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ORIGIN INFOSYS is a leader in providing complete infrastructure business solutions for IT / ITES . Our aim has been to provide clients with smart IT solutions that allow their business to meet short term deadlines, while achieving long term success. ORIGIN INFOSYS was founded by two young enterprising engineers – P Thangavel, and S Loganathan in 1993 under the name Origin Information Technology. It was started with the goal of providing high-quality computer hardware and service on a contractual basis. In course of time, the operations were expanded to include sales of computers and other equipment too. In 1998, Origin Information Technology was incorporated as a Private Limited Company under the name Origin Infosys Private Limited (ORIGIN). Over the years, ORIGIN gradually spread its wings to cater to other areas of IT. With the single focus of providing high-quality equipment and service, and encouraged b ORIGIN's range of services includes: • Business Infrastructure • IT Facility Management • Hardware Sales • Computer and Peripherals Rental • Annual Maintenance Contracts • Software Development • Web Design & Development
ORIGIN's success has been as much a result of our dedicated team, as our focus on quality and customer satisfaction. As part of our continual effort to improve quality and put efficient internal processes in place, we have also secured the ISO 9001 : 2000 certification.
LEASING THERE COMPUTER
TIE UP WITH COMPUTER COMPANY
IT INFRASTRUCTURE, TECHNOLOGY AND OUTSOURCING CAREERS AT ORIGIN COLLECTION. CULTURE, SUPPORT, DEVELOPMENT Joining Origin translates into continual opportunities to expand on what you can do. Challenge yourself with interesting work focused on delivering innovation and proven solutions. Our employees come together with a wide variety of skills and backgrounds to create talented teams of problem-solvers. We help clients become high-performance business. At ORIGIN, you will find an informal atmosphere and an approachable management. It's a place where everyone is passionate
about their work and wants to be part of the growth and success of the organization. We are committed to total customer satisfaction and recognize that our employees are critical to our pursuit of excellence. Hence we are committed to providing an excellent working environment and competitive benefits benefits. We believe that any job can be fun if you have the opportunity to use your insight and intelligence to improve a task or process. OUR VISION STATEMENT
Here's the vision that guides us in our growth and success. • We are committed to customer satisfaction through timely and accurate fulfillment of customer needs. We will continuously improve our processes and adhere to the principle of Quality Management System in all aspects of our business. • We will be a world-class provider of IT-enabled solutions by making technology work for customers, while benchmarking with the best. • We will strive for long-term relationships with our customers by sharing their vision and developing a win-win association. • We will deliver value by going beyond the contract and becoming the client's preferred outsourcing partners.
We will strive to create a workplace that fosters superior customer service through teamwork and creating an organization-wide learning environment.
• • •
Plan and effectively utilize technology and human resources Improve customer satisfaction Provide solutions high-quality, value-added, customer-focused
THE ORIGIN ADVANTAGE
ORIGIN is in the business of fulfilling clients' IT requirements. Our state-of-the-art infrastructure, vast experience in various service sectors, technical competence, and dynamic team ensures that clients get the best value for money and maximum returns on their investments. Each of ORIGIN's staff has a single point objective - 100% customer satisfaction. We take pride in our high standards of customer service and the ability to keep up commitments at all times. This approach has brought clients back to us again and again. Our reputation for providing the highest quality in services and equipment has won the trust of many clients. An index of our excellent customer service levels can be judged by the fact that most of our business is through repeat orders from existing clients and from their references. ORIGIN conducts regular technical training sessions and personality development programs for all employees, with the objective of increasing customer delight. However, the underlying qualities of sincerity and dedication of our management and staff forms the foundation on which these values are built.
NEED FOR THE STUDY
Being a manufacturing company it is essential for the management to have a check on the working capital of the organization. An ideal working capital is always necessary, and this will give a very good operating leverage to the company which has to be monitored time and again for running the organization without any financial descriptions. With the rapid growth in the industry and higher Competition level. Working capital have a pivotal role to play to sustain and growth thick and fast in this area of manufactures. PRIMARY OBJECTIVE : • To study the WORKING CAPITAL management of ORIGIN INFOSYS PVT LTD. SECONDARY OBJECTIVE : • To estimate the working capital requirement of the company by analyzing the past record of the company. • To analyze the sources of and appilication of short term financial resources of the company. • To find out the status of net working capital ang gross working capital of the company
SCOPE OF THE STUDY:
• The study is mainly conducted to know the working capital management of the firm. The working capital management is concerned With the firms current assets and current liabilities. It is
an important and Integral part of financial management as shortterm survival to the long-term success.
REVIEW OF LITRACTURE
INTRODUCTION The perfect world does not requires or concentrates about current assets or current liabilities because there would not be uncertainty, no transaction costs, information search costs, scheduling costs or production and technology constraints. The unit cost of production would not vary with the quantity produced. Capital, Labour and products markets shall be perfectly competitive and would reflect all available information. Thus in such an environment, there would be no advantage for investing in short term assets. Whereas, the world in which we live is not perfect. It is characterized by considerable amount of uncertainty regarding the demand, market price, quality and availability of own products and those of suppliers. There are transaction costs for purchasing or selling goods or securities. Information is costly to obtain and is not equally distributed. There are spreads between the borrowing and lending rates for investments and financing of equal risk. Similarly each organization is faced with its own limits on the production capacity and technology it can employ. There are fixed as well as variable costs associated with producing goods. In other words, the markets in which real firms operate are not perfectly competitive.
These real world facts introduce problems and require the necessity of working capital. The most important areas in the day to day management of the firm, is the management of working capital. Working capital management is the functional area of finance that covers all the current accounts of the firm. It is concerned with management of the level
of individual current assets as well as the management of total working capital. Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing shortterm debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash. For example, an organization may be faced with an uncertainty regarding availability of sufficient quantity of crucial inputs in future at reasonable price. This may necessitate the holding of inventory ie., current assets. Similarly an organization may be faced with an uncertainty regarding the level of its future cash inflows and insufficient amount of cash may incur substantial costs. This may necessitate the holding of a reserve of short – term marketable securities, again a short term capital asset. The unpredictable and uncertain global market plays a vital role in working capital. Though the globalization of economy and free trading of products envisages the continuous availability of products but how much its cost effective and quality based varies concern to concerns. Working capital refers to the funds invested in current assets, ie., investment in stocks, sundry debtors, cash and other current assets. Current assets are essential to use fixed assets profitably. The term current assets refers to those assets which in the ordinary course of business can be converted into cash within one year without undergoing diminish in value and without disrupting the operations of the firm. The current assets are cash, marketable securities, accounts receivable and inventory. Current liabilities are those which are to be paid within a year
out of the current assets or earnings of the concern. The current liabilities are accounts payable, bills payable, bank overdraft and outstanding expenses. The financial manager plays a vital role in management of working capital. The financial management of any business organization involves the three following vital functions: 1. 2. 3. Management of Long Term Assets Management of Long Term Capital Management of Short Term Assets and Liabilities In most of the organizations the first & second one which refers to Capital Budgeting and Capital Structure respectively will be maintained and cope up with organization growth. The third one which refers to Working Capital Management requires more skills for sustaining and steady growth rate for any organization. The working capital management includes decisions i. ii. iii. How much stock/inventory to be hold How much cash/bank balance should be maintained How much the firm should provide credit to its customers iv. How much the firm should enjoy credit from its suppliers v. What should be the composition of current assets
What should be the composition of current liabilities
For eg., a machine cannot be used without raw material. The investment on the purchase of raw material is identified as working capital. It is obvious that a certain amount of funds is always tied up in a raw material inventories, work in progress, finished goods, consumable stores, sundry debtors and day to day cash requirements. However the businessman also enjoys credit facilities from his suppliers who may supply raw material on credit. Similarly, a businessman may not pay immediately for various expenses. For instance, the labourers are pain only periodically. Therefore, a certain amount of funds is automatically available to finance the current assets requirements. However, the requirements for current assets are usually greater than the amount of funds payable through current liabilities. The satisfactory level of working capital is the main object of working capital management. Any organization which fails to maintain satisfactory level of working capital may be forced to bankruptcy. The current assets should always be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. Thus the interaction between current assets and current liabilities is the main aim of working capital management. The basic objective of financial management is to maximize shareholders wealth. This objective can be achieved when the company earns sufficient profits. The amount of profits largely depends on the magnitude of sales. But, sales do not convert into cash instantly. There is time lag between the sale of goods and the receipt of cash. Working capital is required to purchase the materials, pay wages and other expenses in order to sustain sales activity the time lag. The time gap
between the sale of goods and realization of cash is called operating cycle. What operating cycle stands for? a. b. c. d. Conversion of cash into raw materials Conversion of raw materials to finished goods Conversion of finished goods into receivables Conversion of receivables into cash
WHERE IS WORKING CAPITAL ANALYSIS MOST CRITICAL? On the one hand, working capital is always significant. This is especially true from the lender's or creditor's perspective, where the main concern is defensiveness: can the company meet its short-term obligations, such as paying vendor bills? But from the perspective of equity valuation and the company's growth prospects, working capital is more critical to some businesses than to others. At the risk of oversimplifying, we could say that the models of these businesses are asset or capital intensive rather than service or people intensive. Examples of service intensive companies include H&R Block, which provides personal tax services, and Manpower, which provides employment services. In asset intensive sectors, firms such as telecom and pharmaceutical companies invest heavily in fixed assets for the long term, whereas others invest capital primarily to build and/or buy inventory. It is the latter type of business the type that is capital intensive with a focus on inventory rather than fixed assets - that deserves the greatest attention when it comes to working capital analysis. These businesses tend to involve retail,
consumer goods and technology hardware, especially if they are low-cost producers or distributors. 2. CONCEPTS & DEFINITIONS OF WORKING CAPITAL There are two concepts of working capital 1. Gross Working Capital : It represents the total current assets and is also as referred to as are circulating capital because current capital current assets, circulating in nature. 2. Net Working Capital : It is a measure of liquidity and it can be defined in two ways. a. The most usually implied definition of net working capital is that it represents the difference between current assets and current liabilities. Some people also define it as excess of current assets over the current liabilities. b. It is that portion of the firm’s current assets, which is financed by long term funds. Nett working capital as a measure of liquidity is generally not very useful to compare the performance of different units due to difference in scales of operation, efficiency, and creditability in the market etc., between the different firms. However it is a very useful measure for internal control purposes. It can also be used to compare the liquidity position of the same unit over a period of time. This will help in maintaining the acceptable level of net working capital.
Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital. A few key performance ratios of a working capital management system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management. 3. OBJECTIVES OF WORKING CAPITAL MANAGEMENT The main objective is to ensure the maintenance of satisfactory level of working capital in such a way that it is neither inadequate nor excessive. It should not only be sufficient to cover the current liabilities but ensure a reasonable margin of safety also. i. To minimize the amount of capital employed in financing the current assets. This also leads to an improvement in the “Return of Capital Employed”. ii. To manage the current assets in such a way that the marginal return on investment in these assets is not less than the cost of capital acquired to finance them. This will ensure the maximization of the value of the business unit. iii. To maintain the proper balance between the amount of current assets and the current liabilities in such a way that the firm is always able to meet its financial obligations,
whenever due. This will ensure the smooth working of the unit without any production held ups due to paucity of funds. 4. TYPES OF WORKING CAPITAL A. B. Permanent Working Capital Temporary Working Capital
PERMANENT WORKING CAPITAL: The operating cycle is a continuous feature in almost all the going concerns and therefore creates the need for working capital and their efficient management. However the magnitude of working capital required will not be constant, but will fluctuate. At any time, there is always a minimum level of current assets which is constantly and continuously required by a business unit to carry on its operations. This minimum amount of current assets, which is required on a continuous and uninterrupted basis is after referred to as fixed or permanent working capital. This type of working capital should be financed (along with other fixed assets) out of long term funds of the unit. However in practice, a portion of these requirements also is met through short term borrowings from banks and suppliers credit. For eg., In a manufacturing unit, basic raw materials required for production has to be available at all times and this has to be financed without any disturbance. TEMPORARY WORKING CAPITAL Any amount over and above the permanent level of working capital is variable, temporary or fluctuating working capital. This type of working capital is generally financed from short term sources of finance
such as bank credit because this amount is not permanently required and is usually paid back during off season or after the contingency. As the name implies, the level of fluctuating working capital keeps on fluctuating depending on the needs of the unit unlike the permanent working capital which remains constant over a period of time. 5. DETERMINANTS OF WORKING CAPITAL Working capital management is an indispensable functional area of management. However the total working capital requirements of the firm are influenced by the large number of factors. It may however be added that these factors affect differently to the different units and these keep varying from time to time. In general, the determinants of working capital which are common to all organizations can be summarized as under: a. b. c. d. e. f. g. h.
Nature and Size of Business Production Cycle Business Cycle Production Policy Credit Policy Growth & Expansion Proper availability of raw materials Profit level Inflation Operating Efficiency
ESTIMATING OF WORKING CAPITAL REQUIREMENTS The amount of the different constituents of the working capital
such as debtors, cash, inventories, creditors, etc are estimated separately and the total amount of working capital requirement is worked out accordingly. Percent Sales method is the most simple and widely used method in combination with other scientific methods. A ratio is determined for estimating the future working capital requirements. This is generally based on the past experience of the management as this ratio varies from industry to industry and unit to unit with in the same industry. Operating Cycle method points towards the length of time considered necessary to complete the following cycle of events: a. b. Purchase of raw materials by converting cash Storage of raw materials including for buffer stock and safety margin c. d. e. Conversion of raw materials into work in progress Conversion of work in progress into finished goods Conversion of finished goods into debtors and bills receivable f. Conversion of debtors into cash
Cash Conversion Cycle is a measure of working capital efficiency, often giving valuable clues about the underlying health of a business. The cycle measures the average number of days that working capital is
invested in the operating cycle. It starts by adding days inventory outstanding (DIO) to days sales outstanding (DSO). This is because a company "invests" its cash to acquire/build inventory, but does not collect cash until the inventory is sold and the accounts receivable are finally collected. The finance profession recognizes the three primary reasons offered by economist John Maynard Keynes to explain why firms hold cash. The three reasons are for the purpose of speculation, for the purpose of precaution, and for the purpose of making transactions. All three of these reasons stem from the need for companies to possess liquidity. SPECULATION: Economist Keynes described this reason for holding cash as creating the ability for a firm to take advantage of special opportunities that if acted upon quickly will favor the firm. An example of this would be purchasing extra inventory at a discount that is greater than the carrying costs of holding the inventory. PRECAUTION: Holding cash as a precaution serves as an emergency fund for a firm. If expected cash inflows are not received as expected cash held on a precautionary basis could be used to satisfy short-term obligations that the cash inflow may have been bench marked for. TRANSACTION: Firms are in existence to create products or provide services. The providing of services and creating of products results in the need for cash inflows and outflows. Firms hold cash in order to satisfy the cash inflow and cash outflow needs that they have.
Receivable are essentially loans extended to customers that consume working capital; therefore, greater levels of DIO and DSO consume more working capital. However, days payable outstanding (DPO), which essentially represent loans from vendors to the company, are subtracted to help offset working capital needs. In summary, the cash conversion cycle is measured in days and equals DIO + DSO – DPO: 7. SOURCES OF WORKING CAPITAL The working capital necessary and what constitutes working capital have been analyzed in depth. Now we look out what are the ways we can generate working capital. a. b. c. d. Trade Credits Bank Credit Current provisions and non-bank short term borrowings: and Long term sources ie., equity share capital, preference share capital and other long term borrowings. Short term source of funds are generally available at comparatively lower costs but theoretically these funds can be called back any moment and therefore it is more appropriate to meet at least two thirds of the permanent working capital requirements from the long term sources. The advantages of long term sources is, it reduces risk as there is no need to repay the loans at frequent intervals and funds can be employed gainfully and it increases liquidity.
WORKING CAPITAL: “Funds that ensures the smooth operation of a company”. DEFINITION: In the words of SHUBIN “working capital the amount of funds Necessary to cover the cost of operating the enterprise”. According to GENESTENBERG “circulating means current assets of a company that are changed in the ordinary course of business from one Form to another, as for example from cash to inventories, inventories to receivables, and receivables into cash. CONCEPTS OF WORKING CAPITAL: There are two concepts of working capital 1. Gross working capital. 2. Net working capital.
CLASSIFICATION OF WORKING CAPITAL:
Permanent or Fixed
Temporary or Variable
SOURCES OF WORKING CAPITAL: Sources of working capital
Indigenous Debentures, Permanent or Fixed bankers, Temporary or Variable
Trade Public Deposits, creditors,
Plaguing back of profits,
Institution. Accounts receivables Credit.
Inventory of raw-material stores and spares. Inventory of finished goods.
COMPONENTS OF WORKING CAPITAL:
CURRENT ASSETS: • • Cash and bank balances Temporary investments
• • • • •
Short term advances Prepaid expenses Receivables Inventory of raw-material stores and spares. Inventory of finished goods.
CURRENT LIABILITIES: • • • • • • Creditors for goods purchased Outstanding expenses, Short term borrowings, Advances received against sales, Taxes and dividends payable, Others liabilities maturing within a year.
Materials, Labor Expenses
GROSS WORKING CAPITAL: Gross working capital is the amount of funds invested in the various component of current assets. This components has the following. ADVANTAGES: • Financial managers are concerned with current assets.
• Gross working capital provides the correct amount of working capital • At the right time. • It enable a firm to realize the greatest on its investments. • It helps in the fixation of various areas of financial responsibility. • It enable a firm to plan and control funds and to maximize return of investment. PERMANENT WORKING CAPITAL Permanent or fixed working capital is the minimum amount required to ensure effective utilization of fixed assets and support the normal operations of the business. There is always a minimum level of the current assets which is continuously required by the enterprises the carry out its normal business operations. TEMPORARY OR VARIABLES WORKING CAPITAL:Temporary working capital is the amount of working capital required for short period. It is intended to meet seasonal demand and some special Exchanges. Variable working capital cannot be permanently employed the gainfully in the business. BALANCE SHEET WORKING CAPITAL: The balance sheet working capital is one which is calculated form the items appearing in the balance sheet. Gross working capital which is represented by current assets and networking capital, which is represented by the excess assets over current liabilities are example of the balance sheet working capital. the
CASH WORKING CAPITAL: Cash working capital is one which is calculated from the items appearing in he profit and loss account. It shows the real flow of money is value at particular time and is considered to be the most realistic approach in working capital management. It is the basis of the operation cycle, which has assumed a great importance in financial management in recent years. The reasons is that the cash working capital indicates the adequacy of the business. NEGATIVE WORKING CAPITAL:Negative working capital emerges when current liabilities exceed current assets. Such a situation is not absolutely theoretical and occur when a firm is nearing a crises of some magnitude. cash flow, which is an essential pre requisite of a
FACTORS DETERMING WORKING CAPITAL:1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. Nature of the business, Size of the business, Time consumed in manufacturing, Seasonal fluctuations, Fluctuations in supply, Speed of turn over, Terms of sales, Terms of purchase, Labors intensive Vs Capital intensive industries, Growth and Expansion of Business, Volume of sales, Demand of creditors, Receivable turnover, Cash requirements, Business cycle, Time, Value of current assets,
18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.
Variation of sales, Production cycle, Credit control, Liquidity and profitability, Inflation, Profit planning and control, Repayment ability, Cash reserve, Operational and financial efficiency, Changes in technology, Firms policy, Activities of the firm’s. Attitude risk.
The term research is derived from French word research meaning, “search back”, research is a careful inquiry or examination in seeking fact or principle intelligent investigation in order to ascertain something web masters international dictionary. Research methodology is way to systematically solve the problem when we talk of research methodology we not mean the research methods. Also, consider the logic behind the methods used in the context of research study and explain why a particular method or technique is used, so that research results are capable of being evaluated. RESEARCH DESIGN: Research design is purely and simply framework or plan for study that guides the collection and analysis of the data. RESEARCH TYPE: The type of research used in this study is desk research. DESCRIPTIVE RESEARCH: Desk research (sometimes known as secondary data or secondary research ) involves gathering data that already exists either from internal some of the client, publications of governmental institutions, free access data on the internet, in professional newspapers and magazines, in annual reports of companies and commercial databases to name but a few. In many projects, carrying out an initial desk research stage is strongly recommended to background knowledge to a subject as well as providing useful leads that will help to get the maximum from a research budget.
DATA COLLECTION METHODS: SECONDARY DATA: The rest of the data is collected from the annual report brochures and websites of the organization. ANALYSIS TOOLS: Ratio analysis, Schedule of changes in working capital. LIMITATION OF THE STUDY: The main limitation of the study is base on figures available from balance sheet and profit/loss account. So the actual position may be slightly different from the conclusions made with the use of these figure. Data taken for comparison is only for three years. detailed study could not be undertaken. The executive being busy with their yearly audit works. Therefore, they could not able to devote sufficient time.. Time is the major constraint for this study. The study cannot be finished with in the stipulated period allowed. As the analysis is done using secondary data like publishing reports, annual reports and statement of the study is limited only to the extents. Therefore,
DATA ANALYSIS AND INTERPRETATION
WORKING CAPITAL TURNOVER RATIO Working capital ratio measures the effective utilization of working Capital. It also measures the smooth running of business or otherwise, the Ratio establishes relationship between cost of sales and working capital. Working capital turnover ratio = Sales or cost of sales Net working capital
TABLE NO 5.1.1 Working capital turnover ratio
Year Cost of sales (or) direct sales] Rs Working capital Rs Ratio in times
2007 262844360 2006 143158718 2005 84759630 2004 58082829 INFERENCE:
85715065 17294097 10367036 14201468
3.0664 8.2778 8.1758 4.0899
During 2006 working capital turnover ratio is 8.2778 it has been increased when compare to 4.177 times in 2004
CHART 5.1.1 WORKING CAPITAL TURNOVER RATIO
90000000 80000000 70000000 60000000 50000000 40000000 30000000 20000000 10000000 0 2006-07 2005-06 2004-05 2003-04
DEBTOR COLLECTION PERIOD This ratio is inter-related to and depends the debtors turnover ratio. High turnover ratio and short collection period convey quick payment on the part of debtors. Debtors collection period = Day/month in the year Average debtors turnover ratio
TABLE NO 5.1.2 DEBTOR COLLECTION PERIOD
Year 2007 2006 2005 2004 Inference:
Net CR sales 216689843 82545874 33321303 18749948
Avg a/c receivables 109940267 18689046 15060677 16217174
Total 1.970 4.41 2.212 1.156
During 2004 sales was Rs. 1.156 it has been gradually increased to Rs. 1.1970 in 2007.
Chart 5.1.2 DEBETOR COLLECTION PERIOD
120000000 100000000 80000000 60000000 40000000 20000000 0
18689046 15060677 16217174
DEBTOR TURNOVER RATIO Debtor collection is also called as receivable turnover ratio or debtors velocity, a business concern generally adopt different methods of sales. Debtor Turnover Ratio = Net Credit Sales Average Account Receivables Dr collection period 1.970 4.41 2.212 1.156 Ratio in times 6.1 2.72 5.4 10.38
TABLE NO 5.1.3 DEBTOR TURNOVER RATIO
Year 2007 2006 2005 2004 Inference:
Months in a year 12 12 12 12
In this debtor collection period the highest debtor turnover ratio is 6.1 and it is high in the year of 2007.
Chart No 5.1.3: DEBTOR TURNOVER RATIO
CREDITOR TURNOVER RATIO This ratio is also known as accounts payable or creditor velocity. A business concern usually purchase raw materials, service and goods on credit. Creditor Turnover Ratio = Net Purchase Avg Account Payable
TABLE 5.1.4 CREDITOR TURNOVER RATIO
Year Net purchase 2007 207304284 2006 79667516 2005 44857284 2004 31332314 Inference:
Avg A/C payable 109569181 19615613 13029571 8583433
Total 1.891 4.061 3.442 3.65
During 2004 purchases was Rs. 3.65 it has been gradually increased to Rs. 4.061 in 2006.
CHART 5.1.4: CREDITOR TURNOVER RATIO
CREDITOR PAYMENT PERIOD: This ratio is also known as accounts payable or creditors velocity. A Business concern usually purchases raw materials, services and goods on credit. Creditors Turnover ratio = Net credit purchases Average account payables
TABLE 5.1.5 CREDITOR PAYMENT PERIOD
Inference: Year 2007 2006 2005 2004 Months in a year 12 12 12 12 Cr a/c turn over ratio 1.891 4.061 3.442 3.65 Total 6.34 2.95 3.48 3.28
During 2004 the amount has been paid to creditors in 3.28 days but it has been decreased to 2.95 days during 2006
CHART 5.1.5: CREDITOR COLLECTION PERIOD
INVENTORY TURNOVER RATIO This ratio should be compared against industry averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall. Inventory Turnover Ratio = Cost of Goods Sold Avg Inventory Stock
TABLE 5.1.6 INVENTORY TURNOVER RATIO Year Cost of goods sold Avg inventory stock Total
2007 262844360 10459536 2006 143158718 1063751.5 2005 84759630 550759.5 2004 58082829 191624 Inference: During 2005 cost of goods sold was Rs. 58082829 gradually decreased to Rs. 262844360 in 2007
Chart 5.1.6 INVENTORY TURNOVER RATIO
25.12 134.5 153.8 303.10 it has been
INVENTORY TURNOVER PERIOD This ratio should be compared against industry averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall Inventory Turnover Period = Days In A Year Inventory Turnover Ratio
TABLE 5.1.7 INVENTORY TURNOVER PERIOD
Year Days in a year Inventory turnover ratio Ratios in times
2007 2006 2005 2004
365 365 365 365
25.129 134.57 153.89 303.10
14.53 2.71 2.37 1.204
During 2004 the amount has been collected from inventory in 1.204 days but it has been increased to 14.53 days during 2007.
Chart 5.1.7 INVENTORY TURNOVER PERIOD
200 134.57 150
100 25.129 50
0 2006-07 2005-06 2004-05 2003-04
FINISHED GOODS TURNOVER RATIO If average inventory at cost is not known then inventory at selling price may be taken as the denominator and where the opening inventory is also not known the closing inventory figure may be taken as the average inventory. Finished Goods Turnover Ratio= Goods Sold Avg Finished Goods Inventory
TABLE 5.1.8 FINISHED GOODS TURNOVER RATIO
Year Cost of goods sold Avg finidhed goods Ratio 2007 262844360 19667396 13.36 2006 143158718 1251675 114.37 2005 84759630 875828 96.77 2004 58082829 225691 257.355 Inference: During 2004 cost of goods sold was Rs. 58082829it has been gradually decreased to Rs. 262844360 in 2007.
CHART 5.1.8 : FINISHED GOODS TURNOVER RATIO
19667396 20000000 18000000 16000000 14000000 12000000 10000000 8000000 6000000 4000000 2000000 0 2006-07 2005-06 2004-05 2003-04 1251675
FINISHED GOODS STORAGE PERIOD Firms produce goods in order to sell them in the market. There may be a delay in them sales or in meeting seasonal demand for finished goods. Cost of goods sold Finished = goods inventory Turnover ratio Average finished goods inventory
TABLE 5.1.9: FINISHED GOODS STORAGE PERIOD
Year Days in a year 2007 365 2006 365 2005 365 2004 365 Inference:
Finished good inventory 13.36 114.37 96.77 257.35
total 27.3 3.19 3.77 1.44
During 200 the amount has been collected from inventory in 1.44 days but it has been increased to 27.3 days during 2006
CHART 5.1.9 FINISHED GOODS STORAGE PERIOD
CURRENT RATIO The ratio of current assets towards liabilities is called ‘current ratio’. The current assets includes cash, securities, sundry debtors and inventory, current liabilities includes bills of payable, deposits , advances, and then short term loans, including cash creditors and provisions. Current Ratio = current assets current liability
TABLE 5.1.10: CURRENT ASSET/ CURRENT LIABILITIES
Year 2007 2006 2005
C.asset 202635677 40522249 25267333
C.liabilities 116920611 23228152 14900297
Total 1.73 1.74 1.69
2004 24230239 10028771 2.42 Inference: During 2004 current was Rs. 24230239 it has been gradually increased to Rs. 202635677 in 2007.
CHART 5.1.10: CURRENT ASSET/ CURRENT LIABILITIES
250000000 202635677 200000000
100000000 40522249 50000000 25267333 24230239
0 2006-07 2005-06 2004-05 2003-04
LIQUID RATIO Liquid ratio calculated by comparing the quick assets with current liabilities. Quick or liquid assets refer to assets, which are quickly convertible into cash.
Quick assets Current liabilities
TABLE 5.1.11 LIQUID RATIO
Year 2007 2006 2005 2004 Inference:
Quick asset 182968281 39270574 24391505 24004548
C.liabilities 116920611 23228152 14900297 10028771
Total 1.56 1.7 1.63 2.4
During 2004 quick asset was Rs. 2.4 it has been gradually decreased to Rs. 1.56 in 2007.
CHART 5.1.11 : LIQUID RATIO
SCHEDULE OF CHANGES IN WORKING CAPITAL AS ON 31.3.2007
Particulars CURRENT ASSETS: Inventories Sundry debtors Cash & bank Deposit, loan Total(A) CURRENT LIABILITIES: Current liabilities Provision TOTAL(B) Working capital(A-B) 109569181 7351430 116920611 85692033 19615613 3612539 23288152 185290635 19667396 109940267 63426 72941555 202612644 1251675 18689046 117311 20319655 208578787 2007 (Rs. In crores) 2006 (Rs. In crores)
Increase in working capital
99598602 185290635 185290635
SCHEDULE OF CHANGES IN WORKING CAPITAL AS ON 31.3.2004
Particulars CURRENT ASSETS: Inventories Sundry debtors Cash & bank Deposit, loan Bank account TDS at sources Total(A) CURRENT LIABILITIES: Sundry creditor provision TOTAL(B) Working capital(A-B) Increase in working capital 2004 (Rs. In crores) 875828 15060677 58640 6817322 26911 2427955 25267333 2005 (Rs. In crores) 225691 16217174 23719 6336002 16000 1411653 24230239
13029571 1870726 14900297 10367036
8583433 1445338 10028771 14201468
• During 2006 working capital turnover ratio is 8.2778 it has been increased when compare to 4.177 times in 2004 in working capital • During 2004 sales was Rs. 1.156 it has been gradually
increased to Rs. 1.1970 in 2007 in debt collection period • In this debtor collection period the highest debtor turnover ratio is 6.1 and it is high in the year of 2007in debt turnover ratio • During 2004 purchases was Rs. 3.65 it has been gradually increased to Rs. 4.061 in 2006 in creditor turnover ratio. • During 2004 the amount has been paid to creditors in 3.28 days but it has been decreased to 2.95 days during 2006 in creditor payment period. • During 2005 cost of goods sold was Rs. 58082829 it has been gradually decreased to Rs. 262844360 in 2007 in inventory turnover ratio. • During 2004 the amount has been collected from inventory in 1.204 days but it has been increased to 14.53 days during 2007 in inventory turnover period. • During 2004 cost of goods sold was Rs. 58082829it has been gradually decreased to Rs. 262844360 in 2007 in finished turnover period.
During 200 the amount has been collected from inventory in 1.44 days but it has been increased to 27.3 days during 2006 in finished goods storage period.
During 2004 current was Rs. 24230239 it has been gradually increased to Rs. 202635677 in 2007 in current ratio.
During 2004 quick asset was Rs. 2.4 it has been gradually decreased to Rs. 1.56 in 2007 in liquid ratio.
SUGGESTION & RECOMMENDATIONS
The working capital was decreasing year by year and collection period is reducing. The company as to maintain some ratio and collection period in the year in future year. It observed that finished goods working capital utilization is decreasing year after year. It increasing market share and profitability of the company in the future year. The company meet major fluctuation is the working capital that will affects the current assets and current liabilities and sources of fund will affects a lot. Therefore the firm has to find way to increase the source of fund. The creditors of the company is fluctuating year by year the company has to concentrate on creditors.
A study on working capital management at ORIGIN INFOSYS PRIVATE Limited, Chennai” has been enlightening experience on the position aspects on previous year Balance sheets has done in whole lot of good to the issuer, Investor, companies and country. Excellence in all aspects of ORIGIN INFOSYS PRIVATE Limited Honesty integrity and ethical business. People as the source of strength. Respect for the individual & personal growth. Tackling challenges and solving problems continued self improvement, never being satisfied. The origin Infosys limited has increasing to the profits. So the company has become improve to the high position.
• Management accounting by (R.P. trivedi &manoj Pankaj publications Hyd.) • Financial Management By (I.M. Pandey) vikas publishing house ltd. • Management Accounting By (R.k. Sharma, Shashi) k.Gupta, Kalyani pub. • Financial management (text & problem) By (M.Y. Khan, P.K. Jain) • • Tata McGraw Hill Management Account by T.S. Reddy Andy Hari Prasad Reddy WEBSITE: WWW.GOOGLE.COM WWW.WIKEPADIA.COM
“A STUDY ON WORKING CAPITAL MANAGEMENT OF ORIGIN INFOSYS PRIVATE LIMITED”
ORIGIN INFOSYS LTD.
A SUMMER PROJECT REPORT
Submitted by V.SHYAM SUNDAR
(Reg. No. 10607631051)
JAYA ENGINEERING COLLEGE
In partial fulfillment for award of the degree of
MASTER OF BUSINESS ADMINISTRATION
I, V.SHYAM SUNDAR, (Reg. No.10607631051) a bonafide student of Department of Management Studies, Jaya Engineering College, Chennai would like to declare that the project entitled, “A STUDY ON WORKING CAPITAL
MANAGEMENT OF ORIGIN INFOSYS PRIVATE Ltd” in partial fulfillment of Master of Business Administration course of the Anna University is my original work.
Certified that this project report “A STUDY ON WORKING CAPITAL MANAGEMENT OF ORIGIN INFOSYS PRIVATE Ltd” is the bonafide work of “SHYAM SUNDAR.V” (Reg. No.10607631051) who carried out the project work under my supervision. Certified further, that to the best of my knowledge the work reported herein does not form part of any other project or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.
SIGNATURE (DR. LATHA KRISHNADASS) Head Of The Department
SIGNATURE (MR.S.VIJAYANKANTH) FACULITY GUIDE
This project was completed with the support of many persons. I have great pleasure to express my sincere and profound thanks to our Chairman Prof. A. KANAGARAJ, M.A, M.Phil, Mrs K.VIJAYAKUMARI ,M.A, B.Ed, Secretary of Jaya Educational Trust, MR. K. NAVARAJ, M,Tech, Vice chairman , Jaya Engineering College. I owe my sincere thanks to Prof. DR R.RAJA M.E.,PH.D., Principal of Jaya Engineering College who provided me an opportunity to do this project work. I would like to express my sincere thanks to Dr. LATHA MAZUMDER, Director and Head of the Department, Department of Management Studies, Jaya Engineering College. My Institutional Guide Mr.S.VIJAYANKANTH, MBA., M.Phil. for his valuable suggestions and support throughout this project. I am also grateful to other Faculty Members of MBA Department for having shown interest during the project work. I would like to thank sincerely MR.KALYAN, HR Manager, ORIGIN INFOSYS and my company guidance in finance department. I would like to thank my parents for their valuable support without which the project would not have been completed successfully. Last but not least, I would like to thank all the respondents. Company staffs and friends who have directly and indirectly helped me to complete this project.
This project was undertaken with a view of study the impact of working capital management origin Infosys private limited. The study was conducted for a period of one months. The research design used in this study is case study method. The research design used in this study of interim reports. Data was collected through different source to proceed further in this project and also for its fulfillment primary data was collected from the company afficials and staff in origin Infosys private ltd. Secondary data was provided for study through , company records and internet. The analysis has been carried based on the secondary data and will be displayed in tables and charts. researcher for findings of the study. After the analysis of data it was found that working capital management in origin Infosys private limited. This study is useful to give the few suggestion for the organization. Through there were certain limitations faced during the time of research, this was an excellent learning experience by the researchers. This tables and charts help the
TABLE OF CONTENTS
CHAPTER NO TITLE PAGE NO
ABSTRACT LIST OF TABLES LIST OF FIGURES 1. GENERAL INTRODUCTION 1.1 INDUSTRY PROFILE 2. INTRODUCTION OF THE STUDY 2.1 2.2 2.3 2.4 3. 4. TITLE OF THE PROJECT NEED FOR THE STUDY OBJECTIVES OF THE STUDY SCOPE OF THE STUDY 8 8 8 8 9 1
REVIEW OF LITERATURE RESEARCH METHODOLOGY 4.1 4.2 4.3 4.4 4.5 4.6 RESEARCH DESIGN RESEARCH TYPE DESCRIPTIVE RESEARCH DATA COLLECTION METHOD ANALYSIS TOOLS LIMITATION OF THE STUDY
30 30 30 31 31 31
DATA ANALYSIS & INTERPRETATION 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 WORKSING CAPITAL TURNOVER RATIO DEBTORS COLLECTION PERIOD DEBTORS TURN-OVER RATIO CREDITOR TURNOVER RATIO CREDITOR PAYMENT PERIOD INVENTORY TURNOVER RATIO INVENTORY TURNOVER PERIOD FINISHED GOODS INVENTORY TURNOVER RATIO FINISHED GOODS STORAGE PERIOD 32 33 34 35 36 37 38 39 40 41 42 43-44 45-46 47 48
5.10 CURRENT RATIO 5.11 LIQUID RATIO SCHEDULE OF CHANGE IN WORKISNG CAPITAL 6. 7. 8. FINDINGS SUGGESTIONS & RECOMMENDATIONS CONCLUSION APPENDICIES BIBLIOGRAPHY
LIST OF TABLES
TABLE NO 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 TITLE ANALYSIS OF WORKSING CAPITAL TURNOVER RATIO ANALYSIS OF DEBTORS COLLECTION PERIOD ANALYSIS OF DEBTORS TURN-OVER RATIO ANALYSIS OF CREDITOR TURNOVER RATIO ANALYSIS OF CREDITOR PAYMENT PERIOD ANALYSIS OF INVENTORY TURNOVER RATIO ANALYSIS OF INVENTORY TURNOVER PERIOD ANALYSIS OF FINISHED GOODS INVENTORY TURNOVER RATIO ANALYSIS OF FINISHED GOODS STORAGE PERIOD ANALYSIS OF CURRENT RATIO ANALYSIS OF LIQUID RATIO PAGE NO
32 33 34 35 36 37 38 39 40 41 42
LIST OF CHARTS
TABLE NO TITLE PAGE NO
5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11
A CHART OF WORKSING CAPITAL TURNOVER RATIO A CHART OF DEBTORS COLLECTION PERIOD A CHART OF DEBTORS TURN-OVER RATIO A CHART OF CREDITOR TURNOVER RATIO A CHART OF CREDITOR PAYEMNT PERIOD A CHART OF INVENTORY TURNOVER RATIO A CHART OF INVENTORY TURNOVER PERIOD A CHART OF FINISHED GOODS INVENTORY TURNOVER RATIO A CHART OF FINISHED GOODS STORAGE PERIOD A CHART OF CURRENT RATIO A CHART OF LIQUID RATIO
32 33 34 35 36 37 38 39 40 41 42
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