PROJECT REPORT

“WORKING CAPITAL”

BY

(KARAN SAIKIA)

(G-172100226)

THE B.B.A PROGRAM (2017-20)

H.N.B Garhwal University, Srinagar

GarhwalUttarakhand

Doon College of Agriculture Science & Technology

Camp Road Selaqui, Dehradun(UK)

Submitted by: Submitted to:

Mr. Karan Saikai Mr. Anil Pundir
BBA VIth Semester (Asst. Professor)

Doon College of Agri. Science & Tech. (Department of Business Management

ACKNOWLEDGEMENT

1
This project report is a result of endless effort & immense degree of toil by many
great minds.

I would like to thank all those people who graciously helped me by sharing their

valuable time, experience & knowledge Mr. Mukul Chinchalkar who have

extended their sincere help in accomplishing my project. I really want to

thank the above mentioned persons for their continuous support & guidance

during the project, with out their help my project would have been a distant

dream.

I would like to dedicate this work to my revered institute Doon College of Agri.
Science & Technology where I am getting the shape of future business manager.

I express my sincere gratitude to honorable Mr. R.R Dwivedi Principal of

D.C.A.S.T for their support and guidance.

I also Thankful to Mr. Anil Pundir Asst.Professor (Department of Business

Management) D.C.A.S.T for their guidance on the ground of which I have acquired

a new field of knowledge Lastly, I express my gratitude to my Parents and Friends

who financed this project and have been a moral support to me during this project.

2
I MR KARAN SAIKIA hereby declare that the term paper entitled

“WORKING CAPITAL” submitted to Doon PG Agriculture Science

and Technology, Selaqui, Dehradun for partial fulfillment of the

requirement of the award of degree of “ BECHALORE OF BUSINESS

ADMISNISTRATION course is record of

bonafide work carried out by me.

S.NO. Chapters Page.no.

3
1
5 to 14
Introduction
2
Introduction of topic 15 to 38

3
38
Objectives of study
4
40 to 62
Research methodology
5
46 to 62
Data analysis
6
63
Finding
7
Suggestion 64

8
Limitation of the study 65

9
Conclusion
10
Bibliography 66 to 67

11
69
Annexure

4
 INTRODUCTION

HISTORY
The UEF
5
The United Engineering Foundation Inc. (UEF) is the successor organization to the

United Engineering Society (UES) which was founded in 1904 with the generous

support of Andrew Carnegie.

The members of the UEF are the American Institute of Chemical Engineers (AIChE),

American Institute of Mining, Metallurgical and Petroleum Engineers (AIME), American

Society of Civil Engineers (ASCE), American Society of Mechanical Engineers, and

Institute of Electrical and Electronics Engineers (IEEE).

Learn More About the Founder Societies >>

VISION: To advance the engineering arts and sciences for the welfare of humanity.

MISSION: To support engineering and education by, among other means, making grants.

The original objective of the UES was to provide a united home for the major engineering

societies of the day. The Engineering Societies Building at 29 West 39th Street in New

York City, the first such home, was completed in 1906 and was followed by the United

Engineering Center at 345 E. 47th Street in 1960. In 1998, the societies (ASCE , AIME,

ASME, IEEE, AIChE) moved to their current locations.

The libraries of the participating societies were maintained separately on a cooperative

basis until 1915 when the Engineering Societies Library (ESL) was formed. ESL grew over

the years to become a world-renowned institution housing 500,000 volumes, handling

60,000 requests for service and information per year, and delivering more than one million

photocopy pages per year. ESL was proud of its service to engineering, but began to realize

in the early 1990’s that even greater service could be provided in the future by a merger

with one or more of the major US technical libraries. The search for such a partner led to

6
Linda Hall Library of Kansas City — a research library of science, engineering, and

technology equal in size to ESL and with far greater resources. The two collections were

merged in Kansas City and a modernized information center run jointly by ESL and LHL

was housed in the United Engineering Center until its closure in 1998. All services

previously available from ESL are now available through LHL.

Historical Timeline

Having recently been awarded a commendation from the 100 Year Association, the United

Engineering Foundation has a long and treasured history of enhancing the engineering

profession. Learn more about its past through this timeline feature.

The UEF Story

The United Engineering Foundation Inc. (UEF) is the successor organization to the

United Engineering Society (UES) which was founded in 1904 with the generous

support of Andrew Carnegie.

7
The members of the UEF are the American Institute of Chemical Engineers (AIChE),

American Institute of Mining, Metallurgical and Petroleum Engineers (AIME), American

Society of Civil Engineers (ASCE), American Society of Mechanical Engineers, and

Institute of Electrical and Electronics Engineers (IEEE).

Learn More About the Founder Societies >>

VISION: To advance the engineering arts and sciences for the welfare of humanity.

MISSION: To support engineering and education by, among other means, making grants.

The original objective of the UES was to provide a united home for the major engineering

societies of the day. The Engineering Societies Building at 29 West 39th Street in New

York City, the first such home, was completed in 1906 and was followed by the United

Engineering Center at 345 E. 47th Street in 1960. In 1998, the societies (ASCE , AIME,

ASME, IEEE, AIChE) moved to their current locations.

The libraries of the participating societies were maintained separately on a cooperative

basis until 1915 when the Engineering Societies Library (ESL) was formed. ESL grew over

the years to become a world-renowned institution housing 500,000 volumes, handling

60,000 requests for service and information per year, and delivering more than one million

photocopy pages per year. ESL was proud of its service to engineering, but began to realize

in the early 1990’s that even greater service could be provided in the future by a merger

with one or more of the major US technical libraries. The search for such a partner led to

Linda Hall Library of Kansas City — a research library of science, engineering, and

technology equal in size to ESL and with far greater resources. The two collections were

merged in Kansas City and a modernized information center run jointly by ESL and LHL

8
was housed in the United

United Engineering is home to state of the art CNC plasma cutting equipment. We are able

to satisfy all your cutting requirements with unbeatable accuracy and efficiency. From

large scale commercial cutting to a custom BBQ plate for the backyard deck, no job is too

big or too small.

Site works & mobile welding

9
As part of our service United Engineering is able to offer trade-qualified staff for all

site works. Our team includes Fabricators, Welders, Fitters and a range of ancillary

staff as required. This means better quality work and more knowledge on site. Our

reliable mobile welding service happily complete large and small jobs.

Machining, threading and milling

United Engineering offer wide variety of different milling operations and machines,

on scales from small individual parts to large, heavy-duty milling operations. We also

offer a range of threading methods.

Labour hire

As part of a full suite of industry services, United Engineering is pleased to offer

labour hire for short term, long term or seasonal jobs with your choice of a variety of

equipment. This means you hire our contractors to work on your site, under your

direction. We take the sting out of engaging Fabricators, Welders, Fitters, Assistants

and Truck Drivers. With a United Engineering labour hire solution, you can be

assured you will be getting top notch staff, available at short notice.

Stockists of mild, stainless steel plate and hardened plate

We have a wide range of steel available for purchase, including mild, stainless and

hardened plate steel in many sizes.

United Engineering is a full-service fabrication and machine shop and has been

servicing the industry since 1921. Key to our success is our experience, the size and

versatility of our operations, and our direct access to water that allows for the

convenient and cost-effective transportation of completed products. We have the

10
facilities and the tools to build and ship large-scale fabrication projects via barge

anywhere.

Our 40,000 square foot shop in Sidney, BC is strategically located adjacent to

Victoria International Airport. Through a service agreement with the Airport

Authority, we utilize the runway outside of business hours to move our fabrications to

barge loading facilities on Patricia Bay. Our 7,500 square foot Victoria, BC operation

on the upper harbour includes access to Point Hope Maritime’s docking facility and

marine turntable. Once loaded, the Salish Sea and Pacific Ocean are the marine

highways. Our clients value our horsepower, breadth of expertise and trusted

reputation for uncompromised service and quality. While large-scale fabrication

projects represent a significant part of our operation today, we never forget where we

came from and take great pride in supporting the business needs of our local clientele.

Our word counts and our handshake matters.

Wikipedia is an online free-content encyclopedia project that aims to help create a

world in which everyone can freely share in the sum of all knowledge. It is supported

by the Wikimedia Foundation and based on a model of openly editable content. The

name "Wikipedia" is a blending of the words wiki (a technology for creating

collaborative websites, from the Hawaiian word wiki, meaning "quick") and

encyclopedia. Wikipedia's articles provide links designed to guide the user to related

pages with additional information.

Wikipedia is written collaboratively by largely anonymous volunteers who write

without pay. Anyone with internet access can write and make changes to Wikipedia

articles, except in limited cases where editing is restricted to prevent disruption or

vandalism.

11
Since its creation on January 15, 2001, Wikipedia has grown into the world's largest

reference website, attracting 1.5 billion unique visitors monthly as of March 2020. It

currently has more than 54 million articles in more than 300 languages, including

6,147,486 articles in English with 127,156 active contributors in the past month.

The fundamental principles by which Wikipedia operates are the five pillars. The

Wikipedia community has developed many policies and guidelines to improve the

encyclopedia; however, it is not a formal requirement to be familiar with them before

contributing.

Anyone is allowed to add or edit words, references, images and other media here.

What is contributed is more important than who contributes it. To remain, the content

must be free of copyright restrictions and contentious material about living people. It

must fit within Wikipedia's policies, including being verifiable against a published

reliable source. Editors' opinions and beliefs and unreviewed research will not remain.

Contributions cannot damage Wikipedia because the software allows easy reversal of

mistakes and many experienced editors are watching to ensure that edits are

improvements. Begin by simply clicking the Edit button at the top of any editable

page!

Wikipedia is a live collaboration differing from paper-based reference sources in

important ways. It is continually created and updated, with articles on new events

appearing within minutes, rather than months or years. Because everybody can help

improve it, Wikipedia has become more comprehensive than any other encyclopedia.

Besides quantity, its contributors work on improving quality, removing or repairing

misinformation and other errors. Over time, articles tend to become more

comprehensive and balanced. However, because anyone can click "edit" at any time

and add content, any article may contain undetected misinformation, errors, or

12
vandalism. Readers who are aware of this can obtain valid information, avoid recently

added misinformation (see Wikipedia:Researching with Wikipedia), and fix the

article. Engineering Center until its closure in 1998. All services previously available

from ESL are now available through LHL

Company Details:

Company Name: United Engineering Services

(Material Handling Equipments)

Address: Plot No. K-1, Sector – ‘A’,

Sanver Road, Industrial Estate,

Indore (M.P) – 452015

Telephone: 0731-6538578, 272030

Mobile: 09826077201

Email: solidconvey@indiatimes.com
We are specialists and provide expertise and have the appropriate equipment to

deliver extensive steel engineering services.

Industrial maintenance and projects

United Engineering can deliver a strategy to help your business optimise its

equipment through regular maintenance. Our trade-qualified staff are able to install,

13
troubleshoot and repair industrial machinery in a range of settings.

Fabrication and welding of mild steel, stainless steels and aluminium

Our team of highly trained, experienced, specialised welders can meet all specified

job requirements. We can fabricate and install custom industrial components. Our

expertise includes mild steel, stainless steels and aluminium.

CNC plasma and flame profile cutting of mild & stainless steels

14
INTRODUCTION
OF
TOPIC

WORKING CAPITAL
15
Working capital management is concerned with the problems arise in

attempting to manage the current assets, the current liabilities and 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 there 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, bill payable, bank over-draft,

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.

In a perfect world, there would be no necessity for current assets and

liabilities because there would be no uncertainty, no transaction costs,

16
information search costs, or production and technology constraints. The unit

cost of production would not vary with the quantity produced. Borrowing and

lending rates shall be same. Capital, labour, and product market shall be

perfectly competitive and would reflect all available information, thus in such

an environment, there would be no advantage for investing in short term assets.

However the world we live is not perfect. It is characterized by

considerable amount of uncertainty regarding the demand, Market price,

quality and availability of own products and those of suppliers. There are

transaction costs for purchasing or selling goods or securities. Information is

costly to obtain and is not equally distributed. There are spreads between the

borrowings and lending rates for investments and financing's of equal risks.

Similarly each organization is faced with its own limits on the production

capacity and technologies it can employ there are fixed as well as variable

costs associated with production goods. In other words, the markets in which

real firm operated are not perfectly competitive.

These real world circumstance introduce problem`s which require the

necessity of maintaining working capital. For example, an organization may be

faced with an uncertainty regarding availability of sufficient quantity of crucial

imputes in future at reasonable price. This may necessitate the holding of

17
inventory, current assets. Similarly an organization may be faced with an

uncertainty regarding the level of its future cash flows and insufficient amount

of cash may incur substantial costs. This may necessitate the holding of reserve

of short term marketable securities, again a short term capital assets. In

corporate financial management, the term working capital management (net)

represents the excess of current assets over current liabilities

The net working capital of business is its current assets less its current liabilities.

Current Assets include:

 Stock of Raw Material

 Work in Progress

 Finished Goods

 Trade Debtors

 Prepayments

 Cash Balances

Current Liabilities include:

 Trade Creditors

 Accruals

 Taxation Payable

18
  Dividends Payable

 Short term Loans

Every business needs adequate liquid resources in order to maintain day to day cash

flows. It needs enough cash to by wages and salaries as they fall due and to pay

creditors if it is to keep its workforce and ensure its supplies. Maintaining adequate

working capital; is not just important in the short term.

Sufficient liquidity must be maintained in order to ensure the survival of

business in the long term as well. Even a profitable business may fail if it does not

have adequate cash flows to meet its liabilities as tyhey fall a due. Therefore when

business make investment decisions they must not only consider the financial outlay

involved with acquiring the new machine or the new building etc, but must also take

account of the additional current assets that are usually involved with any expansion

of activity .

Increase production tends to engender a need to hold additional stocks of raw

material & work in progress.

Increased sales usually mean that the level of debtor will increase. A general

increase in the firm’s scales of operation tends to imply a need for greater level of

cash.

Need of working capital management

The need for working capital gross or current assets cannot be over emphasized.

19
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 can not 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 10

is refers to operating or cash cycle. If the company has 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 into cash after expiry of

credit period. Thus some amount of cash is blocked in raw materials, WIP,

finished goods, and sundry debtors and day to day cash requirements. However

some part of current assets may be financed by the current liabilities also. The

amount required to be invested in this current assets is always higher than the

funds available from current liabilities. This is the precise reason why the needs

for working capital arise

20
Type 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

nece)ssary on continues 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

21
Determinants of working capital The amount of working capital is depends

upon a 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. there

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

acquisition of raw material till the end of final production of finished products

itself is quit 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.

22
3. Size and growth of business

In very small company the working capital requirement is quit 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 stack without getting sold, the receivable

may not be recovered in time etc.

5. Terms of purchase and sales

23
Some time due to competition or custom, it may be necessary for the company

to extend more and more credit to customers, as result which more and more

amount is locked up in debtors or bills receivables which increase the working

capital requirement. On the other hand, in the case of purchase, if the credit is

offered by suppliers of goods and services, a part of working capital

requirement may be financed by them, but it is necessary to purchase on cash

basis, the working capital requirement will be higher.

6. Profitability

The profitability of the business may be vary in each and every individual case,

which is in turn its depend on numerous factors, but high profitability will

positively reduce the strain on working capital requirement of the company,

because the profits to the extend that they earned in cash may be used to meet

the working capital requirement of the company.

7) Operating efficiency

If the business is carried on more efficiently, it can operate in profits which

may reduce the strain on working capital; it may ensure proper utilization of

existing resources by eliminating the waste and improved coordination etc.

24
MEANING OF WORKING CAPITAL:

Capital required for a business can be classifies under two main

categories:

 Fixed Capital

 Working Capital

Every business needs funds for two purposes for its establishments

and to carry out day to day operations. Long term funds are required

to create production facilities through purchase of fixed assets such as

plant and machinery, land and building, furniture etc. Investments in

these assets are representing that part of firm’s capital which is

blocked on a permanent or fixed basis and is called fixed capital.

Funds are also needed for short term purposes for the purchasing of

raw materials, payments 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 and inventories.

25
CONCEPTS OF WORKING CAPITAL:

There are two concepts of working capital:

 Balance Sheet concepts

 Operating Cycle or circular flow concept

BALANCE SHEET CONCEPT:

There are two interpretation of working capital under the balance sheet

concept:

 Gross Working Capital

 Net Working Capital

The term working capital refers to the Gross working capital and

represents the amount of funds invested in current assets . Thus, the gross

working capital is the capital invested in total current assets of the

enterprises. Current assets are those assets which are converted into cash

within short periods of normally one accounting year. Example of current

assets is:

Constituents of Current Assets:

 Cash in hand and Bank balance

 Bills Receivable

26
  Sundry Debtors

 Short term Loans and Advances

 Inventories of Stock as:

 Raw Materials

 Work in Process

 Stores and Spaces

 Finished Goods

 Temporary Investments of Surplus Funds

 Prepaid Expenses

 Accrued Incomes

The term working capital refers to the net working capital. Net working

capital is the excess of current assets over current liabilities or say:

Net Working Capital = Current Assets – Current Liabilities.

NET WORKING CAPITAL MAY BE NEGATIVE OR POSITIVE:

When the current assets exceed the current liabilities, the working capital

is positive and the negative working capital results when the current

liabilities are more than the current assets. Current liabilities are those

27
liabilities which are intended to be paid in the ordinary course of business

within a short period of normally one accounting year of the current

assets or the income of the business. Examples of current liabilities are:

CONSTITUENTS OF CURRENT LIBILITIES:

 Bills Payable

 Sundry Creditors or Account Payable

 Accrued or Outstanding Expenses

 Short term Loans, Advances and Deposits

 Dividends Payable

 Bank Overdraft

 Provision for Taxation, If does not amount to appropriation of

profits

The gross working capital concept is financial or going concern concept

whereas net working capital is an accounting concept of working capital.

OPERATING CYCLE OR CIRCULATING CASH FORMAT:

Working Capital refers to that part of firm’s capital which is required for financing

short term or current assets such as cash, marketable securities, debtors and

28
inventories. Funds thus invested in current assets keep revolving fast and being

constantly converted into cash and these cash flows out again in exchange for other

current assets. Hence it is also known as revolving or circulating capital. The circular

flow concept of working capital is based upon this operating or working capital cycle

of a firm. The cycle starts with the purchase of raw material and other resources

And ends with the realization of cash from the sales of finished goods. It involves

purchase of raw material and stores, its conversion into stocks of finished goods

through work in progress with progressive increment of labor and service cost,

conversion of finished stocks into sales, debtors and receivables and ultimately

realization of cash and this cycle continuous again from cash to purchase of raw

materials and so on. The speed/ time of duration required to complete one cycle

determines the requirements of working capital longer the period of cycle, larger is

the requirement of working capital.

In simple words working capital is the excess of current Assets over

current Liabilities. Working capital has ordinarily been defined as the excess of

current assets over current liabilities. Working capital is heart of the business If

it is weak business cannot proper and survives. It is therefore said the fate of

large scale investment in fixed assets is often determined by a relatively small

amount of current assets. As the working capital is important to lifeline of

company. If this lifeline deteriorates so that the company’s ability to fund

29
operation, re-invest do meet capital requirements and payment.

Understanding company`s cash flow health is essential to making investment

decision. A good way to judge a company`s cash flow prospects is to look at its

working capital management. The company must have adequate working

capital as much as needed by the company. It should neither be excessive or

nor inadequate. Excessive working capital cuisses for idle funds lying with the

firm without earning any profit, where as inadequate working capital shows

the company doesn’t have sufficient funds for financing its daily needs

working

capital management involves study of the relationship between firm`s current

assets and current liabilities. The goal of working capital management is to

ensure that a short term debt and upcoming operational expenses. The better

a company managers its working capital, the less the company needs to

borrow. Even companies with cash surpluses need to manage working capital

to ensure those surpluses are invested in ways that will generate suitable

returns for investors.

30
“The primary objective of working capital management is to ensure

that sufficient cash is available to”

· Meet day to day cash flow needs.

· Pay wages and salaries when they fall due.

· Pay creditors to ensure continued supplies of goods and services.

· Pay government taxation and provider of capital-dividends and

· Ensure the long term survival of the business entity.

In simple words working capital is the excess of current Assets over

current Liabilities. Working capital has ordinarily been defined as the excess of

current assets over current liabilities. Working capital is heart of the business If

it is weak business cannot proper and survives. It is therefore said the fate of

large scale investment in fixed assets is often determined by a relatively small

amount of current assets. As the working capital is important to lifeline of

company. If this lifeline deteriorates so that the company’s ability to fund

operation, re-invest do meet capital requirements and payment.

Understanding company`s cash flow health is essential to making investment

decision. A good way to judge a company`s cash flow prospects is to look at its

working capital management. The company must have adequate working

31
capital as much as needed by the company. It should neither be excessive or

nor inadequate. Excessive working capital cuisses for idle funds lying with the

firm without earning any profit, where as inadequate working capital shows

the company doesn’t have sufficient funds for financing its daily needs

working

capital management involves study of the relationship between firm`s current

assets and current liabilities. The goal of working capital management is to

ensure that a short term debt and upcoming operational expenses. The better

a company managers its working capital, the less the company needs to

borrow. Even companies with cash surpluses need to manage working capital

to ensure those surpluses are invested in ways that will generate suitable

returns for investors.

“The primary objective of working capital management is to ensure

that sufficient cash is available to”

· Meet day to day cash flow needs.

· Pay wages and salaries when they fall due.

· Pay creditors to ensure continued supplies of goods and services.

· Pay government taxation and provider of capital-dividends and

32
· Ensure the long term survival of the business entity.

PERMANENT OR FIXED WORKING CAPITAL:

Permanent or fixed working capital is the minimum amount which is

required to ensure effective utilization of fixed facilities and for

maintaining the circulation of current assets. There is always a minimum

level of current assets which is continuously required by the enterprises to

carry out its normal business operations.

2. TEMPRORAY OR VARIABLE WORKING CAPITAL:

Temporary or variable working capital is the amount of working capital

which is required to meet the seasonal demands and some special

exigencies.Varibles working capital can be further classified as second

working capital and special working capital. The capital required to meet

the seasonal needs of the enterprises is called the seasonal working

capital.

Temporary working capital differs from permanent working capital in the

sense that is required for short periods and cannot be permanently

employed gainfully in the business

33
IMPORATNCE OR ADVANTAGE OF ADEQUATE WORKING

CAPITAL:

Working capital is the life blood and nerve centre of a business . just a

circulation of a blood is essential in the human body for maintaining life,

working capital is very essential to maintain the smooth running of a

business. No business can run successfully without an adequate amount

of working capital. The main advantages of maintaining adequate amount

of working capital are as follows:

 Solvency of the Business

 Goodwill

 Easy Loans

 Cash discounts

 Regular supply of Raw Materials

 Regular payments of salaries, wages & other day to day

commitments.

 Exploitation of favorable market conditions

 Ability of crisis

 Quick and regular return on investments

 High morals

34
THE NEED OR OBJECTS OF WORKING CAPITAL:

The need for working capital cannot be emphasized. Every business

needs some amount of working capital. The need of working capital

arises due to the time gap between production and realization of cash

from sales. There is an operating cycle involved in the sales and

realization of cash. There are time gaps in purchase of raw materials and

production, production and sales,

And sales, and realization of cash, thus , working capital is needed for the

following purposes:

 For the purchase of raw materials , components and spaces

 To pay wages and salaries

 To incur day to day expenses and overhead costs such as fuel,

power and office expenses etc.

 To meet the selling costs as packing, advertising etc.

 To provide credit facilities to the customers.

35
  To maintain the inventories of raw materials, work –in- progress,

stores and spares and finished stock.

FACTORS DETERMING THE WORKING CAPITAL

REQUIRMENT:

The working capital requirements of a concern depend upon a large

number of factors such as nature and size of the business, the

characteristics of their operations, the length of production cycle , the rate

of stock turnover and the state of economic situation. However the

following are the important factors generally influencing the working

capital requirements.

 NATURE OR CHARACTERSTICS OF A BUSINESS : The

nature and the working capital requirement of enterprises are

interlinked. While a manufacturing industry has a long cycle of

operation of the working capital, the same would be short in an

enterprises involve in providing services. The amount required also

varies as per the nature, an enterprises involved in production

would required more working capital then a service sector

enterprise.

 MANAFACTURE PRODUCTION POLICY: Each enterprises

in the manufacturing sector has its own production policy, some

36
 follow the policy of uniform production even if the demand varies

from time to time and other may follow the principles of demand

based production in which production is based on the demand

during the particular phase of time. Accordingly the working

capital requirements vary for both of them.

 OPERATIONS: The requirement of working capital fluctuates for

seasonal business. The working capital needs of such business may

increase considerably during the busy season and decrease during

the

 MARKET CONDITION: If there is a high competition in the

chosen project category then one shall need to offer sops like

credit, immediate delivery of goods etc for which the working

capital requirement will be high. Otherwise if there is no

competition or less competition in the market then the working

capital requirements will be low.

 AVABILITY OF RAW MATERIAL: If raw material is readily

available then one need not maintain a large stock of the same

thereby reducing the working capital investment in the raw

material stock . On other hand if raw material is not readily

available then a large inventory stocks need to be maintained, there

by calling for substantial investment in the same.

37
  GROWTH AND EXAPNSION: Growth and Expansions in the

volume of business result in enhancement of the working capital

requirements. As business growth and expands it needs a larger

amount of the working capital. Normally the needs for increased

working capital funds processed growth in business activities.

 PRICE LEVEL CHANGES : Generally raising price level

require a higher investment in the working capital. With increasing

prices, the same levels of current assets needs enhanced

investments.

MANAFACTURING CYCLE: The manufacturing cycle starts with the

purchase of raw material and is completed with the production of finished

goods. If the manufacturing cycle involves a longer period the need for

working capital would be more. At time business needs to estimate the

requirement of working capital in advance for proper control and

management. The factors discussed above influence the quantum of

working capital in the business. The assessment of the working capital

requirement is made keeping this factor in view. Each constituents of the

working capital retains it form for a certain period and that holding period

38
is determined by the factors discussed above. So for correct assessment of

the working capital requirement the duration at various stages of the

working capital cycle is estimated. Thereafter proper value is assigned to

the respective current assets, depending on its level of completion. The

basis for assigning value to each component is given below

OBJECTIVE OF 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 can not earn profits and increase its turnover. With this primary

objective of the study, the following further objectives are framed for a depth

analysis.

 Estimation of working capital requirement

 Evaluation of working capital management

 Evaluation of Liquidity position & working capital utilization

 Analysis of relationship between working capital and profitability

 Analysis & sources of working capital

39
 Analyzing the level of current assets with relation to current

liabilities.

 To study the working capital components such as receivables

accounts, cash management, Inventory position

RESEARCH METHODOLOGY

40
RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It

may be understood as a science of studying now research is done

systematically. In that various steps, those are generally adopted by a researcher

in studying his problem along with the logic behind them.

It is important for research to know not only the research method but also know

methodology. ”The procedures by which researcher go about their work of

describing, explaining and predicting phenomenon are called methodology.”

Methods comprise the procedures used for generating, collecting and evaluating

data. All this means that it is necessary for the researcher to design his

methodology for his problem as the same may differ from problem to problem.

Data collection is important step in any project and success of any project will

be largely depend upon now much accurate you will be able to collect and how

41
much time, money and effort will be required to collect that necessary data, this

is also important step.

Data collection plays an important role in research work. Without proper data

available for analysis you cannot do the research work accurately.

Types of data collection

There are two types of data collection methods available.

1. Primary data collection

2. Secondary data collection

1) Primary data

The primary data is that data which is collected fresh or first hand, and for first

time which is original in nature. Primary data can collect through personal

interview, questionnaire etc. to support the secondary data.

2) Secondary data collection method

The secondary data are those which have already collected and stored.

Secondary data easily get those secondary data from records, journals, annual

reports of the company etc. It will save the time, money and efforts to collect

the data. Secondary data also made available through trade magazines, balance

42
sheets, books etc.

This project is based on primary data collected through personal interview of

head of account department, head of SQC department and other concerned staff

member of finance department. But primary data collection had limitations such

as matter confidential information thus project is based on secondary

information collected through five years annual report of the company,

supported by various books and internet sides. The data collection was aimed at

study of working capital management of the company

Project is based on

STATEMENT OF PROJECT

 Evaluation, analysis & interpretation of working capital

management of United Engineering Services.

 Suggesting ways to improve its working capital utilization.

OBJECTIVE OF RESEARCH

 Estimation of working capital requirement

 Evaluation of working capital management

 Evaluation of Liquidity position & working capital utilization

 Analysis of relationship between working capital and profitability

43
  Analysis & sources of working capital

 Analyzing the level of current assets with relation to current

liabilities.

COLLECTION OF DATA:

 Data has been collected from various sources like:

 Annual reports of last three years

 Manual of concerned departments

 Consultants and personnel of United Engineering Services.

 Internet sites like www.google.com,

 www.solidconeyor@indiatimes.com

METHODS OF QUANTATIVE ANALYSIS

 Calculation of net working capital requirements.

 Ratio analysis

 Operating cycle & cash cycle

 Cash flow analysis

 Determining the Financing mix

44
  Statistical tools like graphical presentation

ASSUMPTIONS

 Year is taken of 2008 to 2012

 All purchases have been taken as credit purchases and all sales

have been taken as credit sales.

 In the absence of relevant data the data from internet site is taken

as the relevant information.

45
DATA ANALYSIS

46
1. WORKING CAPITAL:

A measurement comparing the depletion of Working capital to the generation of sales

over a given period. This provides some useful information as to how effectively a
company is using its working capital to generate sales.

WORKING CAPITAL TURNOVER RATIO = COST OF SALES

AVG. WORKING
CAPTIAL
(Rs.
in Crores)
YEARS SALES AVG.WORKIN W.C
G TURNOVER
CAPITAL RATIOS
2007-08 4689.210 228.33 20.53

2008-09 5530.170 215.69 25.64

2009-10 7528. 37 191.51 39.31

2010-11 9057.91 204.06 50.59

2011-12 9235.07 1064.63 221.89

47
INTERPRETATION: The working capital ratio is different in different
organizations depending on their nature. In 2010-11 the working capital ratio is less
than in 2011-12.

2. INVENTORY TURNOVER RATIO

Inventory turnover ratio also known as stock velocity is normally calculated as

sales/average inventory or cost of goods sold/average inventory. It would indicate
whether inventory has efficiently used or not. The purpose is to see whether only the
required minimum funds have been locked up in inventory. Inventory turnover ratio
(I.T.R) indicates the number of times been turned over during the period and
evaluates the efficiency with which a firm is able to manage its inventory.

INVENTORY TURNOVER RATIO = COST OR NET SALES

AVG.STOCK AT COST

YEARS SALES AVG. STOCK INVENTORY

AT TURNOVER
COST RATIOS
2007-08 4689.210 1096.16 4.27

2008-09 5530.170 2538.95 2.18

2009-10 7528. 37 4322.20 1.74

2010-11 9057.91 4949.01 1.83

2011-12 9235.07 5205.46 1.77

48
INTERPRETATION:
Standard inventory turnover is different in different organization depending on their
nature. An increase in inventory turnover ratio can be visualized from the above data,
the maximum being achieved in the year 2007-08. Conversion of stocks into sales is
almost totally dependent on Food Corporation of India in Markfed.

49
3. CURRENT RATIO
Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio could also be seen as a measure of working capital- the
difference between current assets and current liabilities. This ratio could also be seen
as a measure of working capital-the difference between current assets and current
liabilities. A company with a lot of working capital will be in a better position to
expand and improve its operations.

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITIES

(Rs.
in Crores)
YEARS CURRENT CURRENT CURRENT

ASSETS LIABILITIES RATIO

2007-08 3946.36 3713.77 1.06

2008-09 6461.88 6263.10 1.03

2009-10 8346.89 8162.55 1.02

2010-11 9662.59 9488.73 1.02

2011-12 10526.36 10616.96 0.99

50
INTERPRETATION:

A relatively high current ratio is an indication that the firm is liquid and has ability to
pay its current obligation in time as and when they become due Markfed followed a
constant trend in its current ratio in these years. But the ratio does not satisfy the
standard norm of 30.01:1. However, backed by government guarantee and good track
record Markfed can avail longer credit period.

4. ABSOLUTE LIQUID RATIO

51
Although receivables, debtors and bills receivables are generally more liquid than
inventories. Yet there may be doubts regarding their realization into cash immediately
or in time. Hence, some authorities are of opinion that the absolute liquid ratio should
also be calculated together with current and acid test ratio so as to exclude even
receivable from the current assets and find out the absolute liquid assets.

ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS

CURRENT LIABILITIES

ABSOLUTE LIQUID ASSET = CASH+BANK+MARKETABLE SECURITIES

YEARS ABSOLUTE CURRENT ABSOLUTE

LIQUID LIABILITIES LIQUID RATIO
ASSETS
2007-08 104.53 3713.77 0.029

2008-09 108.80 6263.09 0.017

2009-10 87.79 8162.55 0.010

2010-11 19.35 9488.74 0.002

2011-12 49.68 10616.96 0.005

(Rs. in

52
INTERPRETATION:
The absolute liquid ratio of Markfed is too low than the standard norm. But Markfed
has enough borrowing powers to pay off its liabilities.

5. DEBTORS TURNOVER RATIO:-

Debtors turnover ratio indicates the velocity of debt collection of the firm. In simple
words it indicates the number of times average debtors are turned over during a year.
Thus,

DEBTORS TURNOVER RATIO = NET CREDIT SALES OR ANNUAL

TOTAL SALES

AVERAGE TRADE DEBTORS

YEARS SALES AVG. TRADE DEBTORS TURN

DEBTORS OVER RATIO

2007-08 4689.21 548.29 8.55

2008-09 5530.17 719.59 7.68

2009-10 7528. 37 836.49 8.99

53
 2010-11 9057.91 1364.80 6.63

2011-12 9235.07 1542.87 5.98

(Rs. in Crores)

INTERPRETATION:
The higher the value of debtors turnover ratio, the more efficient is the management
of debtors. It is clear from the above data the turnover ratio started a decreasing trend
from the year 2010-11.

54
TOTAL CURRENT ASSETS

Current assets are cash and other assets expected to be converted to cash or consumed
either in a year or in the operating cycle (whichever is longer), without disturbing the
normal operations of a business.

(Rs. in Crores)
YEARS 2007-08 2008-09 2009-10 2010-11 2011-12

TOTAL 3946.36 6461.88 8346.89 9662.59 10526.35

CURRENT
ASSETS

55
INTERPRETATION:
The total current assets of the Markfed organization have increase than the previous
year. The current assets are Rs.10526.35 in 2011-12 but in 2010-11 the current assets
were Rs.9662.59. The current assets are dependents on the nature of the organization.

6. TOTAL CURRENT LIABILITIES

Current liabilities are the debts a company owes which must be paid within one year.
They are the opposite of current assets. Current liabilities includes things such as
short term loans, accounts payable, dividends and interest payable, bonds payable,
consumer deposits, and reserves for federal taxes.

(Rs. in Crores)
YEARS 2007-08 2008-09 2009-10 2010-11 2011-12

TOTAL 3713.77 6263.09 8162.65 9488.73 10616.96

CURRENT
LIABILITIE
S

56
INTERPRTATION:
The total current liabilities have increased than the previous year. In 2011-12 the
current liabilities are Rs.10616.96 and in 2010-11 the liabilities were Rs.9488.73.

57
CREDITORS TURNOVER RATIO :

Creditors turnover ratio is an accounting liquidity metric that evaluates how fast a
company pays off its creditors (suppliers).
(Rs. in
Crores)
YEAR NET AVERAGE CREDITORS
PURCHASES CREDITORS TURNOVER
RATIO
2007-08 4615.46 97.03 47.56

2008-09 6811.31 110.97 61.37

2009-10 7729.90 109.94 70.31

2010-11 7699.42 76.69 100.4

2011-12 8527.49 131.54 64.82

58
INTERPRETATION:

It is clear that creditor turnover ratio changing over the years. It was 47.56 times in
the year 2007-08. It increased to 5.061.37 times in the year 2008-09. There was
subsequent increase in the year of 2010, 2011 and 2012 with 70.31, 100.4 and 64.82
times respectively.

59
9. NET WORKING CAPITAL:

Net working capital is calculated as current assets minus current liabilities.

(Rs
. in Crores)
YEAR CURRENT CURRENT NET WORKING

ASSETS LIABILITIES CAPITAL

2007-08 3946.36 3713.77 232.59

2008-09 6461.88 6263.10 198.79

2009-10 8346.89 8162.55 184.24

2010-11 9662.59 9488.73 173.86

2011-12 10526.36 10616.96 (90.61)

60
INTERPRETATION:

It is clear that net working capital changes over the years. It was 198.79 crores in the
year 2008-09. It has decreased to 184.24 crores in the year 2009 or further decreased
in the year 2010. There was subsequent decrease in the year 2012 and have become
negative i.e. (90.61).

61
 FINDING

 Making available just adequate quantum of working capital. Some of

the existing machinery is new with absolute equipments requiring
modernization and rebuilding.

 The company should administrate their credit on the basis of certain

well recognized and established principle of credit administration.

 The company should maintain an optimum level of cash in the

business in order to maintain a proper liquidity in the business.

 The basic limitation of ratio analysis is that it may be difficult to

find a basis for making the comparison

 Normally, the ratios are calculated on the basis of historical financial

statements. An organization for the purpose of decision making may

need the hint regarding the future happiness rather than those in the
past.

 The external analyst has to depend upon the past which may not

necessary to reflect financial position and performance in future.

 The technique of ratio analysis may prove inadequate in some

situations if there is differs in opinion regarding the interpretation of
certain ratio.

 As the ratio calculates on the basis of financial statements, the basic

limitation which is applicable to the financial statement is equally

62
 SUGGESTION

 Making available just adequate quantum of working capital. Some of

the existing machinery is new with absolute equipments requiring

modernization and rebuilding.

 The company should administrate their credit on the basis of certain

well recognized and established principle of credit administration.

 The company should maintain an optimum level of cash in the

business in order to maintain a proper liquidity in the business.

 Organization should maintain a proper time table and rules.

63
 LIMITATIONS

 The data is mostly secondary in nature

 Data has been recalculated & regrouped wherever necessary

 In the absence of sufficient data personnel judgment have been

taken on reasonable assumption.

 In the absence of sufficient data in-depth study of cash,

Receivables and inventory management was not possible.

64
 CONCLUSION

Working capital management is an important aspect of any business.

Every business concern should have adequate working capital to run its

business operation. Every concern should have neither redundant of

excess working capital nor inadequate or shortage of working capital.

Both excess as well as short working capital positions are bad for any

business.

The three elements of working capital management are cash management

receivable management and inventory management. If a finance manager

maintains these three elements of working capital management properly

means the concern will get dramatic improvement in their sales volume

and also in business. Working capital policies of a firm have a great

effect on its profitability, liquidity and structured health of the

organization.

Every concern should adopt some new tread management strategies that

will help in greater productivity, inventory optimization and also better

working capital management. So, it is noted that working capital is a

means to run business smoothly and profitability. Thus, the concept of

working capital has its own important in a going concern.

65
Good management of working capital is part of good finance

management effective use of working capital will contribute to the

operational efficiency of a department; optimum use will help to generate

maximum return.

United Engineering Services is also using “SAP” 6.0 versions which is

very advanced to do every transaction of any organization. ‘SAP’ 6.0

also applicable for e-transaction.

66
 BIBLOGRAPHY

 Financial Management theory and practice by Prassanna Chandra

 Financial Management theory and practice by Shashi .K. Gupta &

R.K. Sharma.

 Www. Google.com, www. Wikepidia.com

67
ANNEXURE:-
Balance sheets from the year 2008 to 2012:

68