Working Capital Management at Shriram Chits

Working Capital Management with ref to Shriram Chits
CHAPTER 1
INTRODUCTION
GATES INSTITUTE OF TECHNOLOGY GOOTY Page 1

INTRODUCTION:
Finance is the important part of every business, without finance a
business can't carry on. It means any organization can depend on finance, means the
finance of business is the life blood of business.
Resources and judicious use of finance are the two important activities
under financial management. Just as production and sales are major functioning of an
enterprise, finance too is an independent specialized function. Still it is well knit with
the other functions, and financial manager made this a separate management area,
without finance neither business can be started or successfully run.
Finance is the foundation stone of every business in the present day set
up. No business can be started without adequate finance but can be developed for
running and orientation of the business. The success of every business depends upon
adequate source of finance.
The financing of sole trade & partnership is not difficult as the main
source of finance is their own contribution & financial requirements are limited. In the
present modern setup generally, business are raw but big company has financial
requirement are large volume of finance which cannot be contributed by few
investors.
Theoretical Background
Introduction of Working capital Management:
A business cannot run on fixed assets alone. A lot of money has to be

invested in short term resource of financing as well. The management of such asset,
which is referred to as working capital management or current asset management, is
one of the most important aspect of overall financial management. For facility of
understanding, it’s necessary to deal with certain term before proceeding with the
discussion any further.

Definition of Working capital Management:
“Working Capital is descriptive of that capital which is not fixed, but

the more common use of working capital is to consider it as the difference between
the book value of current asset and current liabilities.”
- Prof. Hoagland.
Components of Working Capital.
WORKING CAPIAL = CURRENT ASSETS – CURRNT LIABILITIES
Current assets:
Current assets have been defined as assets that are usually converted into cash within
the current accounting cycle, i.e., one year. Major current assets are cash, bills
receivable, accounts receivable and inventory. For example, a cash is used to purchase
raw materials and pay the labour and other manufacturing cost to produce products,
which are then carried as inventories.
Current liabilities:
Current liabilities are those liabilities which are intended at their inception to be paid
in the ordinary course of business, within a year, out of the current assets or earnings
of the concern. The basic current liabilities are Accounts payable, Bills payable, Bank
overdraft and outstanding expenses.
Gross working capital:

The term gross working capital, also referred to as working capital means the total
current assets.
Net working capital:

It represents the difference between current assets and current liabilities. This can be
alternatively defined as that portion of current assets which is finance with long term
funds. The term working capital indicates the liquid position of the organization.

Meaning of working capital

Capital required for a business can be classified under two main categories via,
1. Fixed Capital
2. Working Capital
Every business need funds for two purposes for its establishment and to carry out its
day- to-day operations. Long terms funds are required to create production facilities
through purchase of fixed assets such as p & m, land, building, furniture, etc.
Investments in these assets represent that part of firm’s capital which is blocked on
permanent or fixed basis and is called fixed capital. Funds are also needed for short-
term purposes for the purchase of raw material, payment of wages and other day – to-
day expenses etc. These funds are known as working capital. In simple words,
working capital refers to that part of the firm’s capital which is required for financing
short- term or current assets such as cash, marketable securities, debtors &
inventories. Funds, thus, invested in current assts keep revolving fast and are being
constantly converted in to cash and this cash flows out again in exchange for other
current assets. Hence, it is also known as revolving or circulating capital or short-term
capital.
Concepts of working capital:
There are two concepts of working capital:
1. Gross working capital
2. Net working capital
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those Assets which can convert in to cash within a short
period normally one accounting year.
Constituents of current assets

1. Cash in hand and cash at bank
2. Bills receivables
3. Sundry debtors
4. Short term loans and advances.
5. Inventories of stock as:
o Raw material

o Work in process
o Stores and spares
o Finished goods
6. Temporary investment of surplus funds.
7. Prepaid expenses
8. Accrued incomes.
9. Marketable securities.
In a narrow sense, the term working capital refers to the networking. Net working
capital is the excess of current assets over current liability.
NET WORKING CAPITAL = CURRENT ASSETS – CURRENTLIABILITIES.
Net working capital can be positive or negative. When the current assets exceed the
current liabilities are more than the current assets. Current liabilities are those
liabilities, which are intended to be paid in the ordinary course of business within a
short period of normally one accounting year out of the current assts or the income
business.
Constituents of current liabilities

1. Accrued or outstanding expenses.
2. Short term loans, advances and deposits.
3. Dividends payable.
4. Bank overdraft.
5. Provision for taxation, if it does not amt. to app. Of profit.
6. Bills payable.
7. Sundry creditors.
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital. Both the concepts have
their own merits. The gross concept is sometimes preferred to the concept of working
capital for the following reasons:
1. It enables the enterprise to provide correct amount of working capital at

correct time.

2. Every management is more interested in total current assets with which it has
to operate then the source from where it is made available.
3. It takes into consideration of the fact every increase in the funds of the
enterprise would increase its working capital.
4. This concept is also useful in determining the rate of return on investments in
working capital. The net working capital concept, however, is also important
for following reasons:
o It is qualitative concept, which indicates the firm’s ability to meet to its
operating expenses and short-term liabilities.
o IT indicates the margin of protection available to the short-term
creditors.
o It is an indicator of the financial soundness of enterprises.
o It suggests the need of financing a part of working capital requirement
out of the permanent sources of funds.
Working Capital Management

Working Capital Management is concerned with the problem arise in attempting to
manage the current assets, the current assets refer to the inter relationship that exist
between them. The term Current assets refers to those assets which in ordinary course
of business can be, or will be, turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm. The major
current assets are cash, marketable securities, account receivable and inventory.
Current liabilities ware those liabilities which intended at their inception to be paid in
ordinary course of business, within a year, out of the current assets or earnings of the
concern. The basic current liabilities are account payable, bank overdraft, and
outstanding expenses.
The goal of working capital management is to manage the firm’s current assets and
current liabilities in such way that the satisfactory level of working capital is
mentioned. The current should be large enough to cover its current liabilities in order
to ensure a reasonable margin of the safety.

Definition: -
According to Guttmann & Dougall-
“Excess of Current assets over current liabilities”.
According to park & Gladson-
“The excess of current assets of a business items owned to employees and others
(such as salaries & wages payable, accounts payable, taxes owned to government)”.
Need of Working Capital Management: -

The need for working capital gross or current assets cannot be over emphasized. As
already observed, the objective of financial decision making is to maximize the
shareholders wealth. To achieve this, it is necessary to generate sufficient profits can
be earned will naturally depend upon the magnitude of the sales among other things
but sales cannot convert into cash. There is a need for working capital in the form of
current assets to deal with the problem arising out of lack of immediate realization of
cash against goods sold. Therefore, sufficient working capital is necessary to sustain
sales activity. Technically this is refers to operating or cash cycle. If the Working
Capital Ratio Analysis and Estimation Company have certain amount of cash, it will
be required for purchasing the raw material may be available on credit basis. Then the
company has to spend some amount for labour and factory overhead to convert the
raw material in work in progress, and ultimately finished goods. These finished goods
convert in to sales on credit basis in the form of sundry debtors. Sundry debtors are
converting cash after expiry of finished goods, and sundry debtors and day to day
cash requirements. However, some part of current assets may be financed by the
liabilities also. The amount required to be invested in these current assets is always
higher than the funds available from current liabilities. This is the precise reason why
the needs for working capital arise. Gross working capital and Net working capital
there are two concepts of working capital management
1) Gross working capital:

Gross working capital refers to the firm’s investment I current assets. Current assets
are the assets which can be convert in to cash within year includes cash, short term
securities, debtors, bills receivable and inventory.
2) Net working capital

Net working capital refers to the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders which are expected to
mature for payment within an accounting year and include creditors, bills payable and
outstanding expenses. Net working capital can be positive or negative.
Efficient working capital management requires that firms should operate with some
amount of net working capital, the exact amount varying from firm to firm and
depending, among other things; on the nature of industries.net working capital is
necessary because the cash outflows and inflows do not coincide. The cash outflows
resulting from payment of current liabilities are relatively predictable. The cash
inflow is however difficult to predict. The more predictable the cash inflows are, the
less net working capital will be required the concept of working capital was, first
evolved by Karl Marx. Marx used the term ‘variable capital’ means outlays for
payrolls advanced to workers before the completion of work. He compared this with
‘constant capital’ which according to him is nothing but ‘dead labour’. This ‘variable
capital’ is nothing wage fund which remains blocked in terms of financial
management, in working-process along with other operating expenses until it is
released through sale of finished goods. Although Marx did not mention that workers
also gave credit to the firm by accepting periodical payment of wages which funded a
portioned of W.I.P, the concept of working capital, as we understand today was
embedded in his ‘variable capital’.
Types of working capital: -

The operating cycle creates the need for current assets (working capital) however the
need does not come to an end after the cycle is completed to explain this continuing
need of current assets a destination should be drawn between permanent and
temporary working capital.
1) Permanent working capital: -

The need for current assets arises, as already observed, because of the cash cycle. To
carry on business certain minimum level of working capital is necessary on continuous
and uninterrupted basis. For all practical purpose, this requirement will have to be met
permanent as with other fixed assets. This requirement refers to as permanent or fixed
working capital
2) Temporary working capital: -

Any amount over and above the permanent level of working capital is temporary,
fluctuating or variable, working capital. This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales
as result of seasonal changes.
The amount of working capital is depending upon the following factors:
1) Nature of business: -
Some businesses are such, due to their very nature, that their requirement of fixed
capital is more rather than working capital. These businesses sell services and not the
commodities and that too on cash basis. As such, no founds are blocked in piling
inventories and also no funds are blocked in receivables. E.g. public utility services like
railways, infrastructure-oriented project etc. Their requirement of working capital is
less. On the other hand, there are some businesses like trading activity, where
requirement of fixed capital is less but more money is blocked in inventories and
debtors.
2) Length of production cycle: -
In some business-like machine tools industry, the time gap Between the acquisitions of
raw material till the end of final production of finished products it is quite high. As such
amount may be blocked either in raw material or work in progress or finished goods or
even in debtors. Naturally there need of working capital is high.
3) Size and growth of business: -
In very small company the working capital requirement is quite high due to high
overhead, higher buying and selling cost etc. as such medium size business positively
has edge over the small companies. But if the business start growing after certain limit,
the working capital requirements may adversely affect by the increasing size.
4) Business/ Trade cycle: -
If the company is the operating in the time of boom, the working capital requirement
may be more as the company may like to buy more raw material, may increase the

production and sales to take the benefit of favorable market, due to increase in the sales,
there may more and more amount of funds blocked in stock and debtors etc. similarly in
the case of depressions also, working capital may be high as the sales terms of value
and quantity may be reducing, there may be unnecessary piling up of.
Operating cycle of Working capital.
Work in
Raw material
process
Operating cycle of
Finished goods Manufacturing enterprise
Cash
Sales Debtors
Explanation: -
The working capital requirement of a firm depends to a great extent upon the
operating cycle of the firm. The duration of the time required to complete the
sequence of events right from purchase of Raw material/goods for cash to the
realization of sales is called the Operating cycle or Working capital cycle. It can be
determined by adding the number of days required for each day required for each
stage in the cycle. In the case of manufacturing concern, working capital is required to
cater the following needs of business in order.

Raw materials are to be purchased for cash.

 Production process converts Raw Material in to work in progress.
 Work in progress is converted in to finish goods, during the course of time
through production process.
 Finished goods are converted in to accounts receivable through sale.
 Account receivables are realized into cash in due course of time.
The above operating cycle is repeated again and again over the period depending
upon the nature of the business and types of the product etc. The duration of the
operating cycle for the purpose of the estimating working capital is equal to the sum
of duration allowed by supplier.
Need for Working capital:

The need for working capital (gross) or current asset cannot be overemphasized.
Giving the objective of financial decision making to maximize shareholder’s wealth.
It is necessary to generate sufficient profits. The extent to which profit can be earned
will naturally depend, among other things, upon the magnitude of the sales. A
successful program is necessary for earning profits by any business enterprise.
However, sales do not convert in to cash instantly, there is invariably a time lag
between the sale of goods and the receipt of cash. Therefore, there is need for working
capital in the form of current asset to deal with the problem arising out of the lack of
immediate realization of cash against goods sold. Therefore, sufficient working
capital is necessary to sustain sales activity. Technically, this is referred to as the
operating or cash cycle. The operating can be said to be at the heart of the need of
working capital. The continuing flow from cash to supplier, to inventory, to accounts
receivable and back in to cash is what is called the operating cycle.
Permanent and Temporary Working capital:

Operating cycle creates the need for current asset (working capital). However, the
need does not come to an end after the cycle is completed. It continues to exist. To
explain this continuing need of current asset a distinction should be drawn between
permanent and temporary working capital.
Business activity does not come to an end after the realization of cash from customer.
For company, the process is continuous and hence the need for a regular supply of

working capital. However, the magnitude of working capital. However, the magnitude
of working capital required not constant, but fluctuating. To carry on business, a
certain minimum level of working capital are necessary on continuous and
uninterrupted basis. For all practical purposes this requirement has to be met
permanently as with other fixed assets. This requirement is referred to as permanent
or fixed asset working.
Determinants of working capital:

1. Business size and its nature:
Nature of business greatly influences the working capital requirements of an
enterprise. Thus, financial and trading enterprises require less of fixed assets but
require huge working capital investments. For example, a retailer has to carry large
stockers of a variety of goods to satisfy the varied and continuous needs and
requirements of his customers.
2. Manufacturing cycle:
Working affected by its manufacturing cycle as well. The cycle starts with the
purchase and use of raw material and ends when finished goods are produced. Thus
the longer the cycle the greater the companies’ working capital needs. To avoid this
an alternative manufacturing cycle should be adopted if it calls for shortest time span.
3. Fluctuations of business:
Fluctuations in business are of several types namely short period, seasonal and
cyclical etc. These fluctuations result in change in the demand of products of the
enterprise. This in turn results in change in working capital requirements of the
business. In the event upswing in the economy there will be increase in demand and
correspondingly increase in sales. With the result there will be more investments in
inventories and debtors will also increase.
4. Policy of production:
An enterprise as stated above nay adopt a constant policy of production to suit its
ends. But such a policy will expose the company to greater risks and inventory costs.
Therefore, the company may prefer to follow the policy of varying its production

schedules in accordance with the changes in its demand. Some concerns may utilize
their production capacities.
5. Credit policy of the company:

The working capital of an enterprise is also determined by its credit policy as it affects
the companies’ level of book debts. An enterprise formulates the terms of credit
followed by it towards its customers which of course is influenced by the norms set in
the similar policy on the merit of each individual case and thus it should have a
discretionary practice.
6.Credit Availability:
Credit terms granted to an enterprise by its customers also affect the requirements of
working capital. If liberal credit terms are available to the company it will require less
investment in its working capital. The availability of bank creditors also affects the
level of working capital needs of an enterprise. It will operate on less working capital
if bank credits are availed. to it easily and on favorable condition.
7. Activities of growth and expansion:

With the growth of a firm by way of increase in its sales and fixed assets the working
capital needs of it also increase. In fact, the increased working capital needs proceed
the growth in business activities. Thus, the increased working capital need not follow
the growth of the firm rather the growth follows it. As such for a growing firm there is
every need to make advance planning on continuous basis for working capital needs.
8. Margin of profit and profit appropriation:

Profit earning capacity of business enterprise varies from one another. This of course
depends much upon the quality of the product pricing, marketing strategies and
monopoly power or otherwise enjoyed by the enterprise. Different organizations some
earning high and others low profit margin. The volume of net profit earned is a source
of working capital.
9. Changes in price level:

There is direct impact of changes in price level on the working capital requirements of
an enterprise. This makes the job of the financial manager very important as he is
required to anticipate correctly this impact. Generally, a company will have to

maintain higher volume of working capital as a result of rise in price line. This is
because investments in current assets will increase because of price rise.
10. Operating Efficiency:

With optimum utilization of its resources a company can improve its operational
efficiency. Thus, will result in minimization of cost and maximization of returns.
When the company is able to control its operational costs, it can effectively contribute
towards its working capital. The operational efficiency of an enterprise improves the
use of its working capital about the pace of the cash cycle will be accelerated.
Current assets minus current liabilities. Working capital measures how much in
liquid assets a company has available to build its business. The number can be
positive or negative, depending on how much debt the company is carrying. In
general, companies that have a lot of working capital will be more successful since
they can expand and improve their operations. Companies with negative working
capital may lack the funds necessary for growth.
Positive working capital means that the company is able to pay off its short-term
liabilities. Negative working capital means that a company currently is unable
to meet its short-term liabilities with its current assets (cash, account receivable and
inventory) Also known as "net working capital", or the "working capital ratio".
If a company's current assets do not exceed its current liabilities, then it may run into
trouble paying back creditors in the short term. The worst-case scenario is
bankruptcy. A declining working capital ratio over a longer time period could also be
a red flag that warrants further analysis. For example, it could be that the company's
sales volumes are decreasing and, as a result, its accounts receivables number
continues to get smaller and smaller.
Working capital also gives investors an idea of the company's underlying operational
efficiency. Money that is tied up in inventory or money that customers still owe to the
company cannot be used to pay off any of the company's obligations. So, if a
company is not operating in the most efficient manner (slow collection), it will show
up as an increase in the working capital. This can be seen by comparing the working
capital from one period to another; slow collection may signal an underlying problem
in the company's operations.

CHAPTER – 2
RESEARCH METHODOLOGY

NEED OF THE STUDY

During the post –liberalization are the worlds assail as economic India’s scenario has
shown a great progress and is growing with increased phase this has necessitated the
complex and efficient ways of management .thinking practically the main concern is
of the influence of external environment on business providing a modern dimension to
business to management .they find solution for many problems in the aspect of
financial analysis .financial establishes inter relationship that exists among. The
different items appeared in the financial statements, which are effectively helpful to
describe the company should monitor key indication of operating performance and
where possible must compare, itself with the competitors in the industry.
A systematic financial analysis of accounting figure helps to analysis the probable
caused relationship among different items after analyzing scrutinizing the past result
which helps the management to prepare budgets, to formulate company policy and to
prepare future plan of action. It focuses on company’s relative performance in sales
growth margins and assets management. It is a simple tool where by a company can
make its internal audit to evaluate internal strengths and weakness of the part of the
strategic planning.

OBJECTIVES OF THE STUDY

Study of the working capital management is important because unless the working
capital is managed effectively, monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot earn
profits and increase its turnover. With this primary objective of the study, the
following further objectives are framed for a depth analysis.
1. To study the working capital management of SHRIRAM CHITS COMPANY
LTD
2. To study the optimum level of current assets and current liabilities of the
company.
3. To study the liquidity position through various working capital related ratios.
4. To study the working capital components such as receivables accounts, cash
management, Inventory position.
5. To study the way and means of working capital finance of the of SHRIRAM
CHITS COMPANY LTD
6. To estimate the working capital requirement of SHRIRAM CHITS COMPANY
LTD
7. To study the operating and cash cycle of the company.

SCOPE OF THE STUDY

 Working capital management implicates the administration of current assets as
well as current liabilities.
 The scope of the study is identified after and during the study is conducted.
 The study of working capital is based on tools like trend Analysis, Ratio
Analysis, working capital leverage, operating cycle etc.
 Further the study is based on last 3 years Annual Reports of SHRIRAM CHITS
COMPANY LTD
 Even factors like competitor’s analysis, industry analysis were not considered
while preparing this project.
 Firms with too few currents assets may incur shortages and difficulties in
maintaining smooth operations.

LIMITATIONS OF THE STUDY

Following limitations were encountered while preparing this project:
1) Limited Data: -
This project has completed with annual reports; it just constitutes one part of data
collection i.e. secondary. There were limitations for primary data collection because
of confidentiality.
2) Limited Period: -
This project is based on three-year annual reports. Conclusions and recommendations
are based on such limited data. The trend of last three year may or may not reflect the
real working capital position of the company
3) Limited Area: -
Also, it was difficult to collect the data regarding the competitors and their financial
information. Industry figures were also difficult to get.
5) Type Data Used for This Project: -
This project is completely based on secondary data collected from various sources
like internet, books etc.

RESEARCH DESIGN:
TYPES OF DATA COLLECTION
Data can be defined as the quantitative or qualitative values of a variable. Data is

plural of Datum which literally means to give or something given. Data is thought to
be the lowest unit of information from which other measurements and analysis can be
done. Data can be numbers, images, words, figures, facts or ideas. Data in itself
cannot be understood and to to get information from the data one must interpret it into
meaningful information. There are various methods of interpreting data. Data sources
are broadly classified into primary and secondary data.
IMPORTANCE OF DATA AND DATA COLLECTION:
Data is one of the most important and vital aspect of any research studies. Researches
conducted in different fields of study can be different in methodology but every
research is based on data which is analyzed and interpreted to get information.
Data is the basic unit in statistical studies. Statistical information like census,
population variables, health statistics, and road accidents records are all developed
from data.
Data is important in computer science. Numbers, images and figures in computer are
all data.

TYPES OF DATA
Primary Data:
Data that has been collected from first-hand-experience is known as primary data.
Primary data has not been published yet and is more reliable, authentic and objective.
Primary data has not been changed or altered by human beings; therefore, its validity
is greater than secondary data.
Importance of Primary Data:

Importance of Primary data cannot be neglected. A research can be conducted without
secondary data but a research based on only secondary data is least reliable and may
have biases because secondary data has already been manipulated by human beings.
In statistical surveys it is necessary to get information from primary sources and work
on primary data: for example, the statistical records of female population in a country
cannot be based on newspaper, magazine and other printed sources. One such sources
are old and secondly, they contain limited information as well as they can be
misleading and biased.
Validity:
Validity is one of the major concerns in a research. Validity is the quality of a
research that makes it trustworthy and scientific. Validity is the use of scientific
methods in research to make it logical and acceptable. Using primary data in research
can improves the validity of research. Firsthand information obtained from a sample
that is representative of the target population will yield data that will be valid for the
entire target population.

Authenticity:
Authenticity is the genuineness of the research. Authenticity can be at stake if the
researcher invests personal biases or uses misleading information int he researches.
Primary research tools and data can become more authentic if the methods chosen to
analyze and interpret data are valid and reasonably suitable for the data type. Primary
sources are more authentic because the facts have not been overdone. Primary source
can be less authentic if the source hides information or alters facts due to some
personal reasons. There are methods that can be employed to ensure factual yielding
of data from the source.
Reliability:
Reliability is the certainty that the research is enough true to be trusted on. For
example, if a research study concludes that junk food consumption does not increase
the risk of cancer and heart diseases. This conclusion should have to be drawn from a
sample whose size, sampling technique and variability is not questionable. Reliability
improves with using primary data. In the similar research mentioned above if the
researcher uses experimental method and questionnaires the results will be highly
reliable. On the other hand, if he relies on the data available in books and on internet,
he will collect information that does not represent the real facts.
Sources of Primary Data:

Sources for primary data are limited and at times it becomes difficult to obtain data
from primary source because of either scarcity of population or lack of cooperation.
Regardless of any difficulty one can face in collecting primary data; it is the most
authentic and reliable data source. Following are some of the sources of primary data.
Experiments:
Experiments require an artificial or natural setting in which to perform logical study
to collect data. Experiments are more suitable for medicine, psychological studies,
nutrition and for other scientific studies. In experiments the experimenter has to keep
control over the influence of any extraneous variable on the results.
Survey:

Survey is most commonly used method in social sciences, management, marketing

and psychology to some extent. Surveys can be conducted in different methods.
 Questionnaire: is the most commonly used method in survey. Questionnaires
are a list of questions either open-ended or close -ended for which the
respondent give answers. Questionnaire can be conducted via telephone, mail,
live in a public area, or in an institute, through electronic mail or through fax
and other methods.
 Interview: Interview is a face-to-face conversation with the respondent. In
interview the main problem arises when the respondent deliberately hides
information otherwise it is an in-depth source of information. The interviewer
can not only record the statements the interviewee speaks but he can observe
the body language, expressions and other reactions to the questions too. This
enables the interviewer to draw conclusions easily.
 Observations: Observation can be done while letting the observing person
know that he is being observed or without letting him know. Observations can
also be made in natural settings as well as in artificially created environment.
SECONDARY DATA:
Data collected from a source that has already been published in any form is called as
secondary data. The review of literature in nay research is based on secondary data.
Mostly from books, journals and periodicals.
IMPORTANCE OF SECONDARY DATA:

Secondary data can be less valid but its importance is still there. Sometimes it is
difficult to obtain primary data; in these cases, getting information from secondary
sources is easier and possible. Sometimes primary data does not exist in such situation
one has to confine the research on secondary data. Sometimes primary data is present
but the respondents are not willing to reveal it in such case too secondary data can
suffice: for example, if the research is on the psychology of transsexuals first it is
difficult to find out transsexuals and second they may not be willing to give
information you want for your research, so you can collect data from books or other
published sources.
Sources of Secondary Data:

Secondary data is often readily available. After the expense of electronic media and
internet the availability of secondary data has become much easier.
Published Printed Sources: There is variety of published printed sources. Their

credibility depends on many factors. For example, on the writer, publishing company
and time and date when published. New sources are preferred and old sources should
be avoided as new technology and researches bring new facts into light.
 Books: Books are available today on any topic that you want to research. The
use of books starts before even you have selected the topic. After selection of
topics books provide insight on how much work has already been done on the
same topic and you can prepare your literature review. Books are secondary
source but most authentic one in secondary sources.
 Journals/periodicals: Journals and periodicals are becoming more important as
far as data collection is concerned. The reason is that journals provide up-to-
date information which at times books cannot and secondly, journals can give
information on the very specific topic on which you are researching rather
talking about more general topics.
 Magazines/Newspapers: Magazines are also effective but not very reliable.
Newspaper on the other hand are more reliable and in some cases the
information can only be obtained from newspapers as in the case of some
political studies.
Published Electronic Sources:

As internet is becoming more advance, fast and reachable to the masses; it has been
seen that much information that is not available in printed form is available on
internet. In the past the credibility of internet was questionable but today it is not. The
reason is that in the past journals and books were seldom published on internet but
today almost every journal and book is available online. Some are free and for others
you have to pay the price.
 E-journals: e-journals are more commonly available than printed journals.

Latest journals are difficult to retrieve without subscription but if your
university has an e-library you can view any journal, print it and those that are
not available you can make an order for them.

 General websites; Generally, websites do not contain very reliable information

so their content should be checked for the reliability before quoting from
them.
 Weblogs: Weblogs are also becoming common. They are actually diaries
written by different people. These diaries are as reliable to use as personal
written diaries.
Unpublished Personal Records:
Some unpublished data may also be useful in some cases.
CHAPTER – 3
INDUSTRY & COMPANY
PROFILE

INDUSTRY PROFILE:
‘Chit’ means a transaction where chit, chit fund, chatty, kury or by any other name or
under which a person enters into an agreement with a specified number of persons
that every of them shall subscribe a certain sum of money by way of installments over
definite period and each such subscriber shall, in turn, as determined by lot or by
auction or by tender or in such other manner as may be specified in the chit
agreement, the entitle to the price amount.
Chit fund in a contract between the foreman, as the promoter is called, and the
subscribers, who joined voluntarily. It is a financial system under which the
periodical and regular saving of a group of subscribers are made available to each
subscriber in turn on an agreed basis.
A specified amount every month of a specific period. The pooled funds every month
are offered to the subscribers at monthly auctions and the subscriber who bids for the
highest discount is declared the prizewinner and given the price amount on proper
security. A priced winner also continued to pay the subscriptions till termination of
chit. The amount foregone as discount less foreman’s commission is distributed
among the subscribers as dividend.

COMPANY PROFILE:
A multi-locational, multi-dimensional Rs 4000 organization, serving 36 lacks
customers from its all India network of 580 branches. The group is a player in the
financial services sector. It has successfully raised investments in access of Rs 1400
crores and has financed over 50,000 trucks amounting to Rs 1400 crores.
At the SHRIRAM “They add a customer every 3 seconds.” An end result achieved
through a single focus of innovation…. Developing products and services strategies
based on a customer need. Financially, the SHRIRAM CHITS has a strong
understanding of the fundamentals, the spirit of which is aptly captured in its
corporate slogan “We understand money well. and people even better”, SHRIRAM
today has acquired a significant national present in the field of financial services. It
has also successfully diversified into industry transport and property development.
In the true spirit of globalization, SHRIRAM has numerous international tie-ups-
Mitsubishi and Arai seisakusho-Japan, Emson research in & Tower Tech INC-USA,
ITT way ASSAUTO-Italy and Cylinco group-Srilanka among others. And every of
them is a success story with a tremendous potential to further entrench SHRIRAM’S
credentials and interest in the subcontinent.
The products / Services of the group companies can be grouped the following
categories
FINANCIAL SERVICES:
 Truck Financing
 Online Share Trading
 Insurance

 Chit Funds
Truck Financing: -
SHRIRAM investments Ltd (SIL), SHRIRAM Transport Finance Company
Ltd (STFC) & SHRIRAM City Union Finance Ltd (SCUFF) are three major truck
financing companies of SHRIRAM group. With loan disbursements of over Rs 1400
crore in truck financing with a recovery rate of 98.6 % & an interest earning of 27.4%
we enjoy a leadership position in the truck financing sector.
Online Share Trading:

In sight share brokers (P) Ltd, (member national stock exchange) a company of the
group provides online trading of shares and stocks.
Insurance:
Insurance marketing as tied up with major national / international players to offer the
best customaries insurance solutions for the retail customers.
Chit funds:
The chit fund is a form of organizing credit on a co-operative basis. SHRIRAM
CHITS, established in 1974, with a small investment of Rs 0.1 million, has grown to
become the largest organization of its kind in India. Despite the huge size and spread
of operation, the collection efficiency is of a very high order (99%), mainly due to the
excellence of the managerial culture that has been created over the last 28 years.
SHRIRAM CHITS today has evolved into a massive movement, which touches lives
of the millions of subscribers satisfying their diverse credit requirements.
PRODUCT PROFILE:
The purpose of the chits is to inculcate and encourage the habit of thrift and there by
extend the compulsory savings.
Now a days there are so many other chit fund companies also existing in the market.
They are SHRIRAM CHITS, SAHARA INDIA, SUCHITRA CHITS and so on.
SRIRAM CHITS is having nice position in the rural sector and captured better
position compared with other chits.

CHAPTER 6
ANALYSIS OF WORKING
CAPITAL RATIO

ANALYSIS OF WORKING CAPITAL RATIO: -

1. WORKING CAPITAL: -
Working capital = current assets – current liabilities
Current Asset: -
Inventories + Sundry Debtors + Cash &Bank Balance+ Other Current Assets + Loan
& Advance.
Current Liabilities & Provisions:
Creditors + Advances + Overdrawn Bank Balance + Other Liabilities + Interest
Accrued but not due on loan + Fringe Benefit Tax + Taxation + Employee Benefits +
Excise Duties
Total Working Capital = Current assets - Current liabilities
No. of items
Year Total current Total current Total working
assets liabilities capital
( in lakhs) (in lakhs) (in lakhs)
2016-2017 10,44,304 92375 9,51,929
2017-2018 16,74,084 1,64,330 15,09,754
2018-2019 24,17,430 2,55,178 21,62,252

3000000
2500000
2000000
Total current assets
1500000
Total current liabilities
1000000 Total working capital
500000
0
2016-2017 2017-2018 2018-2019
2) CURRENT RATIO: -
Current ratio = Current assets
Current liabilities
Current Asset:
Inventories + Sundry Debtors + Cash &Bank Balance+ Other Current Assets + Loan
& Advance.
Current Liabilities & Provisions:
Creditors + Advances + Overdrawn Bank Balance + Other Liabilities + Interest
Accrued but not due on loan + Fringe Benefit Tax + Taxation + Employee Benefits +
Excise Duties.
1) Current Ratio: -
This ratio is the measure of general liquidity and is most widely used to make the
analysis of a short-term financial position or liquidity of a firm. The higher ratio
indicates the firm is liquid and has the ability to pay its current obligations in time.
Current ratio = Current Assets

Current Libilities
(No. of items)
Year Total current Total current Ratio

Assets Liabilities

(in lakhs) (in lakhs) (No. of items)
2016-2017 10,44,304 92,375 11
2017-2018 16,74084 1,64,330 10
2018-2019 24,17,430 2,55178 9
3000000
2500000
2000000
total current assets
1500000
total current liabilities
1000000 current ratio
500000
0
2016-2017 2017-2018 2018-2019
Inference:-
Current ratio shows the short-term financial position of the business. This ratio
measures the ability of the business to pay its current liabilities. The ideal current ratio
is supposed to be 2:1 i.e. in case, it is more than 2:1, it indicates idleness of working
capital, STFC’s Ratio is also idle.

3) Working Capital Turnover Ratio:

Working capital turnover ratio indicates the velocity of utilization of net working
capital. This ratio indicates the number of times the working capital is turned over in
the course of the year. This ratio measures the efficiency with which the working
capital is used by the firm. A higher ratio indicates efficient utilization of working
capital and a low ratio indicates otherwise. But a very high working capital turnover is
not a good situation for any firm.
Calculation of Working Capital Turn over Ratio:
Net Sale
= current assets – Current Liabilities
Year Net sales Total Total current Working
(in lakes) current Liabilities Capital
Assets (in lakes) Turn over
(in lakes) Ratio:
2016-2017 1,39,630 10,44,304 92,375 0.14
2017-2018 2,43,906 16,74,084 1,64,330 .16
2018-2019 3,65,978 24,17,430 2,55,178 .16

4) QUICK RATIO: -
Quick assets are defined as current assets excluding inventors. The quick ratio also
called the acid asset ratio is fairly stringent measure of liquidity. It is based on that
current assets when are inventories are excluded from current assets because
inventory is deemed to be the least liquid comparative of current assets. The normal
level for such ratio is supposed to be 1:1. The quick ratio positions of the company are
as under:
Quick ratio = quick assets
quick liability
Quick assets:
Current asset – stock – prepaid expenses
Quick liability:
Current liability – bank overdraft
No of item
Year Quick assets Quick liability Quick ratio
(in lakes) (in lakes) (in lakes)

2016-2017 10,44,304 92,375 11.30
2017-2018 16,74,081 1,64,330 10.18
2018-2019 24,17,304 2,55,175 9.47

3000000
2500000
2000000
Quick assets
1500000
Quick liabilities
1000000 Quick Ratio
500000
0
2016-2017 2017-2018 2018-2019
Inferences;
Quick ratio also like current ratio shows improvement. But does consistency
improvement. However, since 2016-17 to 2018-19 the company indicates that it
margins towards does not improvement. Quick ratio also like currents ratio show that
a negative trend quick ratio varied from 11.30 to 9.47 over the year. The negative
trend in ratio means that liquidity position of the company is not improving.
5) Debtor Turnover Ratio: -

This ratio compares the size of firms sells the size of its uncollected bills from
customers. Debtor turnover indicates the efficiency of the company. The low ratio
indicates difficulty faced by company in collection of bills a large receivables
balance. A strict policy well results in low receivable balance high ratio. It determines
the rate of which cash is remitted by the debtors.
Debtors turnover ratio = Turnover
Debtor
No of item
Year Sales (turnover) Account Ratio

receivable (debtor)
2016-2017 1,39,630 _ 1,39,630
2017-2018 2,43,906 248.11 983.05
2018-2019 3,65,978 399.24 916.68
400000
350000
300000
250000
200000 Sales (turnover)
150000 Account recivable
100000 (debtor)
50000 Debtors turnover
0 ratio
6) AVERAGE COLLECTION PERIOD: -

Average collection period: - Debtors x 365

Turnover
Year Days
2016-2017 0
2017-2018 0.37
2018-2019 0.39
Days
0.45
0.4
0.35
0.3
Days
0.25
0.2
0.15
0.1
0.05
0
2016-2017 2017-2018 2018-2019
FINDINGS
The debtor turnover ratio shows that during the year 2016-2017 to 2018-2019
indicate that it mentions low debtor. However, the ratio better is the performance.
Higher the percentage of debtors to sale larger is the period of collections,
which indicates very liberal & inefficient credit & collection performance. This
certainly delays the collection of cash impair the firm’s debt rating ability. The chance
of bad debts losses is also increase.

CHAPTER 7
SUGGESTION & CONCLUSION

SUGGESTIONS:
1) Level of working capital: -

This should be maintained by a careful study of the movements of working capital in
successive periods. If a management can develop a pattern in these movements, this
pattern would serve as a guide to its changing requirements in relation to certain
decisions which are made from time to time.
2) Structural Health: -
The relative health of the various components of the working capital should be
considered from the point of view of liquidity. It is necessary to draw structural
relationships in respect of each component constituting the current assets.
3) Circulation: -
This is an important feature of the liquid position and involves the natural activity
cycle of an enterprise. Ratios may be calculated to show the average period required
for the conversion of raw materials into finished goods, finished goods into sales, and
sales into cash.
4) Liquidity: -
A more comprehensive test to measure liquidity may be adopted by using the
following three ratios, each expressed as a percentage of:
a) Working capital to current assets
b) Stocks to current assets
c) Liquid resources to current assets.
5) The company must concentrate more on cost reduction either than cost control.
6) For proper inventory management.

a) To provide a check against losses of materials through carelessness for
pilferage.
b) To enable the management to make costs and consumption comparisons
between operations and periods.
c) To provide a perpetual inventory value and consistent and reliable basis for the
preparation of financial statements.

7) For proper cash management

a) Planning of cash requirements
b) Effective control of cash flow
c) Productive utilization of excess funds
d) To search for the optimum cash probable overstates the company's
capabilities.
8) The company must be able to implement to new better sophisticated methods of

production to old and obsolete methods of production.

CONCLUSION:
The statement of working capital for 3 years shows that there is an adequate rate of
increase in working capital and it corresponds to rate of increase in turnover. Major
reasons for increase in working capital
1. Improvement in profitability.
2. Infusion of long-term fund by way of long-term working capital loan.
In comparative analysis, the performance of a firm at a single point of time relative
either to other firm in the industry to some other generally accepted industry standard
is studied.
To utilize available storage space, but prevent stock levels from exceeding space
availability.
Working capital represents the volume of current assets advances from long term
resource. It is that part of a firm's current assets which will stay with working capital
is a measure of a firm's immunity to financial squeeze.
Working capital is the difference between the inflow and outflow of funds. In other
words, it is the net cash inflow. It is defined as the excess of current assets over
current liabilities and provisions.

BIBLIOGRAPHY

BIBLIOGRAPHY
Following books were referred for carrying out the project: -
 Financial Management-Khan M.Y./Jain P.K.
 Financial Management-I.M. Pande
 Financial Management-S.M. Inamdar
 Management Accounting-M.G. Patkar
 Business Research Methods- William Zikmund
Research Book-
Management Accounting & Financial Analysis – Board of Studies the Institute of
Chartered Accountants of India
Annual Reports from 2016-2017, 2017-2018, 2018-2019 of Shri-Ram
Chit fund Company
Following websites were referred: -

1) www.shriramchits.in
2) www.linkedin.com/companies/scfc
3) www.scfc.com
4) www.zaubacorp.com

Working Capital Management at Shriram Chits

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Working Capital Management with ref to Shriram Chits

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 1

A business cannot run on fixed assets alone. A lot of money has to be

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 2

Definition of Working capital Management:

“Working Capital is descriptive of that capital which is not fixed, but

Components of Working Capital.

WORKING CAPIAL = CURRENT ASSETS – CURRNT LIABILITIES

Gross working capital:

Net working capital:

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 3

Meaning of working capital

Constituents of current assets

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 4

Constituents of current liabilities

1. It enables the enterprise to provide correct amount of working capital at

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 5

Working Capital Management

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 6

Need of Working Capital Management: -

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 7

2) Net working capital

Types of working capital: -

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 8

2) Temporary working capital: -

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 9

Operating cycle of Working capital.

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 10

Raw materials are to be purchased for cash.

Need for Working capital:

Permanent and Temporary Working capital:

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 11

Determinants of working capital:

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 12

5. Credit policy of the company:

7. Activities of growth and expansion:

8. Margin of profit and profit appropriation:

9. Changes in price level:

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 13

10. Operating Efficiency:

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 14

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 15

NEED OF THE STUDY

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 16

OBJECTIVES OF THE STUDY

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 17

SCOPE OF THE STUDY

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 18

LIMITATIONS OF THE STUDY

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 19

TYPES OF DATA COLLECTION

Data can be defined as the quantitative or qualitative values of a variable. Data is

IMPORTANCE OF DATA AND DATA COLLECTION:

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 20

Importance of Primary Data:

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 21

Sources of Primary Data:

GATES INSTITUTE OF TECHNOLOGY GOOTY Page 22

Survey is most commonly used method in social sciences, management, marketing

IMPORTANCE OF SECONDARY DATA:

Sources of Secondary Data:

Published Printed Sources: There is variety of published printed sources. Their

Published Electronic Sources:

 E-journals: e-journals are more commonly available than printed journals.