CHAPTER-1

1.1 INTRODUCTION
Every enterprise should know about the activities carried on by it and the financial importance of its operations. So it becomes necessary to keep a systematic record of what happens in the organisation from time to time. The financial score of an enterprise is kept by the Accounting System. Accounting plays a key role in every organisation. It is the process of recording .classifying, summarizing and interpreting financial information about the concern. Accounting systematically writes the history of an organisation. Working capital may be regarded as the life blood of a business .In Accounting working capital is the difference between inflow and outflow of funds. Its effective provision can do much to ensure the success of a business while its inefficient management can lead not only to the loss of profit but also to the ultimate downfall of the concern .A study of working capital is major importance to internal and external analysis because of its close relationship with the current day to day operation of a business.

1.1.1 ORGANIZATION PROFILE
Travancore Titanium Products Limited, Thiruvanathapuram, is one of the leading public sectors under the government of Kerala. The company is one of the major establishment in India producing titanium dioxide pigment .There are about 1076 employees working in the company .The major share capital KSID(7.90%),pearless (10.88%) ,public (0.28%). The unit was promoted by the late divan of Travancore ,Sir C.P.Ramaswamy Iyer ,in collaboration with the British Titan Products Co.Ltd UK,presently known as tioxide group Ltd.In the year 1946 (18-12-1946) the company was functioning under a managing agency namely Indian Titan Products Co.Ltd.,till 1960 when the government of Kerala took over the administrative control . The production was commenced in the year 1951.The initial capacity of the plant was just 5 tonnes per day. In 1960,the production capacity of the plant was raised to 10 tonnes per day and in 1973 to 45 tonnes per day. Total production in the year 95-96 was 12943 metric tonnes. During 1956 a new sulphuric acid plant was commissioned with pollution control measures like double catalyst

3 SCOPE OF STUDY This report is related to study of working capital management and covers the following aspects. 1. 4. To study the working capital concepts. To study the sources of working capital of the firm. To understand the profitability of the firm. To study the working capital position of the firm. To draw meaningful conclusions and put forward suggestions if any.double Absorption System. tools and technicians applied in working capital management. Now the company facing competition from other companies in India and abroad.1. History of the firm.1. 1. 1. Conceptual background of the study.4 OBJECTIVES OF THE STUDY The study is conducted mainly to achieve the following objectives.2 RESEARCH PROBLEM “A STUDY OF THE WORKING CAPITAL MANAGEMENT IN TRAVANCORE TITANIUM PRODUCTS LIMITED THIRUVANTHAPURAM . Scrubbers etc.1.5 RESEARCH METHODOLOGY All information’s required to conduct the study has been collected from primary and secondary sources.1. Past five year’s financial statements for the purpose of analysis and interpretation. 1. 3. . 2. 3.“ 1. 2. 5. 1.its production capacity being 300 tones per day.

Other records of the company.Primary sources: The information’s collected from the interviews conducted with the concerned officers Secondary sources: The secondary data includes the information’s collected from: 1. 2. 3. Magazines. Annual report of the company related to the past five years. .

A part of the fixed or permanent capital is invested in assets which are kept in the business permanently or for a long period for the purpose of earning profit. Working capital is also known as revolving or circulating capital. cash on hand and at bank. Because capital in all these forms are changed in the ordinary course of business from one form to another . Another part of permanent capital left in the business for supporting day to day normal operation is known as working capital. semi-finished or finished products.A positive working capital arises when the current assets are in excess of the current assets. Net working capital Net working capital refers to the difference between current assets and current liabilities .from cash to inventories . marketable securities.from receivables to work debts and then back into cash. Net working capital 1. Gross working capital Gross working capital refers to the firm’s investment in current assets. They are:1. . amount receivable.from inventories to receivables and book debts . Gross working capital 2.CHAPTER-2 REVIEW OF LITERATURE INTRODUCTION Working capital can be regarded as the life blood of every business. It refers to the amount involved or invested in inventories or stock of raw materials. It is considered as the funds available for meeting day to day requirements of an enterprise. as it’s invested is generally for shorter period compared to fixed capital is also known as short term capital. CONCEPTS OF WORKING CAPITAL There are two concepts of working capital.it helps in comparing the liquidity of the firm over time. The net working capital may be either positive or negative. 2. Working capital.

for e. It is the amount of funds required to procure the goods and services which are necessary to satisfy demand at a particular point. 2.g. extra cash etc. Working capital is the aggregate of current assets Working capital = current assets In the words of GESTENBERG “Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another.e. It is temporarily invested in current assets. from cash to inventories. accounts receivables and inventories.” TYPES OF WORKING CAPITAL 1. 2. additional inventory. This amount varies from year to year. receivables into cash..” According to BONNEVILLE “Any acquisitions of funds which increase the current assets increase working capital also. Temporary or variable working capital It represents the additional assets which are required at different times during the operating year i. short term securities. depending upon the growth of a company and the stages of the business cycle in which it operates. 1. Working capital is the excess of current assets over current liabilities. for they are one and the same. Working capital = current assets –current liabilities.” In the words of WESTON &BRIGHAM “Working capital refers to a firm’s investment in short term assets like cash. .DEFINITIONS In general working capital has been defined in two ways. Permanent working capital Permanent working capital is the minimum amount of current asset which is needed to conduct a business even during the dullest season of the year. inventories to receivables.

Working capital management. Cash working capital Cash working capital is one which is calculated from the items appearing in the profit and loss account. WORKING CAPITAL MANAGEMENT Working capital management is concerned with the problems that arises in attempting to manage the current assets. 4. the current liabilities and the inter –relationship that exist between them. However there should not be an executive level of investment in working capital. It shows the real flow of money or values at a particular time and is considered to be the most realistic approach in working capital management. Balance sheet working capital The balance sheet working capital is the one which is calculated from the items appearing in the balance sheet. To carry on a business a certain minimum level of working capital is necessary on a continuous and uninterrupted basis.3. Gross working capital which is represented by the current assets and net working capital which is represented by the excess of current assets over current liabilities are examples of the balance sheet working capital. The effective management of working capital needs good planning as well as immediate reaction to the changes for cash and prevailing economic conditions. In order to ensure success of a business organisation there should be effective provision of funds and adequate working capital. The goal of working capital management is to manage the firm’s current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. The management of working capital is of vital importance to ensure the success of a business. influence an organisation to a great extent. A business should maintain a sound working capital. . While the inefficient management of funds and adequate working capital can not only lead to the losses of profits but also to the ultimate downfall of the business. Thus requirement of working capital will have to be met permanently as in case of other fixed assets.

Seasonal variations Strong movements create special problems of working capital in controlling the internal financial swings. Labour intensive v/s capital intensive industries In labour intensive industries. Time consumed in manufacture The average time taken in the process of manufacture is also an important factor in determining the amount of working capital. the larger the inventory required.DETERMINANTS OF WORKING CAPITAL There are no rules or formulae to determine the working capital requirements of a firm. Trading and financial firms have a very less investments in fixed assets but require a large amount of money to invest in working capital. Nature and size of the business The amount of working capital is basically related to the nature and volume of the business. The faster the sales. 5. they require larger amount of working capital in the season to purchase the raw materials in large quantities and utilize them throughout the year. Turnover of circulating capital Turnover means the ratio of annual gross sales to average working assets. Though the capital goods industries manage to minimise their investment in inventories of working capital by asking advances from the customers as work proceeds on their orders. It varies from year to year or even month to month depending upon a number of factors. The longer the period of manufacture. Conversely the greater the turnover. 1. 4. 3. 2. It will require lesser amount of working capital inspite of large sales because of greater turnover. the larger the turnover. A great many companies have to carry on seasonal business such as sugar mills and oil mills. the larger the volume of business to be done with a given amount of working capital. The amount of working capital required for any business enterprise depends upon the following factors. The need for working capital is not always the same. larger working capital is required because of regular payment of heavy wage-bills and more time taken in completing the manufacturing .

rise in prices etc. 8. The effect of rising prices may be different for different firms. The greater the cash requirement.process. when the prices are going up and boom conditions prevail. Conversions of current assets into cash The need of having cash in hand to meet the day to day requirement is another important determinant. Price level changes Changes in the price level also affect the working capital requirements.g. difficulties are faced in collections from debtors and firms may have a large amount of working capital lying idle. when there is a down swing of the cycle. payment of wages and salaries. . the higher will be the need of working capital. Conversely the capital intensive industries require lesser amount of working capital because of the heavy investment in fixed assets and shorter period in manufacturing process. Business cycle fluctuations Business cycle fluctuations also affect the requirements of working capital.e. On the contrary. a concern having credit facilities and allowing no credit to its customers will require lesser amount of working capital. Terms of purchase and sales Terms (cash/credit) of purchase and sales also affect the amount of working capital. e. Terms and conditions of purchase and sales are generally governed by prevailing trade practise and by changing economic conditions. rises in sales. there is a need for large amount of working capital due to increase in sales. Sales decline. the tendency of management is to pile up a big stock of raw materials and to maintain a big stock of finished goods with an expectation to earn more profits. 7. generally the rising price will require the firm to maintain larger amount of working capital as more funds will be required to maintain the same current assets. the business contracts. On the contrary in the times of depression i. But if a company has ample stock of liquid current assets it will require lesser amount of working capital because the company can encash such assets immediately in the open market. 6. At times. it will require a larger amount of working capital. If a company purchase all goods on cash and sells its finished product on credit naturally. In a period of boom. 9.

10. banking facilities etc. Also influence the regularities of working capital. It will be appropriate to meet at least 2/3 if not the whole of the permanent working capital requirements from long term sources and only for the period needed. Short term sources Short term working capital involves financing of day to day operations. 1. importance of labour . Other factors The other factors such as operating efficiency. Long term sources 2. There are two sources of short term capital i. irregularities of supply . assets structure.e. SOURCES OF WORKING CAPITAL The sources of working capital can be classified under two heads. internal and external. 2. Long term sources The long term working capital requirements includes the initial working capital and the regular working capital. Short term sources 1. management ability. Normally the duration of such requirement does not exceed a year. . import policy.

Depreciation of funds 2 . 5. Credit papers 3. Conversion of cash into work in progress 2. Term loans.Provision for tax 3. Conversion of work in progress into finished goods 4.Sources of working capital Long term sources 1. Issue of debentures 3. . Public deposits 6. Retained profits 4. Conversion of raw materials into work in progress 3. Bank credit 4. Govt. Issue of shares 2. Sale of fixed assets 5. Trade creditors 2. Customer’s credit 5. Conversion of debtors and bills receivables into cash. Security from employees and customers 6.assistance OPERATING CYCLE OF WORKING CAPITAL The duration of time required to complete the following sequence of events in case of manufacturing firm is called the operating cycle 1. Internal 1. Conversion of finished goods into debtors and bills receivables through sales. Accrued expense Short term sources External 1.

The moderations of equipment and even routine repairs and maintenance facilities may be difficult to administrate. Company may not able to take advantage of cash discounts. 4. 8. A company may not be able to take advantage of profitable business opportunities. It will not be possible for the company to utilize production facilities fully for want of working capital. . A company may have to borrow funds at higher rates of interest. because of lack of liquidity. 3. A company cannot afford to increase its cash sales and may have to restrict activities to credit sales. A company will not be able to pay its dividends because of unavailability of funds 7. 6. 5. The credit worthiness of the company is likely to be jeopardized.OPERATING CYCLE OF A MANUFACTURING FIRM DEBTOR S SALES CASH FINISHED GOODS RAW MATERIA LS WORK IN PROGRE SS DANGERS OF INADEQUATE WORKING CAPITAL 1. 2.

2. and losses increase. This may tend to make dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits. Tendencies of accumulating inventories to make speculative profit grow. theft. consequently higher incidents of bad debts adversely affects profits.DANGERS OF EXCESS WORKING CAPITAL 1. Excessive working capital makes management complacent which degenerates into managerial inefficiency. It results in unnecessary accumulation of inventories. It is an indication of defective credit policy and sleek collection periods. waste. 3. 4. . Thus the chances of inventories mishandling.

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