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C-189 & 190, Site No. 1, B.S. Road, Ind. Area, Ghaziabad [U.P.] Phone No.: 0120-2866320/21,3290635/37/38 Fax No. 0120-2867715 E-mail: email@example.com Web Site: www.sintechpumps.com
This is to certify that the Summer-Training Project of FINANCE Titled “WORKING CAPITAL MANAGEMENT and ITS APPRAISAL” is an original work and that this work has not been submitted anywhere in any form. My indebtedness to other works/publications has been duly acknowledged at the relevant places. The project work was carried from 1st June, 2009 to 31st July 2009 in SINTECH PRECISION PRODUCT LIMITED.
Date: 31st July 2009 Signature (Bulbul Sharma) PGDM ( 2009-10)
Signature (Mr. Sanjeev Garg) Sintech Precision Product Limited
Words are indeed inadequate to convey my deep sense of gratitude to all those who have helped me in completing this summer project to the best of my ability. Being a part of this project has certainly been a unique and a very productive experience on my part. I am really thankful to Mr. Sanjeev Garg, Finance Manager for making all kinds of arrangements to carry the project successfully and for guiding and helping me to solve all kinds of quarries regarding the project work. His systematic way of working and incomparable guidance has inspired the pace of the project to a great extent. I would also like to thank my mentor and project – coordinator, Mr. Parminder Singh, Asstt. Manager, (Finance & Accounts) for assigning me a project of such a great learning experience and acquainting me with real life project financing and appraisal. I am very grateful to CA Neeta Sahu (Training & Placement Officer) AJAY KUMAR GARG INSTITUTE OF MANAGEMENT, Ghaziabad. Who has given me the opportunity to do this project in the Sintech Precision Product Ltd. and very thankful to all lecturers of AKGIM, Ghaziabad for their useful guidance and advise. This project would not have been successful without the help of Mr.N.C. Dhingra (Chairman) Mr. Sahil Dhingra (Managing Director) of Sintech. Last but not least I would like to thank all the employees of Sintech Precision Product Ltd. who have directly or indirectly helped me with their moral support for the completion of my project.
TABLE OF CONTENTS
Acknowledgement Abstract 1. Introduction The problems Purpose of study Research methodology Scope of the study Data sources Limitations 2. Industry Profile a. Indian Economy b. Pump industry c. Global Pump Market Outlook 3. Sintech Precision Product Ltd.– An Overview Company‟s Profile Vision, Misson & Quality Product Range Sectoral Overview 4. Conceptual Framework Introduction to Working Capital Management Significance of working capital management Liquidity vs Profitability: Risk – Return trade off Classification of working capital Types of working capital needs Financing of working capital Factors determining working capital requirements Working capital cycle Sources of working capital Inventory management
Cash management Receivables management Managing payables (Creditors) 5. Working Capital Analysis and its Appraisal 6. Major Findings 7. Conclusion 8. Suggestions and Recommendations 9. Bibliography 10. Appendices
An insight view of the project will encompass – what it is all about. liquid with suspended solids. drawing inferences from the learning so far. or precisely to the management of current assets.. The working capital management refers to the management of working capital. inventory and working capital. A firm’s working capital consists of its investments in current assets. by an enterprising technocrat Mr. alkalies. . process. Sintech has branch offices and dealership network in throughout the nation as well as catering the international market.ABSTRACT This project is based on the study of working capital management in Sintech Precision Product Ltd. slurry. trends.C. what it aims to achieve.Dhingra is recognized as one of the largest pumping solutions provider today in India. further specifying the limitations of our study and in the last. With a very diverse product portfolio. acids. founded in 1986. and short term financing. Sintech Precision Products Ltd. working capital ratios. inventories. Sintech is an advanced pumping solution provider for water intensive heavy industries. what is its purpose and scope. N. the various methods used for collecting data and their sources. computation of cash. Sintech provides solutions for multifarious applications like clear water. including literature survey done. receivable and marketable securities. This project tries to evaluate how the management of working capital is done in Sintech through inventory ratios. seawater and many more. sewage. which includes short-term assets— cash and bank balance.
INTRODUCTION The problems Purpose of study Research methodology Scope of the study Data sources Limitations .
for financing the conversion of raw materials into finished goods. It describes about how the company manages its working capital and the various steps that are required in the management of working capital. Understanding a company's cash flow health is essential to making investment decisions. Any company should have a right amount of cash and lines of credit for its business needs at all times. so does the company's ability to fund operations. Among the most important items of working capital are levels of inventory. and accounts payable. reinvest and meet capital requirements and payments. Cash is the lifeline of a company. Analysts look at these items for signs of a company's efficiency and financial strength. The working capital is an important yardstick to measure the company’s operational and financial efficiency. If this lifeline deteriorates. . Working capital refers to the cash a business requires for day-to-day operations or. which the company sells for payment.INTRODUCTION: The project undertaken is on ―WORKING CAPITAL MANAGEMENT IN SINTECH PRECISION PROUCT LTD‖. more specifically. A good way to judge a company's cash flow prospects is to look at its working capital management (WCM). accounts receivable.
. what are the optimal amounts of cash.This project describes how the management of working capital takes place at SINTECH. given the level of sales and the relevant cost considerations. it is quite advantageous for the firm to invest in short term assets and to finance short-term liabilities. First. given these optimal amounts. what is the most economical way to finance these working capital investments? To produce the best possible results. Second. Why? In general. the firm is faced with two key problems: 1. firms should keep no unproductive assets and should finance with the cheapest available sources of funds. The Problems In the management of working capital. accounts receivable and inventories that a firm should choose to maintain? 2.
To measure the financial soundness of the company by analyzing various ratios. To understand the planning and management of working capital at SINTECH.PURPOSE OF STUDY The objectives of this project were mainly to study the inventory. To suggest ways for better management and control of working capital at the concern. . cash and receivable at SINTECH PRECISION PRODUCT LTD. but there are some more and they are The main purpose of our study is to render a better understanding of the concept ―Working Capital Management‖..
e. The management of working capital involves managing inventories. in the end. Therefore. . how the working capital is financed. what are the various sources through which it is done. i. accounts receivable and payable and cash. suggestions and recommendations on ways for better management and control of working capital are provided. what are the different ways in which the financing of working capital is done in the company. firstly we need to have a clear idea of what is working capital. And.RESEARCH METHODOLOGY This project requires a detailed understanding of the concept – ―Working Capital Management‖. Then comes the financing of working capital requirement. Therefore one also needs to have a sound knowledge about cash management. inventory management and receivables management. how it is managed in SINTECH.
SCOPE OF THE STUDY This project is vital to me in a significant way. These are as follows – This project will be a learning device for the finance student. The project would also be an effective tool for credit policies of the companies. This will show the liquidity position of the company and also how do they maintain a particular liquidity position. This will show different methods of holding inventory and dealing with cash and receivables. The project will be a learning of planning and financing working capital. It does have some importance for the company too. . Through this project I would study the various methods of the working capital management.
A detailed study on the actual working processes of the company is also done through direct interaction with the employees and by timely studying the happenings at the company. Secondary sources like previous years annual reports. reports on working capital for research. the data relating to working capital. its corporate intranet.com. book on Financial Management by various authors and internet websites the imp amongst them being : www. receivables management. This data was gathered through the company’s websites.com. Sintech’s annual reports and CMA Data of the last three years. cash management. analysis and comparison of the data gathered. While doing this project.sintechpumps.studyfinance. www. inventory management and short term financing was required. current annual reports. www. CMA Data.indiainfoline.DATA SOURCES: The following sources have been sought for the preparation report: Primary sources such as business magazines.com . .
LIMITATIONS OF THE STUDY: We cannot do comparisons with other companies unless and until we have the data of other companies on the same subject.Pandey were consulted to equip ourselves with the topic. The latest financial data could not be reported as the company’s websites have not been updated. Prasanna Chandra and I. due to shortage of time it is not possible to cover all the factors and details regarding the subject of study. various text books on financial management like Khan & Jain. Future plans of the company will not be disclosed to the trainees.M. Only the printed data about the company will be available and not the back–end details. Also. . Lastly.
INDUSTRY PROFILE .
Indian Economy Pump Industry Global pump market outlook and growth driver INTRODUCTION TO THE INDUSTRY .
Rupee weakened against dollar sliding down from Rs. This has finally affected the manufacturing sector.2% in the previous year.39 in the beginning of the year to Rs. The agricultural production was below the estimate. It has been successful in bringing down inflation from 12. promoting growth of industrial sector. India‟s balance of payments position witnessed widening of trade deficit. authorities in several countries embarked upon an unprecedented way of policy initiatives to contain systematic risk. The Indian economy which started with a strong economic performance lost the momentum once the ripple effects of the gloom in the global economy set in. The crisis in global financial markets deepened since mid September. inflation management.5%. economic and no economic. 2008 exerting pressure on financial markets and crashing of equity markets leading to wide spread volatility. The global turmoil in the financial markets spilled over the emerging markets. The challenges of high growth and now global recession have become more complex especially with increased globalization of world economy and growing influence of global developments. This has brought about some level of stability.48 towards the end. The index of industrial production recorded 3. The high cost of crude oil around US$ 150 per barrel in August. But the global situation deteriorated massively after mid-September 2008 following collapse of series of investment banks in the US. containing deficit.3% of the corresponding quarter of 2007-08.Indian Economy In the beginning of the year 2008 the economy was on a higher growth path with the macro-economic fundamentals inspiring confidence and a general optimism about the medium to long term prospects of the economy. roads.9% as compared to 9. 2008 to around 6% towards the end of the year. According to the estimates released by Central Statistical Organisation (CSO) the real GDP growth was 7. This resulted in choking of credit and global crash in stock markets. Upgrading infrastructure – such as energy. 2008 added to the country‟s woes in terms of higher imp ort bill. Sensex in January 2008 was all time high at 21206. stability in financial market. High oil prices and domestic inflation and worsening of international financial crisis which had surfaced in 2007 have been definite areas of concern. arrest the plunge in asset prices and shore of the confidence in the international banking system. The economy was expected to slow down marginally from the three years of 9% plus growth in real GDP reflecting a cyclical downturn in the global economy and expectations were that the growth would be around 8. As a result. Crisis of this magnitude in industrialized countries has impact around the world especially in the emerging market countries like India. both domestic and external. came down to around 9000 towards the end. Pumps Industry .9% in August.6% in the second quarter of 2008-09 as compared to 9. reflecting deceleration in growth of industry and services. promoting exports amidst global recession are the major challenges that are faced by Indian economy. The Indian Government has not lagged behind.
have developed energy-efficient designs for pumps to meet the norms of Indian standards. Technical know-how of global standard has thus been well absorbed. . increased forays from Chinese contractors into Energy Sector continued to exert pressure on the demand. Exports have registered a 11 percent growth in the last two years after reversing a negative 11. the Indian pump industry is poised to register a faster growth rate than the global average. On the other hand." said Sarita Nagpal. says an industry study. The growth in these sectors mainly came from Energy sector. The growth story has emerged through technical collaborations and joint ventures that Indian companies have had with multinational majors. "is expected to grow at a rate faster than the world pump market growth. There are around 800 large. Demand for Submersible pumps is weather dependent and varies with geographical location. This was the result of capacity additions in Super Critical plants including Ultra Mega Plants. capturing a larger share of the market. According to industry estimates. India produces around one million pumps of various kinds. medium and small units producing the pumps for sectors from agriculture to nuclear power generation. India has today become a reliable. The industry. "Indian pump manufacturers are able to meet most of the domestic market demand. competitive and enterprising outsourcing option for many multinational companies in industrial pumps and systems. various research institutes such as the Small Industries Testing and Research Centre (Si'Tarc) in Coimbatore. The growth witnessed by the Pumps Industry was in line with the performance of the Indian economy. With exports already reaching around 70 countries. In addition. now holding euro 500 million worth of global market share. are expected to capture a bigger slice of the world market. Trends in waste water sewage market are encouraging due to increased Government spending. which works closely with the Indian Pump Manufacturers Association. technically competent.Indian pumps." states the study released by the Confederation of Indian Industry (CII). head of manufacturing services of CII.5 percent trend in 2002-03 to clock 45 percent growth in 2003-04. The Indian pump industry is set to grow at 6-7 percent over the next three years (against the 4 percent of the world pump market). catering to a range of sectors from agriculture to nuclear power generation. Growth in standard industrial pumps is closely linked to the development in the industrial sector of the economy. The earlier buoyant demand for industrial valves tapered off in the latter part of the year due to drop in activities in Steel and General Industry.
. With these countries burdened by recession. European Union and Japan.3% from 3-4%. The global market for centrifugal pumps in 2009 and 2010 is likely to contract. building services. The Bureau of Indian Standards has developed 42 specifications for indigenous pumps. industry. oil and gas are major drivers of the global pump market. market forecasts up to 2013 have been revised to a compounded average growth rate of just 0. This is creating pressure on the existing infrastructure including delivery of utility water and removal and treatment of wastewater.from mass-produced pumps for agriculture to gigantic pumps for interlinking rivers. while that for positive displacement pumps will post good gains. and it will continue to grow rapidly. water. for KBL. Urbanization of Asia has seen relocation of more than one billion migrants from villages to cities. Most governments in Asia and in Africa are likely to increase their spending on infrastructure projects like irrigation and drinking water schemes. Factors affecting growth of the global pump industry: Per capita availability of water in Asia is less than other continents. and pumps for critical services such as nuclear power generation. The world is moving towards energy efficient products and services to be able to sustain the growth rates achieved in the past few years with petroleum being the primary energy source. Consolidation of players in the pump industry through mergers and acquisitions. GLOBAL PUMP MARKET OUTLOOK AND GROWTH DRIVERS The world pump market is governed by the demand in United States. thus increasing demand for delivery and treatment of that water. Although water and sewage.The Indian pump industry has an outstanding record of indigenous research and development in all three areas of technological intensities . power and irrigation will continue to be chief market drivers. may catch momentum in 2009 -10 in spite of the present recessionary trends. Rising consumption with decreasing supplies of uncontaminated water is pushing up the market of desalination plants for treating seawater. power.
– An Overview Company’s Profile Vision. Misson & Quality Product Range Key Players Sectoral Overview .Sintech Precision Product Ltd.
Ghaziabad. seawater and many more. This largely reduces spares inventory. slurry. With headquarters located in NCR of India. Sintech Precision Products Ltd has built a strong presence in the domestic market over the past three decades. has now expanded in all type of pumps suitable for diverse multifarious applications like clear water. Our system is regularly audited for compliance to these International Standards. . process. Sintech has branch offices and dealership network in throughout the nation as well as catering the international market. Sintech provides solutions for multifarious applications like clear water. founded in 1986. Sintech Precision Products Ltd has acquired certification from Moody International based in UK. sea water and many more application.1520 standards and tested as per IS9137. an ISO 9001 certified company is now a leading & respected pump manufacturer in India. N. Sintech make pumps constitutes of highly standardized and is designed with modular structures and offers the best possible interchangeability. alkalies.C.. Sintech Precision Products Ltd. sewage. Sintech is an advanced pumping solution provider for water intensive heavy industries. slurry. process. With tremendous growth potential in future pumping technology market. alkalies. Sintech has a high production system with two Manufacturing units. by an enterprising technocrat Mr. liquid with suspended solids. Sintech Precision Products Ltd. sewage.Introduction to the Company Company Profile Sintech Precision Products Ltd. API-610 & ISO – 2548 standards. acids. Sintech make pumps are manufactured as per DIN-24256/ISO-2858/IS – 5120 /HIS/IS . acids. With a very diverse product portfolio.Dhingra is recognized as one of the largest pumping solutions provider today in India. who operates in terms of the UKAS license requirements. liquid with suspended solids.
in-process inspection and final inspection. Principally based on three quality-integrated pillars. the Q3 model reflects the inside out approach of the organization. Vision Sintech seeks to be recognised as the Innovator and thought leader of pumping related products and technologies in domestic and global markets. that incorporates Q1 Applied engineering expertise Q2 Superior pumping capabilities Q3 Exceptional service QUALITY ASSURANCE PROCEDURES Our Quality Assurance Department is manned by qualified engineers to ensure completion of raw materials and final pumps with relevant quality norms. Mission Improve customer returns Create value through a culture of excellence Innovate product and service delivery Imbibe Quality as company‟s bloodline Quality Sintech Precision Products Ltd „s Q3 model is a move in that direction. The activities are divided into raw material inspection. which are working quietly and efficiently to the entire customer satisfaction. .Till date “SINTECH” has supplied thousands of pumps for various critical and non critical applications.
Sintech Precision Products Limited has in house facilities and equipments required for ensuring quality.100 m SCS & SCSD Horizontal Split Casing Pump Capacity : upto 10.A well laid test field for performance testing having sophisticated flow meter with digital display by which flow of the liquid can be tested accurately is available at our works. Product Range Type Design Rating Application/Sector Boiler Feed Mine De-watering Water Supply Jockey Condensate Transfer Descaling Operations SMS Multistage Pump Capacity : upto 1.000 m3/hr Head upto 1. such as – Hydrostatic machine for hydrostatic test of the casing Dynamic balancing machine for dynamic balancing of the impeller.000 m3/hr Head upto 180 m Industrial and Municipal Water Supply Cooling Towers Injection Water Spray Pond Air-conditioning Water Treatment Plant Fire Fighting Irrigation . For non-destructive testing such as ultrasonic test magnetic particle test inspection is carries out through external reputed agencies.
SWP & CPS Water Pump Process Pump Capacity : upto 1.000 m3/hr Head upto 10 m SSHQ Non Clog Pump Capacity : upto 2.000 m3/hr Head upto 300 m .000 m3/hr Head upto 140 m Water Supply Drip Irrigation Cooling Tower Condensate handling Air-conditioning Fire Fighting Service Water Chemical Process Effluent Treatment Hydrocarbon Viscous Liquid Acids Juice Pump Distillery Sea Water River Water Canal Water Sewage Sewage Effluent Treatment Unscreened Juice Slurry Drainage River water Sludge Grain Wash Syrup Melt Mud Injection Water Sewage Effluent Treatment Drainage River Water Water Supply General Water Supply Cooling Tower Spray and Injection Water Irrigation SAF Axial Flow Pump Capacity : upto 20.000 m3/hr Head upto 45 m SVT SVMF SVAF Vertical Turbine Capacity : upto 20.000 m3/hr Head upto 60 m SMF Mixed Flow Pump Capacity : upto 7.
Vertical Mixed Flow Vertical Axial Flow Hydropower SV Liquid Ring Vacuum Pump Free Air Capacity : upto 4.975 m3/hr Vacuum upto 685 mmHg Chemicals Pharmaceuticals Food Sugar Plastic Paper Pulp Thick Viscous Liquid Dyes Coaltar Mollasses Soaps Paint SGP Gear Pump Capacity : upto 150 m3/hr Head upto 100 m ST Lobe Pump / Star Pump Capacity : upto 100 m3/hr Head upto 50 m Thick Mollasses Highly Viscous Liquid STF Torque Flow Pump Capacity : upto 1.500 m3/hr Head upto 100 m Abrasive Slurries Sewage Industrial Waste Sugar Pulp and Paper Steel Power Fibre Textile Waste Water Grain Wash Solid Handling Cement Aquaculture EB & EBM Rota Pump Capacity : upto 100 m3/hr Head upto 50 m Massecuite Magma .
Bhakra Beas Management Board (P. Unit 3 & 4 .conventional and renewable. Ltd.SSPL Self Priming Pump Capacity : upto 250 m3/hr Head upto 50 m Sump Drainage Dewatering Ash Slurry Wet Scrubber SECTORAL OVERVIEW Power This business group caters to the needs of power industry .W. this sector is bound to emerge as a major market driver for decades to come. Considering the chronic shortage of power. The Power group is proud to have successfully completed the sump model test of cooling water system for India's first ultra mega power project of 4000 MegaWatt (5 x 800 MW) at Kirloskarvadi.) Shri Chamundeswari Sugars Clear Water Limited Clear Water Limited SWRO Barge Project Pong Power Project Co-gen Plant Limited (Through Avant Garde) 2x250 MW Korba East 2x210 MW Rayalaseema TPS Stage II. Orders received include: Raka Saudia Power & Water Co.
5 MLD sewage treatment plant Pune municipal corporation for a 40 MLD sewage treatment plant Sugar Industry Some prestigious projects in sugar industry are: Balrampur Chini Mills Limited Balrampur Chini Mills Limited Bajaj Hindusthan Limited Bajaj Hindusthan Limited Uttam Sugar Mills Limited Uttam Sugar Mills Limited – – Khumbi Project Gularia Project Kinauni Project Kinauni Expansion Barkatpur Project Shermau Project Paper / Etp / Chemical / Food Some prestigious projects in Paper / Etp / Chemical / Food are: . based on the Gondwana Engineers Limited's strengths. Bhilai for a 30 million liters per day (MLD) sewage treatment plant Vadodara municipal Sewa Sadan for a 8. This business group continues to serve municipal corporations. thanks to uncurbed urbanization. growing industrialization. water treatment and waste water treatment segments.Water Resource Management This business group addresses the needs of water supply. water and sewerage boards of India. We made significant in-roads in waste water treatment segment in India as well as overseas. with latest technologies. Nagpur municipal corporation's Gorewada and Mahadula projects and Maharashtra Jal Pradhikaran's Malegaon project went on stream this year. Orders received include: Steel Authority of India Llimted. Such a scenario demands better and better water management. cheaper methods and sustainable operations. Water. Water stressed regions in the world are on the rise. like power is a major market driver for the pump industry and equipment peripheral to water industry. increasing pollution levels and absence of sufficient teeth to the legislation to deal with water pollution across the world. India is no exception. Delhi Jalboard's Vishwakarma project.
Satyam Industries Pvt. Singareni Colleries Co. Ltd.Ltd. Ltd. Singareni Colleries Co. Ltd. Ghaziabad Project FMC – Satnam Agro Project Bombay Rayon Fashion Limited Steel Some prestigious projects in steel industry are: Maa Chinnamastika Steel & Steel Project Power Limited Bellary Project Rourkela Project IST Steel & Power Limited Shri Mahavir Ferro Alloys P Ltd. 15 HP 40 HP 75 HP 125 HP WORKING CAPITAL MANAGEMENT CONCEPTUAL FRAMEWORK . Singareni Colleries Co. Ltd. Ltd Clear Water Limited Clear Water Limited Ghaziabad Organics Ltd. - Mines Some prestigious projects in mines industry are: Singareni Colleries Co. Adinath Enterprises Winsor Sathyam Engineering - Panipat Project Bhiwadi Project Kanoria Chemical & Indus.
Introduction Significance of working capital management Liquidity Vs. profitability: Risk – Return trade off Classification of working capital Types of working capital needs Factors determining working capital requirements Working capital cycle Sources of working capital Working capital position Inventory management Cash management Receivables management Managing payables (Creditors) Financing current assets Working capital & short-term financing Financing Current Assets .
Current assets are the assets. It indicates the liquidity position of the firm and suggests the extent to which working capital needs may be financed by permanent sources of funds. And vice-versa for negative net working capital. A positive net working capital will arise when current assets exceed current liabilities. Working Capital = Current Assets-Current Liabilities There are two major concepts of working capital: Gross working capital Net working capital Gross working capital: It refers to firm's investment in current assets. Marketable securities. which include short-term assets such as: Cash and bank balance. Net working capital: It refers to the difference between current assets and current liabilities. Inventories.Introduction to working capital “Working Capital is the Life-Blood and Controlling Nerve Center of a business” The working capital management precisely refers to management of current assets. A firm‟s working capital consists of its investment in current assets. Net working capital can be positive or negative. Working capital is commonly defined as the difference between current assets and current liabilities. Receivables (including debtors and bills). which can be converted into cash with in a financial year. The gross working capital points to the need of arranging funds to finance current assets. Net working capital is a qualitative concept. Net working capital also .
covers the question of judicious mix of long-term and short-term funds for financing current assets. The target sales level can be achieved only if supported by adequate working capital Inefficient working capital management may lead to insolvency . Working capital has the effect on company's risk. There is an inevitable relationship between sales growth and the level of current assets. For a distribution company. Working capital requires continuous day to day supervision. return and share prices. Significance Of Working Capital Management PAYMENT TO SUPPLIERS EASY LOAN FROM BANKS SIGNIFICAN --CE OF WORKING CAPITAL INCREASE EFFECIENY DIVIDEND DISTRIBUTION INCREASE DEBT CAPACITY INCREASE IN FIX ASSETS The management of working capital is important for several reasons: For one thing. they account for even more. the current assets of a typical manufacturing firm account for half of its total assets.
Liquidity Vs Profitability: Risk . Short-term financing may be preferred over long-term financing for two reasons: The cost advantage Flexibility .Return trade off Another important aspect of a working capital policy is to maintain and provide sufficient liquidity to the firm. Therefore. Sound working capital involves two fundamental decisions for the firm. the decision on how much working capital be maintained involves a trade off. The appropriate mix of short-term and long-term financing used to support this investment in current assets. the firm must determine its portion in total financing. but it can have a negative effect on the cash flows. They are the determination of: The optimal level of investments in current assets.of the firm if it is not in a position to meet its liabilities and commitments.having a large net working capital may reduce the liquidity risk faced by a firm. the net effect on the value of the firm should be used to determine the optimal amount of working capital. If short-term financing has to be used. a firm should decide whether or not it should use short-term financing. Like the most corporate financial decisions.
But short-term financing is more risky than long-term financing. But what one gains by following alternative strategies (like by box 2 or box 4) needs to weighed against what you give up. . Following table will summarize our discussion of short-term versus long-term financing Maintaining a policy of short term financing for short term or temporary assets needs (Box 1) and long.term financing for long term or permanent assets needs (Box 3) would comprise a set of moderate risk –profitability strategies.
CLASSIFICATION OF WORKING CAPITAL Working capital can be classified as follows: On the basis of time On the basis of concept .
Still others are random reflecting the uncertainty associated with growth in sales due to firm's specific or general economic factors. The lengthier the operating cycle. However. the magnitude and quantum of working capital required will not be same all the times. greater would be the need for working capital. Other changes are seasonal. The operating cycle is a continuous process and therefore. Some of these changes reflect permanent changes in the firm as is the case when the inventory and receivables increases as the firm grows and the sales become higher and higher. as is the case with increased inventory required for a particular festival season. rather it will fluctuate. Working capital is required because of existence of operating cycle. The working capital needs can be bifurcated as: Permanent working capital Temporary working capital . The need for current assets tends to shift over time. the working capital is needed constantly and regularly.Types of Working Capital Needs Another important aspect of working capital management is to analyze the total working capital needs of the firm in order to find out the permanent and temporary working capital.
Every firm must have a minimum of cash. In the case of an expanding firm. So. which is continuously required by a firm in order to maintain its activities. fluctuating or variable working capital. which must be maintained by any firm all the times. The permanent level is constant while the temporary working capital is fluctuating increasing and decreasing in accordance with seasonal demands as shown in the figure. Permanent working capital: There is always a minimum level of working capital. is known as permanent working capital for that firm. This is because the demand for . stock and other current assets. the permanent working capital line may not be horizontal. This amount of working capital is constantly and regularly required in the same way as fixed assets are required. this minimum level of current assets. The position of the required working capital is needed to meet fluctuations in demand consequent upon changes in production and sales as a result of seasonal changes. it may also be called fixed working capital. Temporary working capital: Any amount over and above the permanent level of working capital is temporary.
The working capital requirement of a firm is closely related to the nature of its business.permanent current assets might be increasing (or decreasing) to support a rising level of activity. A service firm. Rate of Growth of Business. . Sintech has a good position in its segment and they are also spending their operations in the domestic market as well as in foreign market. which has a long operating cycle and which sells largely on credit. a manufacturing concern like a machine tools unit. The sales and projected sales level determine the investment in inventories and receivables. which has a short operating cycle and which sells predominantly on cash basis. like an electricity undertaking or a transport corporation. The scale of operations and the size it holds in the market makes it a must for them to hold their inventory and current asset at a huge level. Some of these factors are explained below: Nature or Character of Business. it is required to guard them against the increasing requirements of the net current asset by way of efficient working capital management. The rate of growth of sales indicates a need for increase in the working capital requirements of the firm. In that case line would be rising. FACTORS DETERMINING WORKING CAPITAL REQUIREMENTS There are many factors that determine working capital needs of an enterprise. has a modest working capital requirement. has a very substantial working capital requirement. As the firm is projected to increase their sales by 69% from what it was in 2009. Sintech is a manufacturing concern so this requires them to keep a very sizeable amount in working capital. Oh the other hand. Size of Business/Scale of Operations.
Changes in the price level also affect the working capital requirements. It was the reduced margins in the price of the raw materials that had prompted them to go for bulk purchases thus making on additions to their net current assets. which would have meant that more funds are required to maintain the same current assets. They might have gone for this large-scale procurement for availing discounts and anticipating a rise in prices. SOURCES OF WORKING CAPITAL Sintech has the following banks available for the fulfillment of its working capital requirements in order to carry on its operations smoothly: Banks: These include the following banks – o Indian Bank o Syndicate Bank NAME OF THE BANK INDIAN BANK SYNDICATE BANK TOTAL FUND BASED 300 200 500 NON-FUND BASED 250 100 350 . Price Level Changes.
WORKING CAPITAL CYCLE The upper portion of the diagram below shows in a simplified form the chain of events in a manufacturing firm. which are concerned with day-to-day activities. . The chain starts with the firm buying raw materials on credit. have funds constantly flowing CASH RAW MATERIAL DEBTORS & BILLS RECEIVABLES OPERATING CYCLE WORK IN PROGRESS SALES FINISH GOODS into and out of them. These tanks. Each of the boxes in the upper part of the diagram can be seen as a tank through which funds flow.
As production progresses. possibly. new equity and loan finance and redemption of old equity and loan finance) would typically be rarer events. WIP. cash (positive or negative) and trade creditors – can be viewed as tanks into and from which funds flow.g. and Interest obligations will have to be met by the business Unlike. tax payments. movements in the working capital items. Others (e. Of course at some stage trade creditors will need to be paid. Some of them are annual events (e. and finished goods). work will be carried out on the stock. most of these „non -working capital‟ cash transactions are not every day events. Each of the areas. When the finished goods are sold on credit. dividends. labor costs and overheads need have to be met. fixed asset purchases and sales). interest and.Stock (raw materials. loans will need to be repaid from time-to-time. so that cash will be injected into the firm. In due course this stock will be used in production. debtors are increased. Work will continue on the WIP until it eventually emerges as the finished product. They will eventually pay. Fixed assets will be purchased and sold Lessors of fixed assets will be paid their rent Shareholders (existing or new) may provide new funds in the form of cash Some shares may be redeemed for cash Dividends may be paid Long-term loan creditors (existing or new) may provide loan finance. trade debtors. Working capital is clearly not the only aspect of a business that affects the amount of cash. .g. lease payments. The business will have to make payments to government for taxation. and it will become part of the firm‟s work-in-progress.
. Because of the large size of inventories maintained by the firms. Work-in-progress: Inventories are semi-manufactured products. Finished Goods: Inventories are those completely manufactured products which are ready for sale. imperative to manage the inventories efficiently and effectively in order to avoid unnecessary investment. while stock of finished goods is required for smooth marketing operations. It is therefore. Stocks of raw materials and workin-progress facilitate production. They represent product that need more work they become finished products for sale. Nature of Inventories Inventories are stock of the product of the company is manufacturing for sale and components make up of the product. inventories serve as a link between the production and consumption of goods. The various forms of the inventories in the manufacturing companies are: Raw Material: It is the basic input that is converted into the finished product through the manufacturing process. Raw materials are those units which have been purchased and stored for future production. On an average the inventories are approximately 60% of the current assets in public limited companies in India. Thus.INVENTORY MANAGEMENT Inventories Inventories constitute the most important part of the current assets of large majority of companies. a considerable amount of funds is committed to them.
Inefficient inventory control results in unbalanced inventory and inflexibility-the firm may sometimes run out of stock and sometimes pile up unnecessary stocks. Thus. ordering costs decrease with the increasing size of inventory. Carrying Costs: Costs are incurred for maintaining a given level of inventory are called carrying costs. the firm should determine the optimum level of inventory. Determine an optimum level involves two types of costs: Ordering Costs: This term is used in case of raw material and includes all the cost of acquiring raw material. They include the costs incurred in the following activities: Requisition Purchase Ordering Transporting Receiving Inspecting Storing Ordering cost increase with the number of orders placed. if the firm maintains large inventory‟s level. If the firm is buying raw materials. If the firm is planning a production run. These include the following activities: Warehousing Cost Handling Administrative cost Insurance Deterioration and obsolescence . and the task of the firm is to determine the optimum or economic lot size. On the other hand. the issue is how much production to schedule. it has to decide lots in which it has to purchase on replenishment. These problems are called order quantity problems.Inventory Management Techniques In managing inventories. Efficiently controlled inventories make the firm flexible. thus the more frequently inventory is acquired. Economic Order Quantity (EOQ): The major problem to be resolved is how much the inventory should be added when inventory is replenished. there will be few orders placed and ordering costs will be relatively small. the firm‟s objective should be to be in consonance with the shareholder wealth maximization principle. To achieve this. the higher the firm‟s ordering costs.
The firm should pay maximum attention to those items whose value is highest.Carrying costs are varying with inventory size. For e. classify inventories to identify which items should receive the most effort in controlling. The economic size of inventory would thus depend on trade-off between carrying costs and ordering cost. The high-value items are classified as “A items” and would be under tightest control. items such as memory. . ABC System: ABC system of inventory keeping is followed in the factories. “ B items” fall in between the two categories and require reasonable attention of management. It is not desirable the same degree of control all the items. high capacity processors and royalty are placed in the „A‟ category. The firm should be selective in approach to control investment in various types of inventories. This analytical approach is called “ABC Analysis”. The firm should therefore. “C items” represent relatively least value and would require simple control.g. Large number of firms has to maintain several types of inventories. This behavior is contrary to that of ordering costs which decline with increase in inventory size. Various items are categorized into three different levels in the order of their importance.
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. This is called overtrading.g. you can easily over-stretch the financial resources of the business. offering high discounts for early cash payment Bank overdraft exceeds authorized limit. Long-term loans If you have insufficient working capital and try to increase sales.CASH MANAGEMENT Sources of Cash: 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. . pending receipt of a cheque). Early warning signs include: Pressure on existing cash Exceptional cash generating activities e.
The amount they charge is very low and this might cover the threat of the cheque sent in by two or three customers bouncing. The branch offices of the company at various locations hold the collection of cheques of the customers. These credits are given to immediately and the maximum time taken might be just a day. 6. The central hub passes on the realized funds to the company as per the agreed agreements.CASH MANAGEMENT IN SINTECH PRECISION PRODUCT LTD. Those cheques are either handed over to the CMS agencies or bank of the particular location take charge of whole collection. The cash management system followed by the SINTECH is mainly lock box system. . These cheques can be local or outstation. HDFC and CitiBank who give credit on the basis of these cheques after charging a very small amount. Even otherwise the time taken for the cheques to be processed is instantaneous. Their Cash Management System is quite efficient. Cash Management System involves the following steps: 1. The CMS agencies or concerned bank provides the necessary MIS to the company as per requirement. The CMS agencies or bank send information to the central hub of the company regarding realization/cheque bounced. 2. These CMS agencies or bank send those cheques to the clearing house to make them realized. 5. 4. In cash management the collect float taken for the cheques to be realized into cash is irrelevant and non-interfering because banks such as Standard Chartered. 3.
9. Establish credit limits for each customer and stick to them.Consider charging penalties on overdue accounts.. 10.. Check out each customer thoroughly before you offer credit.RECEIVABLES MANAGEMENT Cash flow can be significantly enhanced if the amounts owing to a business are collected faster..... Keep very close to your larger customers.. If you don't manage debtors.. you could experience an increased incidence of bad debt.. 2. Establish clear credit practices as a matter of company policy. 5. Late payments erode profits and can lead to bad debts. how much is owed. 4. they will begin to manage your business as you will gradually lose control due to reduced cash flow and. 11. in particular on small businesses whom can least afford it.. suppliers and customers. 3. bank references. and especially largerones. Have the right mental attitude to the control of credit and make sure that it gets the priority it deserves. The following measures will help manage debtors: 1.Consider accepting credit /debit cards as a payment option. who owes them money.. Every business needs to know. . how long it is owing. Continuously review these limits when you suspect tough times are coming or if operating in a volatile sector. Be professional when accepting new accounts. Slow payment has a crippling effect on business. 7. Use credit agencies. 6. for what it is owed. industry sources etc. 8. of course. Invoice promptly and clearly. Make sure that these practices are clearly understood by staff..
12.Monitor your debtor balances and aging schedules, and don't let any debts get too old. Debtors due over 90 days (unless within agreed credit terms) should generally demand immediate attention. Look for the warning signs of a future bad debt. For example….. 1. Longer credit terms taken with approval, particularly for smaller orders. 2. Use of post-dated checks by debtors who normally settle within agreed terms. 3. Evidence of customers switching to additional suppliers for the same goods. 4. New customers who are reluctant to give credit references. 5. Receiving part payments from debtors. Here are few ways in collecting money from debtors: Develop appropriate procedures for handling late payments. Track and pursue late payers Get external help if you own efforts fail. Don‟t feel guilty asking for money .. its yours and you are entitled to it. Make that call now. And keep asking until you get some satisfaction. In difficult circumstances, take what you can now and agree terms for the remainder, it lessens the problem. When asking for your money, be hard on the issue – but soft on the person. Don‟t give the debtor any excuses for not paying.
Make that your objective is to get the money, not to score points or get
MANAGING PAYABLES (Creditors)
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? How many of your suppliers have a return 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?
There is an old adage in business that "if you can buy well then you can sell well". Management of your creditors and suppliers is just as important as the management of your debtors. It is important to look after your creditors- slow payment by you may create ill feeling and can signal that your company is inefficient (or in trouble!). Remember that a good supplier is someone who will work with you to enhance the future viability and profitability of your company.
Financing Current Assets
The firm has to decide about the sources of funds, which can be availed to make investment in current assets. Long term financing: It includes ordinary share capital, preference share capital, debentures, long term borrowings from financial institutions and reserves and surplus. Short term financing: It is for a period less than one year and includes working capital funds from banks, public deposits, commercial paper etc. Depending on the mix of short and long term financing, the company can follow any of the following approaches. Matching Approach In this, the firm follows a financial plan, which matches the expected life of assets with the expected life of source of funds raised to finance assets. When the firm follows this approach, long term financing will be used to finance fixed assets and permanent current assets and short term financing to finance temporary or variable current assets. Conservative Approach In this, the firm finances its permanent assets and also a part of temporary current assets with long term financing. In the periods when the firm has no need for temporary current assets, the long-term funds can be invested in tradable securities to conserve liquidity. In this the firm has less risk of facing the problem of shortage of funds. Aggressive Approach In this, the firm uses more short term financing than warranted by the matching plan. Under an aggressive plan, the firm finances a part of its current assets with short term financing.
44 -------------333.00 ----------888.65 94.84 34.92 --------------1008.03.37 ---------------336.76 305.70 256.30 28.67 21.54 159.14 102.16 59.03.05 72.36 -------------720.82 -------------332.08 78.95 219.88 64.51 -------------291.99 83.33 10.22 21.03.WORKING CAPITAL POSITION ANALYSIS IN SINTECH PRECISION PRODUCT LIMITED Net working Capital ( CURRENT ASSETS – CURRENT LIABILITIES) (Rs.34 --TOTAL CURRENT LIABILITIES --NET WORKING CAPITAL 1.13 390.30 21.67 --------------31.08 31.11 29.05 21.49 25.26 114.56 14.33 18.in lacks) YEAR CURRENT ASSETS INVENTORIES SUNDRY DEBTORS CASH AND BANK OTHER CURRENT ASSETS LOANS & ADVANCES TOTAL CURRENT ASSESTS 180.09 LESS:CURRENT LIABILITIES AND PROVISIONS Short term borrowing Sundry creditors Advanced received Provisions Instalments of term loan Other current liabilities 70.09 -------------653.66 16.38 120.02 ------------ 51 .74 -------------823.79 28.99 59.81 6.07 31.71 ---------------315.
24 lacs which shows that a sufficient amount has been blocked in working capital which could be used for some other more beneficial purpose.14 2007 2008 YEAR 2009 Data Interpretation If we analysis the three years working capital position of the company. it is good indicator for the company but in 2008.38 1. we find out that company has sufficient working capital to meets its short term liability. working capital is increased by 101.NET WORKING CAPITAL 140 120 100 80 60 40 20 0 AMOUNT(IN LACKS) 120.65 102. 52 .
76 340.INVENTORY ANALYSIS Inventory means stock of three things :1. (Rs.38 --------------180.26 lacs to 291 lacs in the year 2008 and in the year 2009 it is increased from 291 lacs to 653 lacs.57 41.03.95 ------------- Analysis through chart: AMOUNT (IN LACKS) 700 600 500 400 300 200 100 0 2007 2008 YEAR 2009 INTERPRETATION: By analyzing the 3 years data. From other point of view we can say that the liquidity of firm is blocked in inventories but to stock is very good due to uncertainty of availability of raw material in time. Spare Parts etc. Raw materials 2.09 25.53 78.74 54.08 246. We are looking increasing pattern in inventories.10 37. Semi finished goods.93 184. 3.26 ------------------31. 53 .08 .13 ---------------31.87 26. Position of inventory in Sintech Precision Product Ltd.03.80 ---------------291. We can see that inventories are increased from 180. Company have a great demand for the pump in the year 2010 that is biggest reason for increase in inventories. By seeing this pattern we can say that the company is managing the inventory according to the sale.04 78.54 --------------653.07 10.in lacks) YEAR Stores. Stock In tradeFinished Goods Raw Materials Material under process 31. Finished goods.03.
24% in the year 2009.03.SUNDRY DEBTORS ANALYSIS Debtors or an account receivable is an important component of working capital and fall under current assets.84 ------------390. We can say that it is a good sign as well as negative also.09 219. Position of Sintech Precision Product Ltd.33 --------------Analysis through chart: 31. 54 .07 114. A simple logic is that debtors increase only when sales increase and decrease if sales decrease.30% and decreased by 19. Debtors will arise only when credit sales are made.03. Company policy of debtors is very good but a risk of bad debts is always present in high debtors. (Rs. In the year 2008.79 ---------- 400 300 AMOUNT ( IN 200 LACKS) 100 0 2007 2008 YEAR 2009 INTERPRETATION In the table and figure we see that there is rise in the debtors in the year 2008 and decrease in the year 2009.08 390.33 ------------114.in lacks) YEAR Sundry Debtors 31. sales is increased by 72.79 -------219.03. If company decreases the Debtors they can use the money in many investment plans. when sales is increasing with a great speed the profit also increases.84 ---------------31.
CASH AND BANK BALANCE ANALYSIS Cash is called the most liquid asset an vital current assets.30 lacs which is not a good sign for the company because it shows that company is not using its cash for beneficial activities.45 9.30 lacs to 29.81 ------------31.in lacks) YEAR Cash Balance in hand Bank BalanceWith Scheduled Banks 31. Position of Cash and Bank Balance in Sintech Precision Product Limited (Rs. From the other point of view. it is an important component of working capital. company will not face the problem of liquidity as company is maintaining the cash balance. 55 . cash and the bank balances has increased from 10.81 lacs to 34. But in the year 2008.03.03.30 ------------31.03.90 26.02 lacs but this is very good sign for company because they are not holding the cash in hand but using the cash for better projects.12 -----------29.30 7. bank draft. In a narrow sense. In the year 2007 it had maintained a low amount of cash and bank balance.08 27.07 1.36 ------------10. cash has reduced from 34. in the year 2009. Although. cash includes notes. cheque etc while in a broader sense it includes near cash assets such as marketable securities and time deposits with bank. but still it is not conducive.02 ------------ Analysis through chart: 35 30 25 AMOUNT ( IN 20 LACKS ) 15 10 5 0 2007 2008 YEAR 2009 INTERPRETATION If we analyze the above table and chart we find that it follows a uneven pattern.09 2.00 ------------34.
05 28.62 39.03.09 44.67 --------------28.07 10.99 -----------105.08 39. Position of Other Loans & Advances in Sintech Precision Product Limited (Rs. company. employees for a specific period of time and in return they will be liable to make timely repayment of that amount in addition to interest on that loan. We can see that from the year 2007 to 2008 it increased more than triple.91 10.03.08 --------------106. The increasing pattern shows that company is giving advances for the expansion of plants and machinery which is good sign for better production of pumps and other goods. 56 .03.11 -------------31.30 21.69 39.in lacks) YEAR Advances to suppliers Advances Deposits 31.91 ----------- Analysis through chart: INTERPRETATION If we analyze the table and the chart we can see that it follows an increasing trend which is a good sign for the company.08% in 07-08 and 08-09 respectively from previous year.53 6.82 ---------------31. Although company‟s cash is blocked but this is good that company is doing modernization of plants In time to compete with other competitors in market.LOANS AND ADVANCES ANALYSIS Loans and Advances here refers to any to amount given to different parties. We can see that the increase of 275% and 6.
The important component of current liabilities is sundry creditors and other liabilities.82 ----------------- 256.03.02 ---------------31.in lacks) YEAR Current Liabilities – Sundry Creditors Bank Loan Advance Received Provisions for taxes Other Liabilities 332.49 94.70 18.88 64.03.07 31. In 07-08 it decreased from 359.33 336.05 70.30 21.05 29.71 ----------------888. when company have minimum liabilities it creates a better goodwill in market.CURRENT LIABILITIES ANALYSIS Current liabilities are any liabilities that are incurred by the firm on a short term basis or current liabilities that has to be paid by the firm with in one year.54 25.36 ----------------- 305.09 159.08 31.37 ----------------Analysis through chart: 720.56 16.34 ---------------- 1000 800 AMOUNT ( IN LACKS ) 600 400 200 0 2007 2008 YEAR 2009 INTERPRETATION If we analyze the above table then we can see that it follow an uneven trend.41 lacs to 256.99 lacs.76 59. Position of Other Current Liabilities in Sintech Precision Product Limited (Rs.16 59.03. 57 . This is liability for company so this should be less. High current liabilities indicate that company is using credit facilities by creditors.33 lacs and in 08-09 it increased from 256.33 lacs to 305.99 315.
33 ------------256.08 256. 58 .03.03.09 305. Position of Sundry Creditors in Sintech Precision Product Limited (Rs.07 159.03. This is liability for company so this should be less.SUNDRY CREDITORS ANALYSIS Creditors or an account payable is an important component of working capital and fall under current liability. when company have minimum liabilities it creates a better goodwill in market.99 ---------- 350 300 250 AMOUNT ( IN 200 150 LACKS) 100 50 0 2007 2008 YEAR 2009 INTERPRETATION In the table and figure we see that there is continuous rise in the creditors in the company in the successive years.49 --------------Analysis through chart: 31. High current liabilities indicate that company is using credit facilities by creditors.in lacks) YEAR Sundry Creditors 31.49 ------------159.99 --------305. A simple logic is that creditors increase only when purchases increase and if purchase increases on credit it is not good sign for growth.33 ---------------31. Creditors will arise only when credit purchases are made.
On the other hand.30 --------------122. this is good sign for company.70 18.03.03.84 -------------- 336.86 ---------------- 315. 59 . We can see that from the year 2007 to 2008 it increased more than double.76 59.in lacks) YEAR 31.88 -----------375.BANK LOANS AND ADVANCES ANALYSIS Position of Bank Loans & Advances in Birla Corporation Limited (Rs. The increasing pattern shows that company is taking loan for the expansion of plants and machinerecy which is not a good sign because company depends on the external source. company has reduced the bank loan in 2009 and increase in advances received from the customer.07 31.03.09 Bank Loan Advances from the customers 31.64 ----------- Analysis through chart: 400 350 300 250 AMOUNT ( IN 200 LACKS ) 150 100 50 0 2007 2008 YEAR 2009 INTERPRETATION If we analyze the table and the chart we can see that it follows an increasing trend which is not a good sign for the company.08 94.16 --------------354.54 25.
This is good sign for Company growth. 60 .03.05 ---------------- 31.PROVISIONS ANALYSIS Position of Other Provisions in Sintech Precision Product Limited (Rs.09 64. Although company is paying more income tax but also they are earning more.56 --------------- 31.07 21. Other provisions are also for the benefit of employees and public.03.in lacks) YEAR Provision for Taxes 31.05 ------------64.56 --------------21.05 ------------ Analysis through chart: 70 60 50 AMOUNT ( IN 40 LACKS ) 30 20 10 0 2007 2008 YEAR 2009 INTERPRETATION From the above table we can see that provision shows an increasing trend and the huge amount is being kept in these provisions.03.08 59. Though the profits of the company are increased income tax is also increased which is good that company is creating goodwill in market by paying income tax in time.05 --------------59.
03.Position of WORKING CAPITAL RATIO in Sintech Precision Product Limited FORMULA INVENTORY + RECIVEABLE . But we find that ratio is increasing at a very fast rate which is not a good sign for the company and the company is required to look into these matters closely.03.e. In order words it shows the relationship between sales and working capital. This ratio is an important indicator about the working capital position.. Now if we analyze the three years data. working capital ) have been properly utilized.03.07 31. But too high ratio indicates over trading. we find that it follows an increasing trend which means that its investment in working capital is lower and the company is utilizing more of its profit.PAYABLE WORKING CAPITAL RATIO= ------------------------------------------------------------(AS % OF SALES) SALES YEAR 31.08 31. Higher the ratio lower is the investment in working capital and higher is the profitability.09 WORKING CAPITAL RATIO 18 32 53 Analysis through chart: 60 50 AS % 40 30 20 10 0 2007 2008 YEAR 2009 INTERPRETATION This ratio indicates whether the investments in current assets or net current assets ( i. 62 .
14 Analysis through chart: 1.09 1.05 1 0.95 0.03.1 1.9 2007 2008 YAER 2009 INTERPRETATION This ratio reflects the financial stability of the enterprise.Position of CURRENT RATIO in Sintech Precision Product Limited FORMULA TOTAL CURRENT ASSETS CURRENT RATIO= -------------------------------------------TOTAL CURRENT LIABILITIES YEAR CURRENT RATIO 31.14 31.2 1.00 31.03.33:1.08 1. 63 . Now if we analyze the three years data it can be predicted that it holds a stable position all through out period but it is seen that it holds a low position than the standard one and the company is required to improve its position. The standard of the normal ratio is 2:1 but in most of companies standard is taken according to Tandon Committee which is taken as 1.15 1.07 1.03.
03.2 0. 64 .40 Analysis through chart: 0. It is used as an assessment tool for testing the liquidity position of the firm.8 0.7 0.74 31.Position of QUICK RATIO in Sintech Precision Product Limited FORMULA TOTAL CURRENT ASSETS .3 0. The normal value for such ratio is taken to be 1:1. It indicates the relationship between strictly liquid assets whose realizable value is almost certain on one hand and strictly liquid liabilities on the other hand.07 0.6 0.4 0. It is to be said that it does not meet with the standard but in the year 2008 it was very close to the standard and it can be said that its liquidity position is not good & stable.1 0 2007 2008 YEAR 2009 INTERPRETATION It is the ratio between quick liquid assets and quick liabilities.03. Liquid assets comprise all current assets minus stock.5 0.INVENTORIES QUICK RATIO= ----------------------------------------------------------------TOTAL CURRENT LIABILITIES YEAR QUICK RATIO 31.09 0.03.08 0. By analyzing the three years data it can be said that its position was weak in the year 2007 but it improved significantly in the next year and again it is declined during the 2009.46 31.
e.07 1.5 2 1.65 31. higher CA/FA ratio implies greater liquidity and lower risk. a higher CA/FA ratio indicates a conservative current assets policy and a lower CA/FA ratio means an aggressive current assets policy assuming other factors to be constant.5 3 2.03. so we can say that company is following the conservative policy to finance its short term capital requirement.09 3. lower CA/FA ratio indicates higher risk and poor liquidity.5 0 2007 2008 YEAR 2009 INTERPRETATION Assuming a constant level of fixed assets. A conservative policy i.93 31.21 Analysis through chart: 3.Position of CURRENT ASSETS TO FIXED ASSETS RATIO in Sintech Precision Product Limited FORMULA CURRENT ASSETS CA TO FA RATIO = ----------------------------FIXED ASSETS YEAR CATO FA RATIO 31. while an aggressive policy i.e.5 1 0. DAYS 65 .08 2.03.03. Now if we analyze the three year data we find the CA TO FA Ration in increasing pattern.
A high stock turnover ratio reveals the liquidity of the inventory i.03.Position of INVENTORY TURNOVER RATIO in Sintech Precision Product Limited FORMULA AVERAGE STOCK STOCK TURN OVER RATIO ( IN DAYS )= --------------------------------------.03. Which is not a good indicator for the company. inventory is turned over or sold during the year. By analyzing the three year data it seen that it follows an uneven trend.08 31. If a firm maintains a minimum stock level in order to maximize sales by quick rotation of inventory and the holding cost of inventory will be minimum. A low stock turn over ratio reveals undesirable accumulation of obsolete stock.03. how many times on an average.07 31.e.09 INVENTORY TURNOVER RATIO ( in Days) 104 79 227 Analysis through chart: 250 200 DAYS 150 100 50 0 2007 2008 YEAR 2009 INTERPRETATION This ratio tells the story by which stock is converted into sales.* 365 COST OF GOODS SOLD YEAR 31.. Company should have to reduce the inventory conversion period in order to reduce the cost. 66 . We see that it is reduced to 79 from the 104 days in 2008 and in 2009 it is increased by 148 days.
Position of RECEIVABLE RATIO in Sintech Precision Product Limited FORMULA DEBTORS RECEIVABLE RATIO = ---------------. Now if we analyze the three year data we can say that it holds a good position while receiving its money from its debtors. The ratio indicates the time at which the debts are collected on an average during the year.07 54 31. The ratios are in an decreasing ternd.* 365 SALES YEAR RECEIVABLE RATIO (IN DAYS) 31. 67 .03.03.09 104 Analysis through chart: 120 100 DAYS 80 60 40 20 0 2007 2008 YEAR 2009 INTERPRETATION Generally a low debtors turnover ratio implies that it considered congenial for the business as it implies better cash flow.08 70 31. Needless to say that a high Debtors Turnover Ratio implies a shorter collection period which indicates prompt payment made by the customer.03. which implies that recovery position is not good company and Company have to reduce the receivable period.
07 92 31. but in the 2009 it is seen that it has followed a decreasing trend which is very good sign for the company. Generally a low creditors turnover ratio implies favorable since the firm enjoys lengthy credit period Now if we analyze the three years data we find that in the year 2008 the ratio was very high which means that its position of creditors that year was not good.03.03. DAYS 68 .08 69 31.Position of PAYABLE RATIO in Sintech Precision Product Limited FORMULA CREDITORS PAYABLE RATIO= ----------------------------.03.* 365 COST OF SALES YEAR PAYABLE RATIO (IN DAYS) 31.09 135 Analysis through chart: 160 140 120 100 80 60 40 20 0 2007 2008 YAER 2009 INTERPRETATION Actually this ratio reveals the ability of the firm to avail the credit facility from the suppliers throughout the year. So we can say it enjoys a very good credit facility from the from the suppliers .
55 so we can say that now company is using more its fund as compare to previous year. In the year 2007 it was 1. Company have to reduce the ratio. it means that company is utilizing its own funds and reserves rather than taking loans from outsiders. Company have a uneven trend in d/e ratio. Days 69 .02 but in the year 2009 it is declined to . but still the ratio is high.Position of Operating Cycle in Sintech Precision Product Limited Formula = Inventory Conversion Period + Receivable Conversion Period – Deferral Period Calculation of Operating Cycle at Sintech:Particulars ICP RCP Gross Operating Cycle DP Net OP 2007-08 104 54 158 92 66 2008-09 79 70 149 69 80 ( All Figures in Days) 2009-10 227 104 431 135 296 Analysis through chart: 350 300 250 200 150 100 50 0 2007-08 2008-09 YEAR 2009-10 Interpretation When a company has lower d/e ratio.
31% 306 ↑ by 19.36 ↓ by 74.5% 70 .10% 1009 ↑ by 23% Sales Current Assets Sundry Debtors 391 ↑ by 243% 291 ↑ by 62% 34 ↑ by 209% 107 ↑by 269% 220 ↓ by 44% 654 ↑ by 125% -29 ↓ by 15% 106 ↓ by .53% 376 ↑by 6% 136 ↑by70% 888 ↑ by 23% Bank Loan and Advances Provisions & Deposits Other Liabilities 29.55% 70.93 Inventories Cash & Bank Bank Loan and Advances Current Liabilities Sundry Creditors 721 ↑ by 117% 256 ↓ by 42% 355 ↑by 196% 80.34 ↑ by 139.MAJOR FINDINGS Statement Showing Difference from Previous Year (amt.16 ↑by121. in lacks) Particulars Working Capital 07-08 102 ↑ by 5000% 1323 ↑ by 72% 823 ↑ by 146% 08-09 121 ↑ by 19% -1069 ↓ by 19.
Cash and the bank balances are decreased by 15% which shows company might face the liquidity problem. Working Capital is increased by 19% only in 2008-09 as compare to 5000% increase in 2007-08 and if we analysis the working capital with sales. 3. Inventory is increased by 125% in 2008-09 as compare to 2007-08. Operating cycle of the company is increasing which shows the poor receivable collection policy 71 . so we can say that current assets are increased due to the increase in the inventory. 4. the sales is decreased by 19% in 2008-09. 1. 3. Debtors are decreased by 44% in 2008-09 whereas creditors are increased by 19. 2.1. 2. Current assets and Current liabilities are increased by 23% in 2008-09 as compare to previous year but current assets are increased by 146% in 2007-08 as compare to 117% increase in current liabilities. so we can say that working capital is increased because of increase in current assets. Bank loan and Advances are increased by 6% only as compare to 196% increase in 2007-08. which shows that company using more of its debt to fund the short term requirements. which shows that company enjoys the good payable period and goodwill among the creditors.37% in 2008-09. that‟s why working capital is increased by 19% only.
CONCLUDING ANAYSIS The working capital position of the company is sound and the various sources through which it is funded are optimal. The firm has not compromised on profitability despite the high liquidity is commendable. The debts doubtful have been doubled over the years but their percentage on the debts has almost become half. financing and investment decisions to good effect can be seen from the inferences made earlier in the project. Sintech Precision Product Ltd. has reached a position where the default costs are as low as negligible and where they can readily factor their accounts receivables for availing finance is noteworthy. This implies a sales and collection policy that get along with the receivables management of the firm. The various ratios calculated are an indicator as to the fact that the profitability of the firm and sales are on a rise and also the deletion of the inefficiencies in the working capital management. 72 . The company has used its purchasing.
SUGGESTIONS AND RECOMMENDATIONS The management of working capital plays a vital role in running of a successful business. So. The investment of cash in marketable securities should be increased. Following are few recommendations given to the company in achieving its desired objectives: The business runs successfully with adequate amount of the working capital but the company should see to it that the cash should not be tied up in excessive amount of working capital. things should go with a proper understanding for managing cash. the company as due to the increasing sales should adopt more effective measures so as to counter the threat of bad debts. but still there is some scope for improvement in its management. etc respectively. as it is very profitable for the company. This will ultimately improve the efficiency of its operations. Though the present collection system is near perfect. Holding of excessive and insufficient stock must be avoided as it creates a burden on the cash resources of a business and results in lost sales. The over purchasing function should be avoided as it could lead to liquidity problems. This can help the company in raising its profit level by making less investment in accounts receivables and stocks etc. delays for customers. Sintech Precision Product Ltd. 73 . is managing its working capital in a good manner. receivables and inventory.
indianpumpsindustry.co.com Textbooks on financial management I.Pandey Khan and Jain 74 .sintechpumps.com o www.M.in o www.scribd.BIBLIOGRAPHY Following sources have been sought for the preparation of this report: Corporate Intranet Financial Statements (Annual Reports) CMA Data Direct interaction with the employees of the company Internet ---o www.
54 336.54 76 .00 94.54 336.36 25.CRITICAL MANAGEMENT ANALYSIS DATA (CMA) BALANCE SHEET LIABILITIES STATEMENT Sheet 1 Sintech Precision Products Limited CURRENT LIABILITIES AS PER BALANCE SHEET AS AT 31st MARCH Lacs 2007 2008 Aud Aud I II 2009 Est.00 30.05 133.53 16.36 29.77 20.56 256.) From other banks (iii) Of which BP & BD SUB TOTAL Short term borrowings from others Sundry Creditors (Trade) Advance payments from customers/deposits from dealers Provision for taxes Dividend payable Other statutory liabilities (due within one year) Deposits/instalments of term loans/DPGs/Debentures.etc.15 187.55 43.30 21.05 90.00 25.70 400.45 758.00 94.70 0.00 30.00 SUB-TOTAL (B) TOTAL CURRENT LIABILITIES 237.82 16.00 400.33 18. III 2010 Proj IV Short-term borrowings from banks(including bills purchased.37 421.49 25.00 159.83 332. discounted & excess borrowing placed on repayment basis) (i.) From applicant banks (ii.54 668. (due within one year) Other current liabilities & provisions(due within 1 Yr) (specify major items) Liabilities for Expenses 0.76 24.33 50.16 59.82 29.68 14.00 8.00 0.00 400.00 30.00 0.58 587.66 58.00 400.58 268.
2010 Proj 5.84 0.00 90.06 58.32 0.33 180.45 204.76 23.56 85.69 852.00 208. In Lacs 2007 Aud ----------------------------------Sintech Precision Products Form III : Sheet 2 Debentures (not maturing within one year) Preference shares (redeemable after one year) Term loans(excluding instalment) payable within one year) Deferred Payment Credits(car Loans) (excluding instalments due within one year) Term deposits (repayable after one year) Other term liabilities TOTAL TERM LIABILITIES TOTAL OUTSIDE LIABILITIES NET WORTH ------------------------Ordinary share capital General reserve Revaluation reserve Other reserve (excluding provisions) Surplus (+) or deficit (-) in Profit & Loss Account Others (specify) Deferred Tax Liability Share Application Money Share Premium NET WORTH TOTAL LIABILITIES Closing Balance Of TL(Check) Aud 2008 Aud 2009 Est.70 0.25 0.00 0.25 0.91 44.48 43.22 20.32 0.00 16.00 352.00 80.97 3.44 68.22 795.50 15.80 180.55 23.68 1056.18 914.20 95.53 77 .00 133.25 0.92 60.50 23.00 183.00 156.32 0.91 24.73 1048.93 27.73 1204.00 114.91 44.00 0.TERM LIABILITIES Rs.96 24.00 260.00 0.50 112.91 73.51 0.00 80.23 24.13 0.30 537.55 422.
00 3.70 73.89 13.72 0.61 16.20 70.94 2010 Proj 285.48 85.00 0.00 0.06 200.87 1056.00 0.22 1047.77 79 . work-in-process) Depreciation to date NET BLOCK Rs.94 29.00 13.00 0.20 13.29 1204.20 0. prelim.40 Lacs 2008 Aud 255.00 537.expenses.08 66.86 208. in 2007 Aud 228.11 0.50 3.72 0.20 0.00 4.94 2009 Est.99 47. bad/ doubtful exp.Sintech Precision Products FIXED ASSETS Form III : Sheet 4 Gross Block(Land & Building machinery.20 1. 285.00 73.70 0. goodwill.20 10.not provided for etc) TOTAL ASSETS(34+37+41+42) 3.00 3.88 Investment/bookdebts/advances/ deposits which are not current assets (i) a) Investment in subsidiary Co.00 2. ASSETS Intangible assets (patents.46 219.20 0.00 16./affiliates b) Other Investments (ii) Advances to suppliers of capital goods & contractors (iii)Deferred receivables (maturity exceeding one year) (iv)Others (a) Debtors> 6 months (b) Security Deposits (c) Others Non-consumables stores & spares Other non-current assets including dues from Directors TOTAL OTHER NON-CURR.41 198.00 0.
60 148.85 2007 Aud I 871.95 Lacs 2 3 4 5 476.86 1323.32 72.00 2008.00 0.59 2008 Aud II 1458.00 21.45 54.18 107.99 682.85 17.25 78.00 80 .31 2009 Est.71 72.50 193.24 99.00 18.53 8.70 78.34 64.14 1461.52 18.73 875.85 74.00 3.00 31. GHAZIABAD As per profit and loss account actuals/ estimates for the year ending 31st March Sintech Precision Products Limited 1 i.50 42.85 874.87 682.) Raw materials (including stores and other items used in the process of manufacture) (a) imported (b) Indigenous ii) Other spares (a) Imported (b) Indigenous iii) iv) v) vi) vii) viii) Power and fuel Direct labour (Factory wages & salary) Other mfg.item 2 ) % age rise (+) or fall (-) in net sales compared to previous year (annualized) Cost of Sales i.99 75. Expenses Depreciation SUB TOTAL (I TO VI) ADD: Opening stocks-in-Process) Sub-total 72.17 2010 Proj IV 2206.87 12.19 767.00 1210.50 2214.ASSESSMENT OF WORKING CAPITAL REQUIREMENT FORM II : OPERATING STATEMENT ---------------------------------------------------Sheet 1 Amount in Branch INDIAN BANK.45 990.60 1703.00 18.71 129.50 206.04 0.00 3.25 124.83 139.80 1330.71 1405.46 717.71 0.00 139.05 111. III 1529.60 1251.18 137.34 61.05 874. GROSS SALES Domestic sales Export sales Add other revenue income Job Work Total Less excise duty Deduct other items Net sales ( item 1 .56 644.00 476.00 6.00 1210. ii.00 5.17 111.00 1534.25 1851.00 8.38 1044.00 193.75 172.42 9.45 0.99 72.
00 92.38 662.15 0.00 122.00 1806.00 2.21 17.18 71.03 37.00 1.46 2008 Aud 78. provision) (b) Dividend Rate Retained profit ( 14-15 ) 0.83 158.43 145.68 0.62 0.S.05 0.98 37.29 12.57 201.57 190.09 0.00 2.00 # (-)ve for expense/provisions and (+) ve for gains 81 .35 1137. 148.ix) Form II : Sheet 2 Sintech Precision Products Deduct : Closing stocks-inProcess Cost of Production Add : Opening stock of finished goods SUB-TOTAL 2007 Aud 54.09 0.53 56.10 71.00 0.04 1003.00 132.00 0.88 1616.45 100.93 976.00 0.75 1646.00 0.95 0.73 30.05 100.73 2.08 132.09 2009 Est.35 1717.20 120.25 1182.93 x) xi) xii) Deduct closing stock of finished goods SUB-TOTAL (Total cost of Sales) Selling general and administrative Expenses SUB-TOTAL (5+6) Operating profit before interest ( 3-7 ) Interest Operating profit after interest (8-9) xiii) 6 7 8 9 10 11 (i) (a) (b) (c) (d) (ii) (a) (b) 12.79 3.83 109.09 1119.13 0.15 1.17 2010 Proj 205.00 26.08 0.23 143.94 82.43 2.86 1.04 628.17 33.67 100.25 26.00 8.15 60.23 204.00 35.19 665.00 2.00 Add other non-operating income Bank Interest on FDRs Sub-total ( income ) Deduct other non-operating expenses P&P expense inncluding all book entries written off Sub-total ( expenses ) (iii) 12 13 14 15 16 Net of other non-operating income/expenses Profit before tax/loss[10+11(iii)] Provision for taxes Prior Years Adjustment(if any)# Net profit/loss for the year ( 12-13 ) (a) Equity dividend paid-amt (Already paid+ B.93 1209.67 0.14 143.59 711.00 81.07 26.31 44.06 44.80 966.05 17 18 27.00 Retained profit/Net profit (% age) 100.00 27.00 1295.95 100.00 92.00 26.43 76.00 2.
54 11.00 60.52 30.39 -63. e.12 0.09 -59.30 2010 Proj 146.00 24.96 121./Dec.94 2.00 0.60 0.59 0. Share Premium) Increase In TL.00 FUNDS FLOW STATEMENT (Summary) 2006 Aud 3. 2 a.00 0.08 80.00 86. Inc.52 0.16 2009 Est.58 183.00 0.65 Lacs 2008 Aud 132.00 0.00 0. Net Loss Dec.) Fixed Assets ii.00 56. Net Profit (After Tax) Depreciation Increase in Capital (incl. 26.00 0. in Bank Borrowings 82 . incl.62 305.19 27.08 9.00 0.67 18.87 174.32 242.54 -29.in Term Liab.00 24.00 0.00 39.12 227.41 224. Pub.Dep.00 0.04 2010 Proj 92.00 7.75 2009 Est. c d.98 0.21 Lacs 2008 Aud 184. Increase in i) Fixed Assets ii) Other Non current assets d.95 18.00 0. Incl.63 1 2007 Aud 27.21 29./Dec.55 0.63 32.00 46.45 0.50 0. Assts.60 100.64 489.00 0.96 146. b.00 0.16 0.00 65.48 233. c.50 0.33 119.00 3.05 18.00 197.30 63. in WC Gap Net Surplus (+) Deficit (-) Inc.00 0./Dec.20 89. b.00 0.FUND FLOW STATEMENT FUND FLOW (DETAILED) Sintech Precision Products Limited SOURCES a.53 0.00 0.00 3 4 5 6 7 8 I ii iii iv v vi Particulars Long Term Surplus/Deficit Increase/decrease in Curr.19 0.17 86. 111.00 0.) Other Non Current Assets f g.00 0.00 52.00 170.00 86.00 0. in CL other than BB Inc.00 0.53 Others Total USES 0. e f Dividend Payment Others Total 86.public deposits Decrease in i.
52 86.00 0.64 2010 Proj 375.63 1 Aud 2007 Aud 0.00 65.50 111.Div.69 1 2 FUND FLOW (DETAILED) Sintech Precision Products Limited SOURCES a.64 92.00 60.64 2009 Est. c d.04 2010 Proj 92.09 2.00 0.00 0.00 83 .53 146.public deposits Decrease in i.67 0.00 0.00 0.55 0.) Other Non Current Assets f g.55 0.08 0.00 0.52 184.07 0.00 0.12 Movement of TNW (Corporate) Lacs 2007 Particulars Opening balance Add.69 2009 Est.00 9.) Fixed Assets ii.93 27.00 248.00 9. b.00 0.00 0.67 18. e.19 3.00 7.00 114.59 86.00 0.00 0.05 0.65 Lacs 2008 Aud 132.69 26.20 -0. i Profit/(-)Loss after Tax ii Increase in Capital iii Dec.00 0. 197.45 0.33 2008 Aud 224.FUNDS FLOW STATEMENT Lacs 2007 Particulars Long Term Sources Long Term Uses Surplus/Deficit Aud 89.in Reserves v./(-) Inc./(-) \ Dec. Net Profit (After Tax) Depreciation Increase in Capital (incl.in Intangible Assets iv Inc. 26.59 0.00 0.16 0.61 132.00 0..65 24. Adjust prior year expenses Less Div Paid(Incl.30 2008 Aud 108.05 18.00 0.00 375.Tax)/ Withdrawals TNW Aud 84.00 0.00 467. Others Total 0.41 0. 248.16 39.95 18.00 0. Incl.00 0.00 2009 Est.60 100.00 197. Share Premium) Increase In TL.09 2010 Proj 170.00 52.00 0.00 170.41 224.95 100.00 7.60 0.
00 0.00 0.50 111.Dep.00 0.00 0.52 30. c.00 0.00 80.6 5 24.1 6 39.98 0.54 11. Assts. Increase in i) Fixed Assets ii) Other Non current assets 0.6 2 305. e f Dividend Payment Others Total FUNDS FLOW STATEMENT (Summary) 2007 Particulars 3 4 I ii Long Term Surplus/Deficit Increase/decrease in Curr.30 63.00 5.69 0.00 24.00 0. in WC Gap 0.5 9 86. in Bank Borrowings 3.86 84 .00 0.50 0.2 a.00 0.69 27. Pub.96 146.1 2 227.5 8 183.9 6 121.00 -63.0 8 5 6 iii i v Inc.52 184. 197.3 2 242.00 39.86 0. in CL other than BB Inc.00 0.53 Dec.1 6 2009 Est./Dec.6 4 489.0 9 -59.86 0./Dec.00 0.in Term Liab.00 0.00 FUNDS FLOW STATEMENT Lacs 2007 Particulars Au d Aud 2008 Aud 224.0 9 2010 Proj 170.48 233./Dec.00 Lacs 2008 Aud 184.1 2 7 8 v v i Net Surplus (+) Deficit (-) Inc.53 d.00 0.50 0.3 9 2010 Proj 146. b.30 0. 111.53 146.00 86.00 56.1 2 Long Term Sources Long Term Uses Surplus/Deficit 9.8 7 174.00 0. Net Loss USES 5.69 3.6 4 2009 Est. incl.00 0.00 24. Au d Aud 3.55 5.00 0.