WORKING CAPITAL MANAGEMENT

OF

Sathe Synthetics PROJECT REPORT

Submitted in partial fulfillment of the requirement for the award of Two year full
time, Masters in Business Administration. By

Karan veer Singh

DEPARTMENT OF MANAGEMENT LOVELY PROFESSIONAL UNIVERSITY PHAGWARA (2009-2011)

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Acknowledgement

Whatever we do and whatever we achieve during the course of our limited life is
just not done only by our own efforts, but by efforts contributed by other people
associated with us indirectly or directly. I thank all those people who contributed
to this from the very beginning until its successful end.

I sincerely thank Mr. Subodh kr. Teotia (Personnel manager, Sathe Synthetics,
Ghaziabad), person of amiable personality, for assigning such a challenging project
work which has enriched my work experience and getting me acclimatized in a fit and
final working ambience in the premises of Sathe Synthetics.

I acknowledge my gratitude to Mr. Nitin Dhir (Lovely Professional University), for

his extended guidance, encouragement, support and reviews without whom this project
would not have been a success. Last but not the least I would like to extend my
thanks to all the employees at Sathe Synthetics, Ghaziabad (prop. Rakesh fuel pvt.
Ltd.) and my friends for their cooperation, valuable information and feedback
during my project.

KARAN VEER SINGH

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TABLE OF CONTENTS

1. EXECUTIVE SUMMARY 2. INDUSTRY PROFILE 3. ABOUT THE COMPANY a. Company profile b.

Mission & Vision c. Company Leadership d. Company Products e. SCOT Analysis of
Sathe synthetics

4. OBJECTIVES OF THE STUDY 5. REVIEW OF LITERATURE 6. RESEARCH METHODOLOGY 7.

WORKING CAPITAL MANAGEMENT a. Introduction b. Working Capital Analysis c. Nature &
importance of working capital d. The importance of Good Working Capital e. Working
Capital Cycle

8. OPERATING CYCLE OF SATHE SYNTHETICS a. Gross operating cycle b. Net operating

cycle

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9. SCHEDULE CHANGE IN WORKING CAPITAL & ANALYSIS 10. WORKING CAPITAL RATIOS OF
SATHE SYNTHETICS a. Receivable Ratio b. Payable Ratio c. Inventory Ratio d. Current
Ratio e. Quick Ratio f. Working capital turnover ratio

11. ANALYSIS OF THE STUDY a. Analysis of various components b. Inventory c. Sundry

Debtors d. Cash & Bank Balance e. Current Liability f. Provision Analysis

12. CONCLUSION 13. SUGGESSATIONS & RECOMMENDATIONS 14. BIBLIOGRAPHY & REFRENCES 15.
ANNEXURES

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Executive Summary The project on Working Capital Management has been a very good
experience. Every manufacturing company faces the problem of Working Capital
Management in their day-to-day processes. An organizations cost reduced and the
profits increased only if it is able to manage its Working Capital efficiently. At
the same time, the company can provide customer satisfaction and hence can improve
their overall productivity and profitability.

This project is a sincere effort to study and analyze the Working Capital
Management of Sathe Synthetics, GZB. The project focused on making a financial
overview of the company by conducting a Working Capital analysis of SATHE group for
the years 2005 to 2009 and Ratios & various components of working capital & format
emphasizing on Working Capital.

The internship is a bridge between the institute and the organization. This made me
to be involved in a project that helped me to employ my theoretical knowledge about
the myriad and fascinating facets of finance. Moreover, in the process I could
contribute substantially to the organizations growth. The experience that I
gathered over the past two months has certainly provided the orientation, which I
believe will help me in shouldering any responsibility in future.

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INDUSTRY PROFILE
HISTORY OF THE INDIAN TEXTILE INDUSTRY: The human need is to eat well for to be
alive and shelter to protect them from discomforts of nature and a place to live
in. Human beings also need something to cover their body to protect from diverse
climates and to add the appearance. Earlier there was a time when the human being
known nothing about the cloth to wear. The human beings first use plant barks,
leaves and animal skin to wrap around them. Then as the development of brain took
place, they started to explore other possibilities and invent more in this area.
There is constant search for clothing and it led to the knowledge of sources from
vegetation i.e. Cotton and from animals i.e. wool, which could be knitted and woven
to manufacture clothes to wear. The commercial development of man-made fiber began
late in the 19th Century, experienced much growth during the 1940s, expanded
rapidly after world War II and in the 1970s was still the subject of extensive
Research and Development. The spinning and weaving both are very common and
attached with each other in all parts of the world. We talk of the ancient times,
when maximum work like weaving of the clothes was done manually, but all the things
were being done for the right perspectives. From time to time in this world
development had taken place, which has been found to be a continuous process.
Similarly considering the developments in the Spinning and Weaving lot of
improvements has come-up. Because earlier too was the Cotton crop was grown by the
farmers, but its end use was not done in an effective way, which seems good. So
much thick fiber was produced and accordingly its impact for the fabric
preparation.

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APPARATUS USED FOR SPINNING & WEAVING DURING PRE-INDEPENDENCE Before Independence
we talk of the political leaders like Mahatma Gandhi, who had always insisted to
use Khadi Clothes and even self-spinning and weaving. It is also called as
selfdependence for all needs. Such a good initiatives had come-up at India level
amongst the followers of the Leader Mahatma Gandhi. On the other side too such
initiatives had been proved very good and had attracted many other western
countries to follow such practices and show their excited ness. Though in case we
talk of the English rule before the Independence i.e. 1947, it was not appreciated
by the English Rulers, but after the freedom these leaders had got very good
appreciation particularly for the self spinning and weaving and in an overall
manner this sector of Spinning and Weaving was industrialized even after the
independence too on the basis of Indian cotton growers.

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It is needless to mention here that throughout India, cotton growers belts are
available and after independence, even English people take their raw material from
here and had established themselves with the Spinning and weaving industries.
Overall In India no such preferences for the Spinning and Weaving industries were
made, however the Library research reveals that the first Cotton mill had been
established in India during 1854 named as Bombay Spinning and Weaving company.
Though the Cotton industry had progressed a lot, but in case we say that India
alone is heading this world, it is wrong. Though in India Textile Machine
manufacturers are there and one or two decades ago they were the market leaders,
but with the help of the other parts/people of world i.e. Germany, Switzerland
etc., India had made a very good recognition in the yarn market. Because Indian
Industrial Organizations have also initiated towards the most modernized machinery
produced by Schlafhorsts Germany, Luwa Humidification systems, Switzerland.
This is just the example of the development, that in India too the most modern
machinery is being installed. However, it is an evident that the Indian yarn is
always running on the

development trend since its Inception of first unit in Bombay, but its position in
the international market has not appeared so good. Because many other countries
like China as Cotton Textiles has went ahead. Though till today India has achieved
a lot in the Textile Industry and almost 700 Textile units are working
successfully, because India is having at present more than 20 Million spindles and
a weaving capacity of more than 2.5 Lac looms and the total output value of the
same is around Rs.1500 Cores, employing more than 10 Lac of workers directly. The
invention and production of manmade thirty three fibers that is synthetic fibers
like Nylon, Acrylic fibers, Polyester Fiber, Viscose, S.Sament yarns, Mlange yarn,
etc., which ultimately had given a good blow to grow for the Cotton Textile
Industry and know occupy a major part of consumer acceptance. About 50 countries
have been importing such material from India and the description of the Spinning
and weaving industry had remained incomplete without referring to the woolen
industry.

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COMPANY PROFILE

Sathe Synthetics Introduction

Company was started in 1995 as Production capacity of 40 tons per month of p.p.
multifilament yarn in various deniers of FDY ranging from 210 deniers to 1200
deniers in all colors & naturals. The company is the largest P.P. Yarn manufacturer
in the country. Our Mission- We work with a mission to become world leader in
narrow fabrics and webbings products by successfully adopting latest manufacturing
techniques and offering innovative range of products that are used for various
applications. The company Sathe Synthetics (Prop. Rakesh fuel PVT. LTD) divided in
two units, situated in Ghaziabad and other one is in Sikandrabad. The company is
governed and controlled by three brothers and partners named asMr. Ravi Mohan
DIRECTOR GENERAL, HEAD OF TECHNICAL & MAINTENANCE DEPARTMENT Mr. Rajeev Mohan
FINANCE DECISION MAKER, HEAD OF SALES AND MARKETING

NAME OF AUTHORITY MR. ARUN SINGH MR. SUBODH KR. TEOTIA MR. ASHOK AGARWAL MR. HARISH
GUPTA

DESIGNATION GENERAL MANAGER PERSONNEL MANAGER STORE MANAGER HEAD MARKETING

(PURCHASE)

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MR. ASHA RAM ACCOUNTS HEAD Mr. Rakesh Mohan DIRECTOR, NEW OPPORTUNITIES FOR
COMPANY PRODUCT RANGE: Flat & Twisted Range FD FDY 210 Deniers FDY 330 Deniers FDY
440 Deniers FDY 600 Deniers FDY 840 Deniers FDY 1000 Deniers FDY 1200 Deniers Sathe
Synthetics

CRIMP YARN 110/1 YARN 110/2 YARN 120/1 YARN 120/2 YARN 130/1 YARN 130/2

Uses - For Swing Thread Belt Lasses Tape Filter cloth Fabrics Housosry And many
things

FDY Use of Crimp Yarn Undergarments Socks Lasses Tie And many more things more

PRESENT CAPACITIES Presently the group has following production capacity and
product range at its different manufacturing facilities. Location Installed
Capacity (spindles) Sathe synthetics, Ghaziabad 10500 10Tons / Day POLYPROPYLENE
MULTIS.SAMENT YARN POLYPROPYLENE MULTIS.SAMENT YARN, & NON-WOVEN FABRICS Production
Capacity Product Range

UNI-2, Sikandrabad

8000

6.5 Tons/Day

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USTERIZED CERTIFICATION The unit had been awarded USTER certificate by Uster
technologies AG CH-8610 Uster/ Switzerland on April 10, 2007. Sathe synthetics,
Ghaziabad / India fulfill all conditions for using the brand USTERIZED and will be
checked regularly at once per year basis. PRODUCTION The unit is producing
different types of yarn both for Domestic consumption and Export purpose. The
production department is headed by General Manager (G.M.). The SATHE SYNTHETICS has
two units. The unit- I is concerned with the production of POLYPROPYLENE
MULTIFILAMENT YARN. The unit-II expansion is concerned with production of
POLYPROPYLENE MULTIFILAMENT YARN & NON WOVEN FABRICS. Production capacity of unit
I is 10 ton per day and unit-II is 6.5 tons per day. MARKETING For Marketing of
different product, the unit is having a modern marketing department headed by
experienced team which covers all the activities for conversion of finished goods
into cash. It keeps vigil on the market feed-back on the level competition, market,
trend, changing customer needs and modifications. The marketing department deals
with domestic sales, while export department of the group manages export sales. The
SATHE SYNTHETICS, Having the export and domestic ratio is 34:66. The unit is having
different channels for distribution of its products. 1. 2. 3. Selling agents at
Ghaziabad, Delhi, Mumbai and Lucknow. Branches at Delhi and Utter Pradesh. Direct
Dispatches are also made by the units.

ORGNISATION STRUCTURE A chart showing the organizational structure of SATHE

SYNTHETICS, Ghaziabad is given on the next page. It shows the various hierarchical
levels of the organization. It is a department line organization which is divided
into various department headed by their respective department heads. All
departments operate under the ultimate control of Chief Executive Sh. Rakesh Mohan.
The orders flow directly from unit head to different departmental heads down the
line to respective department subordinates.

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Manufacturing Process Flow Chart of S.S
100% COTTON CARDED/COMBED YARN

GREY CHIPS GREY-CHIPS PP*/PE*/NYLON PPP*P*/PE*/NYLON

EXTRUDER POLYMER-MENT SCREEN-S.STER METERING-S.STER SPINNERETTE DIE-PLATE

MASTER-BATCH (COLOURED CHIPS)

MULTIFILAMENT YARN QUENCHING (FAST COLLING) SPIN FINISH APPLICATION TAKE UP/WINDER
FDY/HE/POY

D-TEX M/C

TWISTING TWISTING

PACKING

DESPATCH

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MANUFACTURING PROCESS IN SATHE SYNTHETICS , GHAZIABAD Poy Spinning Polyester
Polypropylene chips are fed in the feeding hopper with the help of electric hoist
and are conveyed from feeding hopper to DPG from where they are further conveyed to
the Storage Silos with the help of compressed air. From the Silos, the chips enter
the blender for proper blending to avoid variation.

Control Room The chips, after blending, are stored in a Wet Chips Hopper. The level
of chips in this hopper is automatically controlled from where these are
transferred to the drying system through rotary air lock. Rotary air lock does not
allow the air to

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leak during the chips entry from WCH to drying system. Dryer system dries the chips
with the help of hot air to control the moisture level of the chips to make it
suitable for spinning. From the dryer, chips enter the Dry Chips Hopper before
feeding to the Extruder.

Production Lines

From the Dry Chips Hopper, chips are conveyed to the extruder where chips are
melted and mixed to give homogenous molten polymer with the help of electrical
heaters. The same is thereafter filtered through continuous polymer filter. After
filtration, the melt is distributed to 4 nos. of spinning beams via manifold. The
temperature of the spinning beams and manifold is maintained by special type of
heat transfer media. Melt is purified by means of metallic and sand filters before
being extruded to filament through spinnerets. The extruder has a capacity to melt
and deliver 800 kgs of chips/hr. at high pressure up to 250 bars. Molten polymer in
spinning beam is extruded through the spinnerets via polymer pump. The speed of
polymer pump is controlled by production computers to ensure uniform flow of melt
to produce quality of yarn. The speed of polymer pump may be changed to produce
different kind of deniers.

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Quality Control Polymer melt passing through the spinnerattes comes out in the form
of yarn at a temperature of 280-290 C. The yarn is then cooled to solidify in the
cooling chamber and after the cooling, finish oil is applied to yarn to lubricate
the same for further processing. The yarn is, thereafter, taken on the winder for
winding on paper tubes. The speed of the winder is controlled by the computers and
can be varied as per the process requirement to produce different kind of deniers.
The POY thus produced is checked on automatic machines called Tensorapid and Uster
Tester-3 for checking of thickness and uniformity properties.

Packaging Twisting POY is thereafter transported from the POY department to

texturising section. It is then taken on creel and fed to the texturising machines
and heaters. After the necessary heat setting and cooling, the texturised yarn is
collected on paper tubes and thereafter, packed in corrugated boxes and sent to the
market. FINAL PRODUCT OF SATHE SYNTHETICS

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Sathe Synthetics
Address: D-27, Industrial Area, Kavi Nagar Ghaziabad-201001, (U.P.) Phone: 91-120-
2700336, 2700386 Fax: 91-120-2703172 E-mail: sathesynthetics@indiatimes.com Contact
Person: Mr. L.C. Sharma

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SCOT Analysis of Sathe Synthetics Strengths Experienced promoters with over 40
years of experience in the industry Successfully implemented various expansion
schemes in the past with in-house expertise Consistently achieved capacity
utilization over 90% in respect of POY in the past. Products are well accepted in
the market With the implementation of the proposed project, the company will reap
the benefits of economies of scale due to optimum utilization of the existing
facilities. Satisfactory organizational set-up with experienced and well-qualified
employees. Strong marketing network with low selling and distribution costs
Challenges The prices of raw materials and finished goods move in tandem with
international prices, which, in turn, have positive correlation with the prices of
petrochemical products. A major portion of the manufacturing capacity originates
from second hand equipment. S.S adopts the technology of spinning POY from
polyester chips which are an intermediate and may put S.S at a comparatively
disadvantages position due to relatively higher cost vis--vis the other players
who manufacture POY directly from PTA/DMT/MEG. Company is taking planning to
putting up its own captive poly- condensation facility.

Opportunities With no major capacity increase being created in the recent past /
being planned in the near future, the existing players are well positioned to take
advantage of the emerging scenario where demand is expected to exceed supply.
Potential growth in exports of POY / PFY. With quantitative restrictions on textile
exports being dismantled under the aegis of World Trade Organization (WTO) from
2005, it is expected that low cost producers like India will benefit. With tariffs
proposed to come down in India over a period of time, it is expected that raw
material costs will be comparable to those prevailing in the international markets.
Potential growth in domestic demand for POY due to increase in share of non-cotton
fabric.

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Threats Likely expansion by large players like Reliance Industries, Indo Rama
Synthetics, Century Enka Ltd., etc. India has concluded / is in the process of
concluding Free Trade Agreements (FTA) with a number of countries like Sri Lanka,
Thailand, China, etc. This will lead to lower tariffs all round and may affect
Indian textile units, including S.S. Post WTO, when India would be exposed to
international competition. S.Ss position is expected to be vulnerable vis--vis
those companies with global size and modern facilities.

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OUTLINE OF THE STUDY
The management of working capital is very important. It involves the study of day-
to-day affairs of the company. The motive behind the study is to develop an
understanding about the working capital management in the running business
organization and to help the company in developing the efficient working capital
management. Therefore, it helps in future planning and control decisions.
OBJECTIVES OF THE STUDY The objectives of the study are as follows: # To analyze
the working capital management of the company. # To determine the gross and net
operating cycle of the unit. # To know the future need of working capital in the
running organization. # To render recommendations for the effective management of
working capital.

SCOPE OF THE STUDY The study is conducted at SATHE SYNTHETICS, Ghaziabad for 6
weeks duration. The study of W.C. management is purely based on secondary data and
all the information is available within the company itself in the form of records.
To get proper understanding of this concept, I have done the study of the balance
sheets, profit and loss A/Cs, cash accounts, trial balance, and cost sheets. I
have also conducted the interviews with employees of accounts and finance
department and stores department. So, scope of the study is limited up to the
availability of official records and information provided by the employees. The
study is supposed to be related to the period of last five years.

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REVIEW OF LITERATURE 1- The research done by Pass C.L., Pike R.H., An overview of
working capital management and corporate financing,(1984) describes that over the
past 40 years major theoretical developments have occurred in the areas of longer-
term investment and financial decision making. Many of these new concepts and the
related techniques are now being employed successfully in industrial practice. By
contrast, far less attention has been paid to the area of short-term finance, in
particular that of working capital management. Such neglect might be acceptable
were working capital considerations of relatively little importance to the firm,
but effective working capital management has a crucial role to play in enhancing
the profitability and growth of the firm. Indeed, experience shows that inadequate
planning and control of working capital is one of the more common causes of
business failure.

2- The research done by Herrfeldt B., How to Understand Working Capital Management
describes thatCash is king--so say the money managers who share the
responsibility of running this country's businesses. And with banks demanding more
from their prospective borrowers, greater emphasis has been placed on those
accountable for so-called working capital management. Working capital management
refers to the management of current or short-term assets and short-term
liabilities. In essence, the purpose of that function is to make certain that the
company has enough assets to operate its business. Here are things you should know
about working capital management.

3- The research done by, Samiloglu F. and Demirgunes K., The Effect of Working
Capital Management on Firm Profitability: Evidence from Turkey (2008) describes
that the effect of working capital management on firm profitability. In accordance
with this aim, to consider statistically significant relationships between firm
profitability and the components of cash conversion cycle at length, a sample
consisting of Istanbul Stock Exchange (ISE) listed manufacturing firms for the
period of 1998-2007 has been analysed under a multiple

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regression model. Empirical findings of the study show that accounts receivables
period, inventory period and leverage affect firm profitability negatively; while
growth (in sales) affects firm profitability positively.

4- The research done by, Appuhami, Ranjith B A, The Impact of Firms' Capital
Expenditure on Working Capital Management: An Empirical Study across Industries in
Thailand , International Management Review,(2008), The purpose of this research is
to investigate the impact of firms' capital expenditure on their working capital
management. The author used the data colleted from listed companies in the Thailand
Stock Exchange. The study used Shulman and Cox's (1985) Net Liquidity Balance and
Working Capital Requirement as a proxy for working capital measurement and
developed multiple regression models. The empirical research found that firms'
capital expenditure has a significant impact on working capital management. The
study also found that the firms' operating cash flow, which was recognized as a
control variable, has a significant relationship with working capital management.

5- The research done by, Hardcastle J., Working Capital Management,(2007)

describes that Working capital, sometimes called gross working capital, simply
refers to the firm's total current assets (the short-term ones), cash, marketable
securities, accounts receivable, and inventory. While long-term financial analysis
primarily concerns strategic planning, working capital management deals with day-
to-day operations. By making sure that production lines do not stop due to lack of
raw materials, that inventories do not build up because production continues
unchanged when sales dip, that customers pay on time and that enough cash is on
hand to make payments when they are due. Obviously without good working capital
management, no firm can be efficient and profitable.

6- The research done by, Thachappilly G., Working Capital Management Manages Flow
of Funds,(2009) describes that Working capital is the cash needed to carry on
operations

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during the cash conversion cycle, i.e. the days from paying for raw materials to
collecting cash from customers. Raw materials and operating supplies must be bought
and stored to ensure uninterrupted production. Wages, salaries, utility charges and
other incidentals must be paid for converting the materials into finished products.
Customers must be allowed a credit period that is standard in the business. Only at
the end of this cycle does cash flow in again.The research done by, Beneda, Nancy;
Zhang, Yilei, Working Capital Management, Growth and Performance of New Public
Companies.

7- The research done by, Dubey R.,Working Capital Management-an Effective Tool for
Organisational Success (2008) describes that The working capital in a firm
generally arises out of four basic factors like sales volume,technological
changes,seasonal , cyclical changes and policies of the firm.The strenghth of the
firm is dependent on the working capital as discussed earlier but this working
capital is inteslf dependent on the level of sales volume of the firm.The firm
requires current assets to support and maintain operational or functional
activities.By current assets we mean the assets which can be converted readily into
cash say within a year such as receivables,inventories and liquid cash.If the level
of sales is stable and towards growth the level of cash,receivables and stock will
also be on the high. 8- The research done by, McClure B., Working Capital Works
describes that Cash is the lifeline of a company. If this lifeline deteriorates, so
does the company's ability to fund operations, reinvest and meet capital
requirements and payments. Understanding a company's cash flow health is essential
to making investment decisions. A good way to judge a company's cash flow prospects
is to look at its working capital management (WCM). Cash is king, especially at a
time when fund raising is harder than ever. Letting it slip away is an oversight
that investors should not forgive. Analyzing a company's working capital can
provide excellent insight into how well a company handles its cash, and whether it
is likely to have any on hand to fund growth and contribute to shareholder value.

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9- The research done by, Gass D., How To Improve Working Capital Management
(2006) "Cash is the lifeblood of business" is an often repeated maxim amongst
financial managers. Working capital management refers to the management of current
or short-term assets and short-term liabilities. Components of short-term assets
include inventories, loans and advances, debtors, investments and cash and bank
balances. Short-term liabilities include creditors, trade advances, borrowings and
provisions. The major emphasis is, however, on short-term assets, since short-term
liabilities arise in the context of short-term assets. It is important that
companies minimize risk by prudent working capital management.

10- The research done by, Maynard E. Rafuse, Working capital management: an
urgent need to refocus Management Decision, (1996) Argues that attempts to improve
working capital by delaying payment to creditors is counter-productive to
individuals and to the economy as a whole. Claims that altering debtor and creditor
levels for individual tiers within a value system will rarely produce any net
benefit .Proposes that stock reduction generates systemwide financial improvements
and other important benefits .Urges those organizations seeking concentrated
working capital reduction strategies to focus on stock management strategies based
on lean supply-chain techniques. 11- Impact of Working Capital Management
Policies on Corporate PerformanceAn Empirical Study Sushma Vishnani, Bhupesh Kr.
Shah (2007) It is felt that there is the need to study the role of working capital
management policies on profitability of a company. Conventionally, it has been seen
that if a company desires to take a greater risk for bigger profits and losses, it
reduces the size of its working capital in relation to its sales. If it is
interested in improving its liquidity, it increases the level of its working
capital. However, this policy is likely to result in a reduction of the sales
volume, therefore of profitability. Hence, a company should strike a balance
between liquidity and profitability. In this paper an effort has been made to make
an empirical study of Indian Consumer Electronics Industry for assessing the impact
of working capital policies & practices on profitability during the period 199495
to 200405. The impact of working capital policies

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on profitability has been examined by computing coefficient of correlation and
regression analysis between profitability ratio and some key working capital policy
indicator ratios.

12- Working Capital and Financial Management Practices in the Small Firm Sector
Michael J. Peel, Nicholas Wilson (2008) MICHAEL J. PEEL IS A LECTURER IN
accountancy and finance at Cardiff Business School, University of Wales and
Nicholas Wilson is Professor of Credit Management at the University of Bradford,
England. Very little research has been conducted on the capital budgeting and
working capital practices of small firms. The purpose of this paper is to present
the results of a preliminary study on the working capital and financial management
practices of a sample of small firms located in the north of England. In general,
the results of the survey indicated that a relatively high proportion of small
firms in the sample claimed to use quantitative capital budgeting and working
capital techniques and to review various aspects of their companies' working
capital. In addition, the firms which claimed to use the more sophisticated
discounted cash flow capital budgeting techniques, or which had been active in
terms of reducing stock levels or the debtors' credit period, on average tended to
be more active in respect of working capital management practices. It hoped that
the issues raised would stimulate further theoretical and empirical contributions
on this neglected and important area of small business research.

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RESEARCH METHODOLOGY

The term research refers to the systematic method consisting of enunciating the
problem , formulating a hypothesis collecting the data , analyzing the facts and
reaching the certain conclusions either in the form of solution towards the concern
problem or in certain generalization for some theoretical formulation . Research
Methodology is a way to solve systematically the research problem .It may be
understood as a science of studying how research is done scientifically. Time
Period of the study: The present study was undertaken during Six weeks from 14th
June - 26th July. Research Design: Descriptive research procedure is used for
describing the recent situations in the organization and analytical research to
analyze the results by using research tools.

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Descriptive Research: Descriptive research, also known as statistical research,
describes data and characteristics about the population or phenomenon being
studied. Descriptive research answers the questions who, what, where, when and
how... Although the data description is factual, accurate and systematic, the
research cannot describe what caused a situation. Thus, Descriptive research cannot
be used to create a causal relationship, where one variable affects another. In
other words, descriptive research can be said to have a low requirement for
internal validity. In short descriptive research deals with everything that can be
counted and studied. But there are always restrictions to that. Your research must
have an impact to the lives of the people around you. For example,finding the most
frequent disease that affects the children of a town. The reader of the research
will know what to do to prevent that disease thus, more people will live a healthy
life.

Data Source & Collection Methods: There are two types for collecting data 1.
Primary data 2. Secondary data Secondary Data: Secondary data are those which have
already been collected by someone else and which have already been passed through
the statistical process. The Secondary data consist of reality available
compendices already complied statistical statements. Secondary data consists of not
only published records and reports but also unpublished records. Here we done the
analysis on basis of secondary data, which included# Balance sheet of company #
Profit and loss A/C of Sathe Synthetics

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# Cost sheets, & Trail balance of five years

Purpose: The purpose of this paper is to properly analysis of the working capital
management of Sathe synthetics, Ghaziabad over the period 2005-2009. Tools used: I
used the different tools to analyze the working capital management of Sathe
Synthetics # Analysis through Working capital ratios # Analysis through Schedule
change in working capital # Analysis through Gross operating cycle & Net operating
cycle # Analysis through Various components of working capital

LIMITATIONS OF THE STUDY # As central purchase office, purchase raw material and
central marketing yarn make sales. Information that is so more detailed cannot be
received about these. # Cash from debtors a collected by the corporate office
through commission agents. So efforts for collection of debtors cannot be clearly
known from SATHE SYNTHETICS, Ghaziabad. # Investment of funds are also made by
corporate office, so it becomes difficult to know that how much investment is made
in different ways for continuous availability of funds.

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Page 28
THEORETICAL BACKGROUND OF WORKING CAPITAL MANAGEMENT
MEANING AND NATURE OF WORKING CAPITAL MANAGEMENT The management of working capital
is concerned with two problems that arise in attempting to manage the current
assets, current liabilities and the inter relationship that asserts between them.
The basic goal is working capital management is to manage current assets and
current liabilities of a firm in such a way that a satisfactory of optimum level of
working capital is maintained i.e. it is neither inadequate nor excessive. This is
so because both inadequate as well as excessive working capital position is bad for
business.

MAJOR DECISIONS IN WORKING CAPITAL MANAGEMENT There are two major decisions
management relating to working capital management:1. 2. What should be ratio of
current assets to sales? What should be the appropriate mix of short term financing
and long term financing for financing these current assets? 1. Current assets in
relation to sales:If the firm can forecast accurately the factors, which effect the
working capital, the investment in current assets, can be designed uniquely. When
uncertainty characteristics the above factors, as it usually does the investment in
current assets cannot be specified uniquely. In case of uncertainty, the outlay on
current assets should consist of base component meant to meet normal requirement
and a safety component meant to cope with unusual requirement. The safety component
depends upon low conservative or aggressive in the current assets policy of a firm.
If the firm purchases a very conservative current asset policy it would carry a
high level of current assets in relation to sales. If a firm adopts a moderate
current assets policy it would carry

Page 29
moderate level of current assets in relation to sales, finally is a firm follows a
highly aggressive current assets policy, it would carry a low level of current
assets in relation to sales. SATHE SYNTHETICS is following current assets policy
showing moderate level of current assets in relation to sales as is evident from
ratio analysis.

2. Determining a Short Term and Long Term Financing Mix for Financing of current
assets:There are three approaches in this regard, which are discussed below:
HEDGING APPROACH: This approach is also called matching approach. In this approach
there is a proper matching of expected life of asset with the duration of fund.
Usually, according to this approach, long-term sources are used for financing
permanent current assets and fixed assets & short-term sources are used for
financing temporary current assets:
Temporary current assets Short term financing

term financing
S S Permanent current assets Long-term financing

ASSETS
E T

Time

CONSERVATIVE APPROACH: -

Page 30
In this approach there is more reliance on long-term financing in comparison to
shortterm financing. Even some part of the temporary current comparison to finance
from long-term sources because long-term sources are less risky in comparison to
short-term sources.

Temporary Current Assets

A S S E T

Short-term financing

Fixed Assets

Permanent Current Assets Time

Long-term

financing

AGGRESSIVE APPROACH In this approach there is more reliance on short term financing
and even a part of permanent current assets is financed from short-term finance.

Temporary current assets

A S S E T

Short term financing

Permanent current assets

Long term financing

Fixed Assets Time

Page 31
In SATHE SYNTHETICS, the current assets are financed from short term sources as
well as long term sources, so they follow conservative approach.

WORKING CAPITAL ANALYSIS

1. OPERATING CYCLE ANALYSIS Operating cycle refers to the time period which starts
from the raw material purchases and ends with realization of receivable. So it is
total time gap between raw material purchases to total debtors collection. This is
also known as working capital cycle. Operating cycle is therefore expressed in
terms of months or weeks or days. The higher the operating cycle period, higher the
working capital requirement. It comprises of raw material conversion period, WIP
conversion period, FG conversion period and debtors conversion period and
creditors period. The basic reason for calculating operating cycle is to find out
the means for reducing the duration of operating cycle because if duration of
operating cycle will be less than working capital requirement will be less.

Page 32
OC = R + W + F + D C Where, R = raw material conversion period F = finished goods
conversion period C = creditors payment period
(1) Raw Material Conversion Period (RMCP) = Average Raw Material Stock Average Raw
Materials consumed during the year PARTICULARS 2008-09 Average raw 33065118 2007-08
33352213.5 2006-07 20819151 2005-06 13076062.5 2004-05 9471720.12

W = work in process period D = debtor collection period

material stock Raw material 314166.03 213093.45 107464.04 218371.65 121729.46

consumed during the year RMCP 105.25 156.52 193.73 59.88 77.80

250 200 156.52 150 105.25 100 59.88 50 0 2009 2008 2007 2006 2005 77.8
RMCP

193.73

Page 33
(2)

Work in Progress Conversion Period (WIPCP) = Average stock in progress Average Cost
of Production

PARTICULARS 2009 Average stock in 7834151.50 progress Avg. Cost of 190952.86

2008 8313099.5

2007 5586013

2006 4818821.5

2005 3634639.5

211273.02

194248.64

180015.22

136824.55

production WICP 41.03 37.93 28.75 26.77 26.56

45 40 35 30 25 20 15 10 5 0

41.03

37.93 28.75

26.77

26.56
WICP

2009

2008

2007

2006

2005

(3)

Finished Goods Conversion Period (FGCP) = Average finished goods inventory X 360 X
360 Average Cost of goods sold

Page 34
PARTICULARS Average finished inventory Cost of goods sold FGCP
9 8 7 6 5 4 3 2 1 0 2009 7.63

2009 14911159

2008 13149905.5

2007 5004497

2006 6396225

2005 5858384.5

goods

1955523.98

1648540.72

1398222.17

1260173

989215.18

7.63
7.98

7.98

3.58

5.08

5.92

5.92 5.08 3.58

FGCP

2008

2007

2006

2005

(4)

Debtors Conversion Period (DCP) = Days in year company operating Debtors turnover

PARTICULARS Days in

20009

2008 360

2007 360
2006 360

2005 360

year 360

company operating Debtors turnover DCP 21.66 16.62 22.89 15.72 18.41 19.55 15.82
22.76 18.38 19.59

Page 35
25 20 16.62 15 10 5 0 2009 2008 2007 15.72 19.55

22.76 19.59

DCP

2006

2005

(5)

Credit Conversion Period (CCP) = Days in year company operating Creditors turnover

PARTICULARS Days in

2009

2008 360

2007 360

2006 360

2005 360

year 360

company operating Creditors turnover 27.15 26.02 13.84 39.50 9.11 22.77 15.81
23.30 16.14

Avg. consumption 13.26 period OR CCP

Page 36
18 16 14 12 10 8 6 4 2 0

15.81 13.26 13.84

16.14

9.11
CCP

2009

2008

2007

2006

2005

GROSS OPERATING CYCLE FOR SATHE SYNTHETICS: YEAR 2009 2008 2007 2006 2005
300 245.61 250 200 150 100 50 0 2009 2008 2007 2006 2005 170.53 114.49 129.87
GOC

RMCP 105.25 156.52 193.73 59.88 77.80

WICP 41.03 37.93 28.75 26.77 26.56

FGCP 7.63 7.98 3.58 5.08 5.92

DCP 16.62 15.72 19.55 22.76 19.59

GOC 170.53 217.84 245.61 114.49 129.87

217.84

Page 37
NET OPERATING CYCLE: YEAR 2009 2008 2007 2006 2005
250 204.31 200 157.27 150 113.73 98.68 100 50 0 2009 2008 2007 2006 2005
NOC

GOC 170.53 217.84 245.61 114.49 129.87

236.5

CCP OR APP 13.26 13.84 9.11 15.81 16.14

NOC 157.27 204.31 236.5 98.68 113.73

ANALYSIS It claimed that gross operating cycle of SATHE SYNTHETICS is increasing in

year 2004-05 and in the year 2005-06 it decreasing up to certain extent. In year
2004-05, it is 129.87 days then it decreased to 114.49 days in year 2005-06 due to
contraction in raw material. In 2006-07, it is on the highest point of 245.61 days.
The main reason of increasing gross operating cycle in 2006-07 is due to more
availability of raw material in the stores. In year 2006-07 the company purchased a
bulk of raw material due to market variations the GOC is increased. However, when
we came to year 2007-08 the GOC for S.S has shown a significant decrement of 204.31
days from the year 2006-07 to 245.61. When in next year 2008-09, it came out to be
170.53 days. The GOP for

Page 38
satisfactory as it Varies as the market requirements and changes in form of meet
the customers requirements largely. But when we came to the NOC of Sathe
Synthetics it we can see that Creditors payment period OR Average payment period
of S.S is on a average of 15 days in each (5) five years so does not make more
effect on GOC. Therefore, it is somehow near of the GOC. That is why the companys
NOC 113.73, 98.68, 236.5, 204.31, and 157.27 in the years 2005, 2006, 2007, 2008
and 2009. Therefore, we can say that there is a significant change in the NOC of
the Sathe Synthetics.

1. RATIO ANALYSIS Ratio analysis is a technique of analysis and interpretation of

financial statements. It is the process of establishing and interpreting various
ratios for helping in making decisions. It only means of better understanding of
financial strengths and weaknesses of a firm. The main emphasis has been on
calculating the ratios related to a working capital management. LIQUIDITY RATIOS:
-These are the ratios which measures the short term solvency or financial position
of a firm. In other words, it refers to the ability of a concern to meet its
current obligations as and when these become due. To measure the liquidity of a
firm, the following ratios can be calculated. CURRENT RATIO: It may be defined as
the relationship between current assets and current liabilities. This ratio is also
known as working capital ratio and measures the ability of the firm to meet current
liabilities. High current ratio indicates firm is liquid and has the ability to pay
its current obligations in time as and when they become due. A ratio equal or near
to the rule of thumb of 2:1 i.e. current assets double the current liabilities is
considered to be satisfactory. Current Ratio = Current Assets

Page 39
Current Liabilities

YEAR

CURRENT ASSETS

CURRENT LIABILITIES

CURRENT RATIO

2009 2008 2007 2006 2005

115612673.56 141934492.00 97761075.20 72335450.22 72171734.06

18528617.22 35172584.20 12343214.74 13758132.09 21676428.69

6.24 4.04 7.92 5.26 3.33

9 8 7 6 5 4 3 2 1 0 2009 2008 4.04 6.24

7.92

5.26 3.33 CR

2007

2006

2005

ANALYSIS The current ratio of the Sathe synthetics is above the standard and it
guarantees the payment of dues in time. The current ratio of the company has been
considerably high because they had made over investment in inventories, which is
the main reason for the high ratio of current assets. Inventories are high because
of seasonal availability of raw material. The overall position of current ratio for
Sathe synthetics is satisfactory.

Page 40
The current ratio of dye house has shown a remarkable increment from 3.33 in 2004-
05 to 5.26 in 2005-06 and then to 7.92 in 2006-07. Initially in 2004-05, the ratio
was not satisfactory but it is quite satisfactory for the years after 2008-09 and
especially for the year 2006-07.

LIQUID RATIO This ratio is also known as quick ratio or acid test ratio. It is a
more rigorous test of liquidity than the current ratio. It is based on those
current assets which are highly liquid. Inventory and prepaid expenses are excluded
because they are deemed to be least liquid component of current assets. A high
quick ratio is the indication that the firm is liquid and has the ability to meet
its current liabilities in time and on the other hand low ratio represents
liquidity position is not good. Quick Ratio = Quick or Liquid Assets Current
Liabilities Quick Assets = Current Assets Inventory Prepaid Expenses

YEAR

LIQUID ASSETS

CURRENT LIABILITIES 18528617.22 35172584.20 12343124.74 13758132.09 21676428.69

LIQUID RATIO

2009 2008 2007 2006 2005

71845029.56 74081279.00 56583851.20 50693352.22 45231614.06

3.88 2.11 4.58 3.68 2.09

Page 41
5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

4.58 3.88 3.68

2.11

2.09

LR

2009

2008

2007

2006

2005

Analysis
According to rule of thumb, it should be 1:1. For Sathe synthetics, the liquid
ratio present a uneven change over the past four years. It was 2.09 in 2004-05 and
increased to 4.58 in 2006-07 and then to 2.11 in 2007-08. The decrement in the
ratio is not satisfactory, however the ratio 2.11 in 2007-08 is more than the rule
of thumb but it should be quite more than the rule of thumb. . WORKING CAPITAL
TURNOVER RATIO Working capital turnover ratio indicates the velocity of the
utilization of net working capital. This ratio measures the efficiency with which
the working capital is being used by a firm. Working Capital Turnover Ratio = COGS
OR Sales Net Working Capital YEAR SALES NET WORKING CAPITAL 97084056.34
106761907.80 85417950.46 453662278.70 50495305.37 WCTR

2009 2008 2007 2006 2005

703988634.61 593474659.66 503359979.46 453662278.70 356117465.20

7.25 5.56 5.89 7.74 7.05

Page 42
9 8 7 6 5 4 3 2 1 0 2009 2008 2007 2006 2005
WCTR

7.74 7.25 5.56 5.89 7.05

ANALYSIS This ratio indicates the number of times the working capital is turned
over in the course of a year. A high working capital ratio indicates the effective
utilization of working capital and less working capital ratio indicates less
utilization. For Sathe synthetics, the ratio is quite same for the past five years.
It is 7.05 in 2004-05, 7.74 in years 2005-06 and in2006-07 there was a slight
change came over here and the ratio decreased to 5.89. And in the next year in
2007-08 the ratio stand at 5.56 For Sathe synthetics, the ratio is increasing once
more in the very next year in 2008-09, It shows increment to 7.24. the ratio of the
company is satisfactory.

STOCK TURNOVER RATIO This ratio tells the story by which stock is converted into
sales. A high stock turnover ratio reveals the liquidity of the inventory i.e., how
many times on an average, inventory is turned over or sold during the year. STOCK
OR INVENTORY TURNOVER RATIO = COGS OR SALES AVERAGE STOCK

Page 43
YEAR

SALES

AVERAGE STOCK 55810428.5 23981268.5 31409661 24291109 18964744.11

STR or ITR

2009 2008 2007 2006 2005

30

703988634.61 593474659.66 503359979.46 453662278.70 356117465.20

12.61 24.75 16.03 18.68 18.78

24.75 25 20 16.03 15 10 5 0 2009 2008 2007 2006 2005 12.61

STR

18.68

18.78

ANALYSIS: By analyzing the five-year data it seen, that it follows an uneven trend.
We see that from the year 2005 to 2006 & 2006 to 2007, it moves on a slow pace
means, the ratio is increased in very nominal figures i.e. (.10) times and (2)
times, which has been rectified in the year 2008. In 2008 there is a huge increase
in inventory due to this ratio the company maintains is very high in 2008 and the
company is required to take measures to lower down this ratio as it affects the
working capital cycle of company and the flow of cash in the company. In 2009, we
saw company take measure to lower down its ratio which is good for company because
a low stock turnover ratio reveals undesirable accumulation of obsolete stock.

Page 44
DEBTORS TURNOVER RATIO: DEBTORS TURNOVER RATIO = CREDIT SALES AVERAGE DEBTORS
YEAR CREDIT SALES AVERAGE DEBTORS 32503373 25923481.52 27348823.87 28677098.13
19374123.96 DTR

2009 2008 2007 2006 2005

703988634.61 593474659.66 503359979.46 453662278.70 356117465.20

21.66 22.89 18.41 15.82 18.38

25 21.66 20 15 10 5 0 2009

22.89 18.41 15.82 18.38

DTR

2008

2007

2006

2005

ANALYSIS Generally a low debtors turnover ratio implies that it considered

congenial for the business as it implies better cash flow. The ratio indicates the
time at which the debts are collected on an average during the year. Needless to
say that a high Debtors Turnover Ratio implies a shorter

Page 45
collection period which indicates prompt payment made by the customer. Now if we
analyze the five year data we can say that it holds a good position while receiving
its money from its debtors. The ratios are in variation trend, which implies that
recovery position is good and company should maintain these positions. CREDITORS
TURNOVER RATIO: Actually this ratio reveals the ability of the firm to avail the
credit facility from the suppliers throughout the year. Generally a low creditors
turnover ratio implies favorable since the firm enjoys lengthy credit period.
CREDITORS TURNOVER RATIO = NET CREDIT PURCHASE AVERAGE CREDITORS YEAR CREDIT
PURCHASE 567750535.58 505412322.46 421557817.32 358037616.35 300672597.42 AVERAGE
CREDITORS 20914713.21 19426820.02 10672311.95 15724391.01 12906200.48 CTR

2009 2008 2007 2006 2005

27.15 26.02 39.50 22.77 23.30

Page 46
45 40 35 30 25 20 15 10 5 0 2009 2008 27.15 26.02

39.5

22.77

23.3
CTR

2007

2006

2005

ANALYSIS Actually, this ratio reveals the ability of the firm to avail the credit
facility from the suppliers throughout the year. 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 2007 the ratio was very
high which means that its position of creditors that year was not good only in the
year 2007, when we turn ahead the other years creditors turnover ratio is in
pretty good position. In the all four years it has followed, a decreasing trend,
which is very good, sign for the company. Therefore, we can say it enjoys a very
good credit facility from the suppliers.

Page 47
ANALYSIS ON THE BASIS OF SCHEDULE OF CHANGES IN WORKING CAPITAL

PARTICULARS CURRENT ASSETS: Inventories S. debtors Cash & Bank Balances Loans &
Advances Total current assets (A) CURRENT LIABILITIES: S. creditors Provisions
Security deposits & Retention money Total current liabilities (B) Working capital
(A-B) Net increase in working capital

2005-06

2006-07

INCREASE

DECREASE

21642098.00 30359548.69 3407307.32

41177224.00 22158429.16 2297697.88

19535126 8201119.53 1109609.44

16926496.21

32127724.16

15201227.95

72335450.22

97761075.20

11585162.05 2072970.04 100000

9759461.84 2483662.90 100000

1825700.21 410692.86 ----------

13758132.09

12343124.74

58577318.13

85417950.46

36562054.16

9721421.83

26840632.33

26840632.33

85417950.46

85417950.46

36562054.16
36562054.16

Page 48
ANALYSIS ON THE BASIS OF SCHEDULE OF CHANGES IN WORKING CAPITAL PARTICULARS CURRENT
ASSETS: Inventories S. debtors Cash & Bank Balances Loans & Advances Total current
assets (A) CURRENT LIABILITIES: S. creditors Advance from customers Provisions
Security deposits & Retention money Total current liabilities (B) Working capital
(A-B) Net Decrease in working capital 106761907.8 29094178.20 2439050 12735248.22
722054 16358929.98 1716996 67853213 27508864 3665403.60 43767644 37497882
6891449.29 9989018 3226045.69 24085569 2007-08 2008-09 INCREASE DECREASE

42907011.40

27455698.27

15451313.13

141934492.00

115612673.56

3539356.00 100000.00

4971315.00 100000 -----

1431959 -----

35172584.20

18528617.22

106761907.8

97084056.34

31290989.67

40968841.13

9677851.46

9677851.46

106761907.8

40968841.13

40968841.13

Page 49
FOR YEARS 2006 AND 2007: As we have a look on the schedule of changes in working
capital for the Sathe synthetics over the years 2005-06 and 2006-07, we find that,
among current assets, inventories, loans and advances have shown increment from
year 2005-06 to year 2006-07. The sundry debtors and cash & bank balances have
decreased in the same years. Among the current liabilities, the sundry creditors
and other liabilities have decreased and provisions were increased. Therefore, the
overall net working capital has increased. FOR YEARS 2007-08 AND 2008-09: Among the
current assets, debtors and cash & bank balances have increased and inventories and
loans & advances have shown decrement. The total current assets have increased.
Among the current liabilities, sundry creditors and other liabilities have
decreased which made a positive effect on networking capital and it increases, on
the other hand, the provision increased which not directly but overall made a good
effect on company. Therefore, the net working capital has also increased.

Page 50
ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL INVENTORY ANALYSIS Inventory is
total amount of goods and materials. Inventory means stock of three:1. Raw
materials 2. Semi finished goods. 3. Finished goods. Position of inventory in Sathe
synthetics: PARTICULARS Raw material W.I.P Finished goods TOTAL 2009 28833211
5912280 9022153 43767644 2008 37297025 9756023 20800165 67853213 2007 29407402
6270176 5499646 41177224 2006 12230900 4901850 4509348 21642098 2005 13921225
4735793 8283102 26940120

80000000 70000000 60000000 50000000 40000000 30000000 20000000 10000000 0 2009 2008
2007 2006 2005
STOCK

INTERPRETATION: By analyzing the 5 years data we see that the inventories are
increased/decreased year by year. We can look increasing pattern in inventories. We
can see that inventories are grown in 06-07 and 07-08 respectively from previous
year in figures it increases up to19535126 in2007 and inyear2008 it increases to
26675989 in comparison of 2007. By this growth we can say that the company is
growing. A company uses inventory when they have demand in market and Sathe
Synthetics is having a demand in industry market. That is biggest reason for
increase in Inventories. 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.

Page 51
SUNDRY DEBTORS ANALYSIS
Debtors or an account receivable is an important component of working capital and
fall under Current assets. Debtors will arise only when credit sales made. Position
of Sundry Debtors in Sathe synthetics PARTICULARS DEBTS O/S FOR A PERIOD OF SIX
MONTHS OTHER DEBTS TOTAL 2009 0.00 2008 203547.00 2007 118028.00 2006 85124.00 2005
262290.00

37497882.00 37497882.00

27305317.00 27508864.00

22040401.16 22158429.16

30274424.69 30359548.69

26732357.57 26994647.57

40000000 35000000 30000000 25000000 20000000

DEBTORS

15000000 10000000 5000000 0 2009 2008 2007 2006 2005

INTERPRETATION In the table and figure, we see that there are continuous variations
in the debtors of Sathe Synthetics in five (5) successive years. A simple logic is
that debtors increase only when sales increase and if sales increases it is good
sign for growth. We can see that in the year 2006-07 the Debtors are at minimum
level. Moreover, in next two years in 2008 & 2009 the debtors are continuously
increasing. We can say that it is a good sign as well as negative also. Company
policy of debtors is very good but a risk of bad debts is always present in high
debtors. When sales are increasing with a great speed the profit also increases. If
company decreases the Debtors, they can use the money in many investment plans. So,
this variation is good from the firm prospect

Page 52
CASH AND BANK BALANCE ANALYSIS
Cash called the liquid asset and vital current assets; it is an important component
of Working capital. In a narrow sense, cash includes notes, bank draft, cheque etc.
Position of Cash and Bank Balance in Sathe synthetics: PARTICULARS 2009 Cash & Bank
6891449.29 TOTAL 6891449.29 2008 3665403.60 3665403.60 2007 2297697.88 2297697.88
2006 3407307.32 3407307.32 2005 6617777.19 6617777.19

8000000 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 2009 2008 2007
2006 2005
CASH & BANK

INTERPRETATION If we analyze the above table and chart we find that it follows an
increasing trend. In the year 2005, it had maintained a huge amount of cash and
bank balance which has decreases in the year 2006, 2007 and 2008. Although
companys cash position in the year2006, 2007 & 2008 was not sound so, this is not
a very good sign for company. The analysis shows that the fix deposits of company
are rapidly fallen in the year as 42.3% in 06- 07 respectively from year 2005 that
is why company is have minimum balance in 2007 in comparison of all. Through
analysis, we got that company is utilizing the fixed cash for exploding the
Projects that is good for growth.

LOANS AND ADVANCES ANALYSIS

Loans and Advances here refers to any to amount given to different parties,
company, employees For a specific period of time and in return they will be liable
to make timely repayment of that

Page 53
Amount in addition to interest on that loan. PARTICULARS 2009 LOANS & 27455698.27
ADVANCES TOTAL 27455698.27 2008 42907011.40 42907011.40 2007 32127724.16
32127724.16 2006 16926496.21 16926496.21 2005 11619189.30 11619189.30

50000000 45000000 40000000 35000000 30000000 25000000 20000000 15000000 10000000

5000000 0 2009 2008 2007 2006 2005

LOANS &

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. We can see that the increase
of loans and advances are increases year by year except the year 2009. In the year
2008 there is more than Rs 4 crore given as loan, due to this a lot of amount was
blocked. But it used for expansion of business. The increasing pattern shows that
company is giving advances for the expansion of plants and Machinery which is good
sign for better production. Although companys cash is blocked but This is good
that company is doing modernization of plan competitors 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 within one year.

Page 54
CREDITORS: PARTICULARS 2009 SUNDRY 12735248.22 CREDITORS TOTAL 12735248.22
30000000 25000000 20000000 15000000 10000000 5000000 0 2009 2008 2007 2006 2005
CREDITORS

2008 29094178.20 29094178.20

2007 9759461.84 9759461.84

2006 11585162.05 11585162.05

2005 19863619.97 19863619.97

INTERPRETATION If we analyze the above table then we can see that it follow an
uneven trend in the sundry creditors and other liabilities. In 2006 it decreased by
75% and in 2007 it further decreased by more then100%. In 07-08 it was increased
because of growth in other liabilities. This is done because in the year2008
company purchased a bulk of raw material due to market variations. When company has
minimum liabilities it creates a better goodwill in market. High current
liabilities indicate that company is using credit facilities by creditors.

PROVISIONS ANALYSIS Position of Other Provisions in Sathe synthetics PARTICULARS

2009 PROVISIONS 4971315.00 TOTAL 4971315.00 2008 3539356.00 3539356.00 2007
2483662.90 2483662.90 2006 2072970.04 2072970.04 2005 1812808.72 1812808.72

Page 55
6000000 5000000 4000000 3000000
PROVISIONS

2000000 1000000 0 2009 2008 2007 2006 2005

INTERPRETATION From the above table we can see that provision shows a growing trend
and the huge amount is Being kept in these provisions. Though the profits of the
company are increased, income tax is Also increased. Therefore, there is a great
need of maintaining proper provisions, which is good that company is creating in
time. The provisions are increasing as the tax increases. Although company is
paying more income tax that is why because company also earning more. This is good
sign for Company.

Page 56
Page 57
# By conducting the study about working capital management, I found out that
working capital management of SATHE SYNTHETICS is good. SATHE SYNTHETICS has
sufficient funds to meet its current obligation every time, which is due to
sufficient profits and efficient management of SATHE SYNTHETICS. # Raw material for
all the units of SATHE SYNTHETICS purchased by corporate office in bulk, which is a
major problem for the company as it increases the inventory cost.

# Company

is cash rich but as there are expansion and diversification plans under the

pipeline, company is not utilizing these funds. For meeting the working capital
needs and capacity expansion needs, it has borrowed from banks. # Lack of
advertisement can be considered to be a weak point for the Sathe Synthetics. # The
amount of stock is increasing per year, which is a good sign, as it would help them
in the tough competition coming ahead. # Firm profitability can be increase by
shortening accounts receivables and inventory periods.

Page 58
SUGGESTIONS

# #

Management should make the proper use of inventory control techniques like fixation
of minimum, maximum and ordering levels for all the items for less blockage of
money. The company should also adopt proper inventory control like ABC analysis
etc. This inventory system can make the inventory management more result oriented.
The EOQ should also follow in stores.

The company should train its work force properly, which would enable the company to
utilize its resources properly and in the interim help in minimizing wastage, and
hence result in the expansion of its market share.

# #

Due to competition, prices are market driven and for earning more margin company
should give the more concentration on cost reduction by improving its efficiency.
The investments of surplus funds made by the corporate office and the units are not
generally involved while taking decisions with regard to structure of investment of
surplus funds. The corporate office should involve the units to better ascertain
the future requirements of funds and accordingly the investments made in different
securities.

# #

The company is losing its overseas customers due to decrease in exports so; the
sufficient amount of exports should the maintained. Companys Average debtor
collection period of company is 19 days. Therefore, it would be the one of the
positive point for company and company should maintain it for future.

Page 59
Page 60
Measures to Improve Working Capital Management at SATHE SYNTHETICS:
# The essence of effective working capital management is proper cash flow
forecasting. This should take into account the impact of unforeseen events, market
cycles, loss of a prime customer and actions by competitors. So, the effect of
unforeseen demands of working capital should be factored by company. This was one
of its reasons for the variation of its revised working capital projection from the
earlier projection. # It pays to have contingency plans to tide over unexpected
events. While market-leaders can manage uncertainty better, even other companies
must have risk-management procedures. These must be based on objective and
realistic view of the role of working capital. # Addressing the issue of working
capital on a corporate-wide basis has certain advantages. Cash generated at one
location can well be utilized at another. For this to happen, information access,
efficient banking channels, good linkages between production and billing, internal
systems to move cash and good treasury practices should be in place. # An
innovative approach, combining operational and financial skills and an
allencompassing view of the companys operations will help in identifying and
implementing strategies that generate short-term cash. This can be achieved by
having the right set of executives who are responsible for setting targets and
performance levels. They could be then held accountable for delivering, encouraged
to be enterprising and to act as change agents. # Effective dispute management
procedures in relation to customers will go along way in freeing up cash otherwise
locked in due to disputes. It will also improve customer service and free up time
for legitimate activities like sales, order entry and cash collection. Overall,
efficiency will increase due to reduced operating costs. # Working capital
management is an important yardstick to measure a company operational and financial
efficiency. This aspect must form part of the strategic and operational thinking.
Efforts should constantly be made to improve the working capital position. This
will yield greater efficiencies and improve customer satisfaction.

Page 61
Page 62
WEBSITES:-

# Lazaridis, Ioannis and Tryfonidis, Dimitrios, Relationship between Working

Capital Management
and Profitability of Listed Companies in the Athens Stock Exchange. Journal of
Financial Management and Analysis, Vol. 19, No. 1, January-June 2006. Available at
SSRN: http://ssrn.com/abstract=931591

# http://papers.ssrn.com/sol3/papers.cfm?abstract_id=931591&rec=1&
srcabs=966188 # http://www.emeraldinsight.com/Insight/ViewContentServlet?
contentType=Article&S.Se name=/published/emeraldfulltextarticle/pdf/2910030202.pdf

BOOKS AND JOURNALS

# Anand, M. 2001. Working Capital performance of corporate India: An empirical
survey, Management & Accounting Research, Vol. 4(4), pp. 35-65 # Berryman, J.
1983. Small Business Failure and Bankruptcy: A survey of the Literature, European
Small Business Journal, 1(4), pp47-59 # Bhattacharya, H. 2001. Working Capital
Management: Strategies and Techniques, Prentice Hall, New Delhi. # Grablowsky, B.
J. 1976. Mismanagement of Accounts Receivable by Small Business, Journal of Small
Business, 14, pp.23-28

# Grablowsky, B. J. 1984. Financial Management of Inventory, Journal of Small

Business Management, July, pp. 59-65

Shields, Patricia and Hassan Tajalli. 2006. Intermediate Theory: The Successful
Student Scholarship. Journal of Public Affairs Education. Vol. 12, No. 3. Pp. 313-
334.

Page 63
ANNEXURES BALANCE SHEET AS AT
PARTICULARS SOURCES OF FUNDS SHRI GANESH JI SHRI LAXMI JI SHARE CAPITAL RESERVE AND
SURPLUS LOAN FUNDS SECURED LOANS DEFERED TAX LIABILITY UNSECURED LOANS TOTAL
APPLICATION OF FUNDS FIXED ASSETS A: GROSS BLOCK B: less DEPRICIATION C: NET BLOCK
D:CURRENT ASSETS INVENTORY SUNDRY DEBTORS CASH IN HAND & BANK LOANS AND ADVANCES
E:CURRENT LIABILITIES SUNDRY CREDITORS ADVANCE FROM CUSTOMERS/DLRS PROVISIONS (D-
E)NET CURRENT ASSETS MISCELLANEOUS EXPENSES TOTAL 2008-09 2007-08 2006-07 2005-06
2004-05

52.25 51.00 19901000.00 345519604.82

52.25 51.00 19901000.00 29625127.98

52.25 51.00 19901000.00 15253853.53

52.25 51.00 19901000.00 21829192.29

52.25 51.00 19901000.00 20785949.94

72686105.58 3383097.00 43486673.00

88539002.13 3449412.00 46947616.00

94535519.74 3080483.00 28872233.00

55323395.23 662332.00 15703501.00

54399581.72 --------14408414.70

173976583.65 188462261.36 171643192.52 113419523.77 109495049.61

178453951.93 172240571.18 164888412.68 126570061.76 123370584.96 101561424.62

90540217.62 78663170.62 71729938.62 64380715.62 76892527.31 81700353.56 86225242.06
54840123.14 58989869.34

43767644.00 37497882.00 6891449.29 27455698.27

67853213.00 27508864.00 3665403.60 42907011.40

41177224.00 24338099.04 2297697.88 32127724.16

21642098.00 30359548.69 3407307.32 16926496.21

26940120.00 26994647.57 6617777.19 11619189.30

12735248.22 822054.00 4971315.00 97084056.34 ---------

29094178.20 2539050.00

9759461.84 100000.00

11585162.05 100000.00 2072970.04 58577318.13 2082.50

19863619.97 -------------1812808.72 50495305.37 9874.90

3539356.00 2483662.90 106761907.80 85417950.46 ----------------

173976583.65 188462261.36 171643192.52 113419523.77 10945049.61

Page 64
Page 65
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED PARTICULARS (A) INCOME 1: NET SALES 2:
OTHER INCOME TOTAL (B) EXPENSES 1:RAW MATERIAL,FINISHE D GOODS & WORK IN PROGRESS
2:MANUFACTURING EXPENSES 3:SALARY & OTHER EMP.BENEFITS 4: ADMINISTRATIVE EXPENSES
5: SELLING EXPENSES 6: FINANCIAL EXPENSES 7: OTHER EXPENSES 8:DEPRICIATION TOTAL
2008-09 703988634.6 1 436106.42 704424741.0 3 591836104.5 8 2007-08 593474659.6 6
3913796.87 597388456.5 3 478736333.4 6 2006-07 503359979.4 6 172310.00 503532289.4
6 402022691.3 2 2005-06 453662278.7 0 13234.00 453675512.7 0 36335638.35 2004-05
356117465.2 0 33965.73 356151430.9 3 284721845.6 5

68743029.05 4115744.00 3232698.41 4646428.28 13455947.36 446187.51 11021207.00

697497346.1 9 6927394.84 -66315.00 99521.00 1999712.00 4894476.84 18406627.98

76058287.24 3845617.00 3229712.90 4114634.84 13038713.28 324537.36 11877047.00

591224883.0 8 6163573.45 368929.00 90342.00 1333028.00 4371274.45 14035353.53

69929616.64 3348712.00 3352674.68 3276473.48 7292587.41 731402.50 6933232.00

496887390.0 3 6644899.43 2418151.00 56529.41 745557.78 3424661.24 10610692.29

64805480.37 3336648.00 2742302.31 3183784.89 6731948.84 38487.59 7349223.00

451523513.3 5 2151999.35 662332.00 0.00 446425.00 1043242.35 9567449.94

49256838.95 2678327.00 2066811.17 1610635.56 4803871.78 42963.40 10608658.72

355789952.7 2 361478.70

PROFIT BEFORE TAX DEFERRED TAX PROVISION FOR FBT PROVISION FOR TAXATION PROFIT
AFTER TAX PROFIT AS PER LAST YEAR BALANCE SHEET CARRIED TO CURRENT YEAR BALANCE
SHEET

58160.00 303318.70

23301104.82

18406627.98

14035353.53

10610692.29

303318.70

Page 66