. + R & S)

Particulars Equity Total Debt D.T.E.R

2006-07 3323.58 7696.52 2.32

2007-08 3360.63 7377.36 2.20

2008-09 3446.27 6599.12 1.91

2009-10 3586.83 5421.12 1.51

2010-11 4636.39 4003.93 0.86




1.5 D.T.E.R 1


0 2006-07 2007-08 2008-09 2009-10 2010-11

INTERPRETATION: The D/E ratio is 1:1; it implies that for every rupee of outside liability. In case of our organization there is an improvement in the D/E ratio year by year. There is continuous decrease in total debt and there is continuous increase in shareholder s equity (i.e. Reserves and Surpluses) with increasing rate so the ratio is decreasing from 2.32 to 2.20 in 2007-08, to 1.91 in 2008-09 and to 1.51 in 2009-10, and to 0.86 in 2010-11


Gross Profit Gross Profit Marin = Sales X 100

Particulars G.P Sales G.P Margin

2006-07 265.74 17267.61 1.54

2007-08 339.70 19396.94 1.75

2008-09 376.53 21646.75 1.74

2009-10 386.67 26173.86 1.48

2010-11 1489.78 30365.16 1.90








0 2006-07 2007-08 2008-09 2009-10 2010-11



In the year 2007-08there was an increase in sales as well as increase in gross profit so ratio of GP increased from 1.54 to 1.75, in the year 2008-09 there was decrease in sales and in gross profit, (percentage of increase in gross profit is lower than the percentage of increase in sales), so the ratio of GP and sales has slightly decreased from 1.75 to 1.74 and in the year 2009-10similar to 2002-03 there was an increase in sales and a decrease in gross profit, so ratio of GP has decreased from 1.74 to 1.48 and in the year 2010-11it has shot up to 4.90.

Net Profit (After Tax & Intrest) Net Profit Ratio = Sales X 100

Particulars P.A.T Sales N. Profit (loss) Margin

2006-07 918.77 17267.61 5.32

2007-08 48.99 19396.94 0.250

2008-09 95.31 21646.75 0.440

2009-10 152.78 26414.22 0.578

2010-11 1066.20 30365.16 3.500


N.Profit (Loss) Margin
6 5 4 3 2 1 0 2006-07 2007-08 2008-09 2009-10 2010-11

N.Profit (Loss) Margin

Interpretation: Net profit ratio is increasing year after year, except for 2006-07, where there was a loss. After that there is a continuous increase in PAT as well as in sales from 2007-08 to 2010-11. Therefore, it shows a continuous increase


Net Sales Total Assets Turnover Ratio = Average Total Asset


Particulars Total F.A (OP- CL) AVG. F.A (A) Total C.A (OP+CL) AVG C.A (B) AVG. TOTAL ASSETS SALES T.A.T.R

2006-07 3036.27 1518.14 22574.65 11287.33 1280.46

2007-08 4295.38 2147.693 30223.54 15111.77 17259.46

2008-09 3895.62 1947.81 30170.04 15085.02 17032.83

2009-10 3821.93 1910.97 29790.71 14895.36 16806.32

2010-11 4486.98 2243.49 29277.35 14638.67 8441.08

17267.61 1.35

19396.94 1.12

21646.75 1.27

26173.86 1.56

30365.16 3.59


2006-07 2007-08 2008-09 2009-10 2010-11


There is a continuous increase in sales. In the year 2007-08there was an increase in average total assets, so the ratio decreased from 1.35 to 1.12, in 2008-09 and 2009-10 there is a change in average assets and decrease in average total assets, so ratio increased from 1.12 to 1.27 and from 1.27 to 1.55 respectively. For the year 2010-11ratio is 3.59.

Fixed Assets turnover ratio:

Net Sales Fixed Assets Turnover Ratio = Avg. Fixed Assets



2007-08 4295.38 2147.69 19396.94 9.03

2008-09 3895.62 1947.81 21646.75 11.11

2009-10 3821.93 1910.97 26173.86 13.70

2010-11 4486.98 2243.49 30365.16 13.53

Total Of F.A 3036.27 (OP+CL) Avg Fixed Assets Sales F.A.T.R 1518.14 17267.61 11.37


16 14 12 10 8 6 4 2 0 2006-07 2007-08 2008-09 2009-10 2010-11 F.A.T.R

Interpretation: Here we have seen there has been a continuous increase in sales. In the year 2007-08, there was an increase in average fixed assets as well as in sales but the growth rate of average fixed assets was higher, so ratio decreased from 11.37 to 9.03. In the year 2008-09 and 2009-10 there was a decrease in average fixed assets and an increase in sales, so ratio increased from 9.03 to 11.11 and from 11.11 to 13.70 respectively. But it is slightly decreasing in 2010-11.



Sales Current Assets Turnover Ratio = Avg. Current Assets

Particulars Sales Current Assets Avg. current Assets C.A.T.R

2006-07 17267.6 22574.651 11287.33 1.53

2007-08 19396.94 30223.54 15111.77 1028

2008-09 21646.75 30170.04 15085.02 1.43

2009-10 26173.86 29790.71 14895.36 1.76

2010-11 30365.16 29277.35 14638.67 2.07



1.5 C.A.T.R 1


0 2006-07 2007-08 2008-09 2009-10 2010-11


Interpretation:A better current assets turnover ratio is always good for a firm and in case of our organization, the turnover ratio is moving positively during the past 4 years. Current assets had decreased in 2007-08 and 2009-10 and increased in 2008-09, but as the growth rate of sales is higher when compared to decreased rate of current assets so the ratio has decreased from 1.53 to 1.28 in 2006-07 to 2007-08. Further it has increased to 1.43 in 2008-09and to 2.07 in 2010-11.


Net Sales Working Capital Turnover Ratio = Net Working Capital

Particulars Sales Working Capital W.C.T.R

2006-07 17267.61 6846.03

2007-08 19396.94 7074.22

2008-09 21646.75 6746.81

2009-10 26173.86 6007.32

2010-11 30365.16 5328.20







6 5 4 3 2 1 0 2006-07 2007-08 2008-09 2009-10 2010-11


INTERPRETATION:A high working capital turnover ratio indicates efficiency in utilization of resources and the ratio has improved from 2.52 in 2006-07 to 5.7 in 2010-11. Hence we can see that the component of working capital is consistently reducing which is considered as a positive sign from the point view of the finance.


Particular Year (A)INCOME SALES ADD:OTHERINCOME TOTAL INCOME (B) EXPENDITURE Materials Consumed:Materials Consumed: Stores & spaces consume: Manufacturing Expenses: Employee's Emoluments: Interest & other Fin. Charges Sundry Expenses: Depreciation: Total Expenditure 20607.62 Net Profit before Tax (A-B) Provision for Tax Net Profit After Tax -918.76 46.77 95.17 152.81 212.16 -916.56 19991.58 52.85 22362.8 96.92 26879.83 155.84 30807.59 294.16 8870.04 505.99 9376.03 1636.51 3597.64 1458.91 4037.1 277.49 10866.21 593.58 11459.79 1424.12 3115.99 852.9 2722.47 223.68 12412.56 688.84 13101.4 1443.96 3336.03 587.35 4060.27 214.74 15817.46 895.23 16712.69 1913.07 3681.32 521.05 3946.17 225.8 4718.76 249.37 18690.34 3250.81 3598.01 488.42 17573.95 1116.39 Amount (RS. lacs) 2006-07 Amount (RS. lacs) 2007-08 Amount (RS. lacs) 2008-09 Amount (RS. lacs) 2009-10 Amount (RS. lacs) 2010-11

17058.47 2633.59 19691.06

19360.52 683.91 20044.43

21624.68 835.02 22459.72

26414.22 621.45 27035.67

30365.16 736.58 31101.75







A SOURCES OF FUNDS Shareholders funds: a) Capital b) Reserve & Surplus







128422345 203935113

128443380 207620112

128443380 128443380 216184117 230239120 335195910 128443380


Loan Funds: a) Secured loans b) Unsecured loans TOTAL

663645876 106008244

640463151 97272888

581576924 514380917 78335147 27727313 20376994 380016497

1102011578 1073799531 1004539568 900790730 864032781

OF FUNDS: Fixed asset: a) Gross Block b) LessDepreciation Net block Capital WIP exp. To date Total

749985197 529139497 220845700 2764184

745342117 542178336 203163781 2764184

717930907 718557289 537061079 524722052 180869828 193835237 2764184 4723646 6384589 243755964 533470985 777226949



183634012 198558883 250140553

2 3

Technical Know-how Investment Current Asset, Loans & Advances 1) Inventories 2) Sundry Debtors


30106210 27037298 23968386



55600632 42967882 36106881


309469261 849477102

294045465 875751450

429724069 418963322 884099843 897711768 904486832


3) Cash & Bank balance 4) Loans & advances

22043337 342161013

26143472 303263771

8159330 5590022 195816844 139006705 120658554 74504328

1) Liabilities 2) Provisions

820733336 17812993

774132429 17600025

842943606 860236799 175000 303000 15620580 918023088

Net Current Assets Miscellaneous Expenditure (To the extent not written off or adjusted Deferred revenue expenditure in respect of VRS Pension scheme TOTAL Less - Current Liabilities & provisions



674681480 600732018 532820546




60517234 31494649 20996415





NIL 864032781

1102011578 1073799531 1004539568 900790730


Statement of changes in working capital (2005-2006)

Particulars A) Current Assets a) Inventories b) Sundry debtors c) Cash and bank d) Loans & advances Total Current Assets





154.25 3094.70 8494.77 220.43 3421.61 2940.45 8757.51 261.43 3032.66 14992.03 466.01 2.12 262.74 41.00 388.95

B) Current Liabilities a) Sundry creditors b) Provisions. Total Current Liabilities Net Current Assets Decrease in working capital


8207.33 178.12

7741.32 176.00




7074.71 771.87 543.20 228.67



Particular A) Current Assets a) Inventories b) Sundry debtors c) Cash and bank d) Loans & advances Total Current Assets 3032.64 B) Current Liabilities a) Sundry creditors b) Provisions. Total Current Liabilities 7741.32 Net Current Assets Decrease in working capital 7917.32 6746.81 6560.94 1614.53 327.9 327.9 1942.43 176.00 8431.19 15178.00 14992.03 8429.44 1.75 688.12 174.25 2006-07 2007-08 Increase Decrease

2940.45 8757.51 261.43

4297.24 8841.00 81.59 1958.17

1356.79 83.49 179.84 1074.47

This statement shows the decrease in Working Capital in the year 2007-08 by decrease in cash & bank balance & loans & advances


Statement of changes in working capital (2007-08).
Particular A) Current Assets a) Inventories b) Sundry debtors c) Cash and bank d) Loans & advances Total Current Assets 1958.17 B) Current Liabilities a) Sundry creditors b) Provisions. Total Current Liabilities Net Current Assets Decrease in working capital 8429.44 1.75 8602.37 3.03 172.93 1.28 2007-08 2008-09 Increase Decrease

4297.24 8841.00 81.59

4189.63 8977.12 55.9 1390.07



25.69 568.1









739.49 Interpretation:


The statement shows the decrease in Working Capital in the year 2008-09 by decrease in cash & Bank balance, inventories, loans & advances.


Statement of changes in working capital (2009-10).

Particulars A) Current Assets a) Inventories b) Sundry debtors c) Cash and bank d) Loans & advances Total Current Assets





4189.63 8977.12 55.9 1390.07

3668.14 9044.86 745.04 67.74 1206.58 689.14 14664.64


14612.72 B) Current Liabilities a) Sundry creditors b) Provisions. Total Current Liabilities Net Current Assets 9180.23 156.20 577.86 153.17

8602.37 3.03 8605.4 6007.32

9336.43 5328.20 1436.01 756.88 679.12 679.12

Decrease in working capital

Interpretation: This statement shows the increase in Working Capital in the year 2009-10 by increase in cash & bank balance, inventories & debtors. In the final analyses.


Projection of changes in working capital (2010-11).

Particulars A) Current Assets a) Inventories b) Sundry debtors c) Cash and bank d) Loans & advances Total Current Assets



344.33 235.67


3668.14 9044.86 745.04 1206.58

4012.47 9280.53 108.02 1238.00

31.42 637.02

B) Current Liabilities a) Sundry creditors b) Provisions. Total Current Liabilities Net Current Assets

14639.01 14664.64 7254.00 167.00 1926.23 10.80 156.20 7421.00 9336.43 7218.01 5328.21 2537.65 647.82 1889.81 1889.81


Increase in working capital


Statement showing Net Current Assets / Net Working Capital Particulars
A] C. Assets a) Inventories b) S. Debtors c) Cash & bank balance. d) Loans & Advances Total Amt. 3032.64 B] C. Liabilities a) Creditors b) Provisions Total Amt. Net Current liabilities [A-B] 8385.46 8431.19 6846.04 6606.57 6746.81 8431.19 6007.32 5328.20 7398.01 15231.50 14992.03 8207.33 178.12 7741.32 176.00 15178.00 8602.37 3.03 9180.23 156.20 7254.00 167.00 1958.17 14612.72 14664.64 14639.01 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

3094.70 8494.77 2940.45 220.43 8757.51 3421.61 261.43

4297.24 8841.00

4189.63 8977.12 55.9 1390.07

3668.14 9044.86 745.04 1206.58

4012.47 9280.53 108.01 1238.00


8429.44 1.75




This table shows the Working Capital position for the last 5 years & the projected Working Capital for 2010-11.


1) Defense sales order of Rs. 9 cr was not there for the first quarter of 2009-10, so the sales has decreased. 2) Standard current ratio is 2:1 and for industry it is 1.33:1. Netmax Technologies s ratios satisfactory. 3) Acid test ratio is more than one but it does not mean that company has excessive liquidity. 4) Debtors of the company were high; they were increasing year by year, so more funds were blocked in debtors. But now recovery is becoming faster. 5) Inventory turnover ratio is improving from 2005-06 to 2009-10, which means inventory is used in better way so it is good for the company. 6) Debtors turnover ratio is improving from 2005-06 to 2009-10 .increase in ratio is beneficial for the company because as ratio increases the number of days of collection for debtors decreases. 7) Working capital turnover ratio is continuously increasing that shows increasing needs of working capital. 8) Interest coverage ratio is increasing from last four years.

9) Production capacity is not utilized to the full extent



1) It can be said that overall financial position of the company is normal but it is required to be improved from the point of view of profitability. 2) Net operating cycle is increasing that means there is a need to make improvements in receivables/debtors management. 3) Company should stretch the credit period given by the suppliers. 4) Company should not rely on Long-term debts. 5) Company should try to increase Volume based sales so as to stand in the competition.



1) Financial Management Prassanna Chandra. 2) Website of Netmax Technologies . 3) Google. 4) Financial Management Satish Inamdar. 5) Annual reports Netmax Technologies .of Ltd



A SOURCES OF FUNDS Shareholders funds: a) Capital b) Reserve & Surplus







128422345 203935113

128443380 207620112

128443380 128443380 216184117 230239120 335195910 128443380


Loan Funds: a) Secured loans b) Unsecured loans TOTAL

663645876 106008244

640463151 97272888

581576924 514380917 78335147 27727313 20376994 380016497

1102011578 1073799531 1004539568 900790730 864032781

OF FUNDS: Fixed asset: a) Gross Block b) LessDepreciation Net block Capital WIP exp. To date Total

749985197 529139497 220845700 2764184

745342117 542178336 203163781 2764184

717930907 718557289 537061079 524722052 180869828 193835237 2764184 4723646 6384589 243755964 533470985 777226949



183634012 198558883 250140553

2 3

Technical Know-how Investment Current Asset, Loans & Advances 1) Inventories


30106210 27037298 23968386



55600632 42967882 36106881





2) Sundry Debtors 3) Cash & Bank balance 4) Loans & advances

366814500 904486832 74504328 120658554

849477102 22043337 342161013

875751450 26143472 303263771

884099843 897711768 8159330 5590022 195816844 139006705

1) Liabilities 2) Provisions

820733336 17812993

774132429 17600025

842943606 860236799 175000 303000 15620580 918023088

Net Current Assets Miscellaneous Expenditure (To the extent not written off or adjusted Deferred revenue expenditure in respect of VRS Pension scheme TOTAL Less - Current Liabilities & provisions



674681480 600732018 532820546




60517234 31494649 20996415





NIL 864032781

1102011578 1073799531 1004539568 900790730



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