REPORT ON SUMMER TRAINING

WORKING CAPITAL MANAGEMENT

 AT PMP INDIA PVT LIMITED

IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE AWARD OF DEGREE OF

 MASTER OF BUSINESS ADMINISTRATION 

SUBMITTED BY: SUBMITTED TO:

BABLOO KUMAR LOVELY INSTITUTE OF MGT

REG ID: 10906291 LPU PHAGWARA

1
Acknowledgement

The project "WORKING

"WORKING CAPITAL MANAGEMENT OF PMP INDIA PVT
LIMITED" woul wouldd no
nott have
have been
been po
poss
ssib
ible
le with
withou
outt the
the kind
kind assi
assist
stan
ance
ce and
and
guidan
guidancece of many
many person
personss who indeed
indeed were
were helpfu
helpful,
l, co-ope
co-operat
rative
ive,, kind
kind and
hospitable during entire course of my assignment.
I take this opportunity to express my acknowledgement and deep sense of gratitude
for rendering valuable assistance and guidance to me by following personalities for 
successful completion of my summer training.
.
My whole hearted thanks to entire staff of PMP India Pvt. Ltd. for their kind co-
operation and assistance in order to take my training successfully.
My grateful thank also to Mr.Lovey Aggarwal for their co-operation and valuable
guidance during tenure.

BABLOO KUMAR 

2
PREFACE

A student undergoing a master course needs to be exposed to the realities in the

field which puts to test the class room learning. Knowledge cannot be gained only
on the basis of theoretical understanding from the book. A practice inside is
necessary for the learning process to be complete and effective.
I took my training in very well known and well managed organization PMP India
Pvt.
Pvt.Lt
Ltd,
d, Wher
Wheree I go gott ampl
amplee opoppo
port
rtun
unit
ity
y to give
give ov
over
eral
alll work
workin
ing
g of thethe
organization.
Working Capital Management, the project which I did is an important part of 
financial management. It is most powerful tool for interpreting the current financial
health of organization.
In the forthcoming pages, an attempt has been made to present a comprehensive
report of my study conducted on Working Capital Management of PMP India
Pvt.Ltd.

BABLOO KUMAR 

3
Executive summary
The project undertaken was on “working capital management of PMP INDIA PVT
LIMITED”. The company dealsdeals with automobile
automobile parts.
OBJECTIVES
The foremost objective of my work was to study the various policies that fall under 
working capital management and also see the how is the approach of finance
department of PMP India Pvt.Ltd towards their day to day operations.
Other important objectives were to observe the impact of working capital cycle
and long production process on each other. For this full production process was
shown to me and various creditors and debtors policies were also told to me. Other 
important aspects like cash, inventory, receivables management were also studied
to completely accomplish the study.

METHODOLOGY
Research Type Exploratory,
Descriptive Research
Data Source Primary Data,
secondary data
Research Instrument group discussions,
interactions
Thee ov
Th over
eral
alll resu
result
ltss were
were gene
genera
rall
lly
y base
basedd on obobse
serv
rvat
atio
ions
ns,, anal
analys
ysis
is and
and
interpretation done during the industrial training and project undertaking.

4
FINDINGS 

In marketing very less importance is given to advertisement. Company’s marketing

strategy has gone lame on the fact that company is having good reputation built in
the past which will work for them in future also.
Company had some shortcoming in debtor policy which disturbs the working
capital cycle. Company gives material to some parties before their requirement
date and for this time period company suffers losses and earns no rate of interest.
Most of the ratios were accounting to good financial health of PMP India Pvt. Ltd.

 RECOMMENDATIONS 
Company should pay more attention towards advertisement.
For period in which company provides material to the parties early, it should be
counted in FOI period of creditor and debtor policy.
Proper cash management system should be introduced to the company so that
required amount of cash is always available to the company.

5
CONTENTS

S.NO TOPICS PAGE NO

Chapter-1 INTRODUCTION TO SUBJECT 1-16
INTRODUCTION 2-9
NEED AND METHODS OF WORKING 10-14
CAPITAL
REVIEW OF LITERATURE 15-16
CHAPTER – 2(A) COMPANY PROFILE 17-49

TEXTILE INDUSTRY IN INDIA 18

INTRODUCTION OF OCM INDIA 19-27

LIMITED.
HISTORY OF OCM 28
ORGANISATION ST
STRUCTURE 29-34
PRODUCTION PROCESS 35-48
RAW MATERIAL MANAGEMENT 49
C H A P T ER 3 OBJECTIVES OF THE STUDY & 50-53
RESEARCH METHODOLGY
OBJECTIVES 51
RESEARCH METHODOLGY 52
LIMITATIONS OF THE STUDY 53

C H A P T ER 4 DATA PRESENTATION AND 54-83

INTERPRETATION
WORK
WORKIN
ING
G CAPI
CAPITA
TALL MANA
MANAGE
GEME
MENT
NT 55
FINANCIAL POLICIES 55-59

SOURCES OF FINANCE 60-61

WORKING CAPITAL CYCLE 62-64

DATA ANALYSIS AND 65-83

INTERPRETATION

CASH MANAGEMENT 70-75

INVENTORY MANAGEMENT 76-79

6
CHAPTER 1
INTRODUCTION TO THE TOPIC

7
 INTRODUCTION 

WORKING CAPITAL MANAGEMENT

MEANING:-

Capital required for business can be classified under two main categories:
Fixed capital
Working capital
Every business needs funds for two purposes for its establishment and to carry out
its day to day operations. Long term funds are required to create production
facilities through purchase of fixed assets such as plant and machinery, land
&Building, Furniture etc. Funds are also needed for short term purposes for the
 purchase of raw material, payment of wages and other day to day expenses. These
funds are known as working capital. In simple words, working capital refers to that
 part of the firm capital which is required for financing short term or current assets
such as cash, marketable securities, debtors and inventories. Funds thus invested in
current assets keep revolving fast and are being constantly converted into cash and
this cash flows out again in exchange for others current assets. Hence it is also
known as revolving capital.

In the words of SHUBIN, “Working Capital is the amount of funds necessary to

cover the cost of operating the enterprise.”

Acc to Genestenberg,
Genestenberg, “Circulating
“Circulating capital means current
current assets of a company that
are changed in the ordinary course of business from one form to another, for 
example cash to inventories, inventories to receivables, receivables into cash.”

8
 CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital:-

Balance sheet concept
Operating cycle or Circular flow
Concept.
On the basis of balance sheet Working capital may be classified in two ways:
ON THE BASIS OF CONCEPT.
ON THE BASIS OF TIME.

WORKING CAPITAL

ON THE BASIS OF CONCEPT ON THE BASIS OF TIME

GROSS WORKING PERMANENT WORKING

CAPITAL CAPITAL

& &

 NET WORKING TEMPRORY

CAPITAL WORKING CAPITAL

9
Gross working capital also referred to as working capital means
the firm’s investment in current assets.i.e

 Net working capital

Net working capital refers to the difference between current assets and current
liabilities. i.e.
-------
CURRENT ASSETS CURRENT LIABILITIES

CURRENT ASSETS:

Current assets are those assets which in the ordinary course of business can be
converted into cash or held in the business for the short time only.

Constituents of Current Assets:-

STOCK OF RAW MATERIAL
WORK IN PROGRESS
FINISHED GOODS
TRADE DEBOTRS
PREPAYMENTS
CASH BALANCES

CURRENT LIABILITIES:

Current Liabilities refers to short term debts of the business. It is money owned by
a business which will need to be repaid within the next 12 months.

Constituents of Current Liabilities:-

TRADE CREDITORS
SHORT TERM LOANS
BANK OVERDRAFTS
DIVIDEND DUE FOR PAYMENT
TAX DUE TO PAY WITHIN THE NEXT 12 MONTHS.

10
BALANCE SHEET

LIABILITIES AMOUNT ASSETS AMOUNT

Creditors - Debtors -
Loans - Stock -
Bank overdraft - Cash -

Advances - Prepayments -
Total - Total -

The Gross working capital concept is financial or going concern where as Net
working capital is the accounting concept of working capital. Both concepts have
its own merits. The Gross concept is preferred for the following reasons:-
It enables the enterprise to provide correct amount of working capital at the right
time.
Every management is more interested in the total current assets with which it has
to operate than sources from where it is made available.
The gross concept takes into consideration the fact that every increase in the funds
of the enterprise would increase its working capital.
It is also
also usef
useful
ul in dete
determ
rmin
inin
ing
g the
the rate
rate of retu
return
rn on inve
invest
stme
ment
nt in work
workin
ing
g
capital…

The net working capital is preferred for following reason:-

It is qualit
qualitati
ative
ve concep
conceptt which
which indica
indicates
tes the firm’
firm’ss abilit
ability
y to meet
meet its operat
operating
ing
expenses & short term liabilities.
It indicates the margin of protection available to the short term creditors i.e. excess
of Current assets over current liabilities.
It is an indicator of the financial soundness of an enterprise.
It suggests the need for financing a part of the working capital requirement out of 
 permanent sources of funds

Permanent or Fixed Working Capital It 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 enterprise. For example, every firm has to
maintain a minimum level of raw material, work in process, finished goods and
cash balance. This minimum level of current assets is called permanent or fixed
working capital as this amount is permanently blocked in current assets. The

11
 permanent working capital can be further classified as regular working capital and
reserve working

Fixed working capital

Capital required ensuring circulation of current assets from cash to inventories,

from
from invent
inventor
ories
ies to receiv
receivabl
ables,
es, from
from receiv
receivabl
ablee to cash
cash and so on. Reserv
Reservee
working capital is the excess amount over the requirement for regular working
capital, which may be provided for contingencies, may arise at unstated periods
such as strikes, rise in prices, depression etc.

Temporary or Variable working capital It is the amount of working Capital

which is required to meet the seasonal demands and some special exigencies. Most
of the enterprises have to provide additional working capital to meet the seasonal
demands and special needs. This type of capital is called seasonal working capital.

Variable working capital

12
Temporary working capital differs from permanent working capital in sense that it
is required for the short periods and cannot be permanently employed gainfully in
the business.

Variable working capital

Fixed working
Capital

Sometimes fixed capital may vary with the expansion, diversification and growth
of business and then it is fixed for the long period.

OPERATING WORKING CAPITAL CYCLE: The Circular flow of 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 & other resources and ends with the
realization of cash from the sale of finished goods.
“The period of time which elapses between the point at which cash begins to be
expended on the production of a product and the collection of cash from the
customer”
The operating cycle of a manufacturing company involves three phases:
-Acquisition of resources such as raw material, labour, power & fuel etc.
-Acquisition
-Manufacture of the product which includes conversion of raw material into
work in progress into finished goods.
-Sales of the product either
either for cash or credit.
credit. Credit sales create
create book debts for 
collection.
The diagram is concerned with day to day activities; have funds constantly flowing
into and out of them.

13
The chain starts with the firm buying raw material on credit.

In due course this stock will be used in production, work will be carried out on the
stock, and it will become part of the firm’s work in progress (WIP).
Work will continue on the WIP until it eventually emerges as the finished product.
As production progresses, labour costs and overheads will need to be met.
Of course at some stage trade creditors will need to be paid.
When the finished goods are sold on credit, debtors are increased.
They will eventually pay so that cash will be injected into the firm.
Each of the areas stock, trade debtors, cash and trade creditors shown the in and
out of the fund.
The business will have to make payments to government for taxation.
Fixed assets will be purchased and sold.
Lessors of fixed assets will be paid their rent.
Shareholders (existing or new) may provide new funds in the form of cash.
Some shares may be redeemed for cash.
Dividends may be paid.
Long term loan creditors may provide loan finance, loans will need to be repaid
from time to time
Interest obligations will have to be met by the business.

WORKING CAPITAL CYCLE

14
 NEED FOR WORKING CAPITAL

15
The main objective of financial management is to maximize the shareholders
wealth. And for this it is important to generate sufficient profits. The extent to
which these profits can be earned depends upon the magnitude of sales however do
not convert into cash instantly. There is invariable time gap between the sales of 
good and the receipt of cash. Therefore there is need of working capital in form of 
current assets to deal with the situation arising of the lack of immediate realization
of the cash against goods sold. There is an operating cycle involved in the sales
and the realization of cash. During this time lag working capital is required for the
following reasons:

Purchase of raw material, components and spares.

To pay wages and salaries.
To incur day to day expenses and overhead cost such as fuel, power and office
expenses.
To meet the selling cost like packaging, advertising etc.
To provide credit facility to customer…
To maintain the inventories of raw material, work in progress, stores and spares
and finished goods.

16
FACTORS DETERMINING
DET ERMINING THE WORKING
W ORKING CAPIT
CA PITAL
AL

The working capital requirements of a concern depend upon a large number of 
factors such as nature and size of business, the character of their operations, the
length
length of produ
producti
ction
on cycle
cycle etc.
etc. howeve
however,r, the follow
following
ing are impor
importan
tantt factor
factorss
generally influencing the working capital requirements:

  Nature or character of business: The working capital requirements of a firm

 basically depend upon the nature of its business. Public utility undertaking like
electricity, water supply and railway need very limited working capital because
they offer cash sales only and supply services, not products, and as such no funds
are tied up in inventories and receivables, and cash; as such they need large amount
of working capital.

Operations: The working capital requirements of a

 Size of Business/Scale of Operations:
concern are directly influenced by the size of its business which may be measured
in terms of scale of operations. Greater the size of a business unit, generally larger 
will be the requirements of working capital. However in some cases even a smaller 
concern may need more working capital due to high overhead charges, inefficient
use of available Resources and other economic disadvantages of small size. E.g.
Retail stores require a variety of goods to satisfy varied and continuous demand of 
their customers.

 Manufacturing Process/Length of Production Cycle: In manufacturing business,

 Manufacturing
the working capital requirements increase in direct proportion to the length of 
manufacturing process. Longer the process period of manufacturing time, the raw
materials and other supplies have to be carried for a longer period manufacturing in
the process with progressive increment of labor and services costs before the
finished product is finally obtained. Therefore, if there are alternative processes of 
 production, the process with the shortest production period should be chosen.

Policy : In certain industries the demand is subject to wide fluctuations

 Production Policy:
due to season
seasonal
al variat
variation
ions.
s. The workin
working g capita
capitall requir
requireme
ements
nts,, in such
such cases,
cases,
depend upon the production policy. The production could be kept either steady by
accumulating inventories during slack periods with a view to meet high demand
during the peak season or the production could be curtailed during the slack season

17
and increased during the peak season. If the policy is to keep production steady by
accumulating inventories it will require higher working capital.

Seasonal
Seasonal Variation
Variations:
s: In cert
certai
ain
n indu
indust
stri
ries
es raw
raw mate
materi
rial
al is no
nott avai
availa
labl
blee
throughout the year. They have to buy raw material in bulk during the season to
ensure an uninterrupted flow and process them during the entire year. A huge
amount is, thus, blocked in the form of material inventories during such season,
which give rise to more working capital requirements. Generally, during the busy
season, a firm requires larger working capital than in the slack season.

 Rate of stock turnover : There is a high

high degree of
of inverse co-relationship between
the quantum of working capital and the velocity or speed with which the sales are
affected. A firm having a high rate of stock turnover will need lower amount of 
working capital as compared to a firm having a low rate of turnover. For example,
in case of precious stone dealers, the turnover is slow. Thus the working capital
requirements of such a dealer shall be higher than that of a provision store.

Working Capital Cycle: In a manufactur

manufacturing
ing concern,
concern, the working
working capital
capital cycle
cycle
starts with the purchase of raw material and stores, its conversion into stocks of 
finished goods through work in progress with progressive increment of labour and
service costs, conversion of finished stocks into sales, debtors and receivables and
ultimately realization of cash and this cycle continues again from cash to purchase
of raw material and so on.

Credit policy: Credit policy of the concern its dealings with creditors and debtors
infl
influe
uenc
ncee the
the requ
requir
irem
emen
entt of work
workin
ing
g capi
capita
tal.
l. Conc
Concer
ern
n that
that pu
purc
rcha
hase
sess its
its
requirements on credit requires less working capital and vice- versa.

  Rate
Rate of Growth
Growth of Busine ss: The working capital requirements of a concern
Business
increa
increase
se with
with growt
growth
h and expans
expansion
ion of its busine
business
ss activi
activitie
ties.
s. Althou
Although
gh it’s
it’s
difficult to determine the relationship between growth in the volume of business
and the growth of working capital in the business, yet in the fast growing concern,
we shall require larger amount of working capital.

 Price Level Changes : Changes in working

working capital also
also effect the working
working capital
requirements. Generally the rising prices will require the firm to maintain larger 

18
amount
amount of worki
working
ng capita
capital,
l, as more
more funds
funds will
will requi
require
re mainta
maintaini
ining
ng the same
same
current assets .The effect of price changes may be different for different concerns.

 Earning Capacity and Dividend Policy: Some firms have more earning capacity
than others due to quality of their products, monopoly conditions etc. such firms
with
with high
high earn
earnin
ing
g capa
capaci
city
ty may
may gene
genera
rate
te cash
cash prof
profit
itss from
from op
oper
erat
atio
ions
ns and
and
cont
contri
ribu
bute
te to thei
theirr work
workin
ing
g capi
capita
tal.
l. Th
Thee divi
divide
dend
nd po
poli
licy
cy of a conc
concer
ern
n also
also
influences the requirements of its working capital. A firm that maintain a high rate
of cash
cash divide
dividend
nd irresp
irrespect
ective
ive of its genera
generatio
tion
n of profit
profitss needs
needs more
more worki
working
ng
capital that retains larger part of its profits and does not pay so high rate of cash
dividend.

Other Factors: Certain

Certain other factors
factors such as operating
operating efficien
efficiency,
cy, managemen
managementt
ability, irregularities of supply, import policy, asset structure, importance of labor,
 banking facilities etc, also influence the requirements of working capital.

19
METHODS OF WORKING CAPITAL

The following are the methods of the working capital:

MATCHING APPROACH:
The firm can adopt a financial plan which matches the expected life of assets with
the expected life of the source of the fund raised to finance assets. Thus a ten year 
loan may be raised to be financed with an expected life of ten year.
Stock of goods to be sold off in 30 days may be financed with the 30 days
commercial paper or bank loan.

CONSERVATIVE APPROACH:
A firm in practice may adopt a conservative approach in financing its current as
well as fixed assets. Under the conservative plan the firm finances the permanent
assets and also a part of the temporary assets with long term financing.
In the period when the firm has no need for temporary current assets than the long
term fund can be invested in the tangible securities to conserve the liquidity.

AGGRESSIVE APPROACH:
An aggressive policy is to be followed by the firm when it used more short term
finances than warranted by matching plan. Under the aggressive approach the firm
finances a part of the permanent current assets with the short term finances. Some
extremely aggressive firms may even finance a part of their fixed assets with the
short term finances. The relative short term finances make the firm more risky.

20
REVIEW OF LITERATURE

Impact of Working Capital Management Policies on Corporate Performance—An

Empirical Study
Sushma Vishnani
Bhupesh Kr. Shah
It is felt that there is the need to study the role of working capital management
  policies on profitability of a company. Conventionally, it has been seen that if a
company desires to take a greater risk
greater risk for bigger profits and losses, it reduces the
size of its working capital in relation to its sales. If it is interested in improving its
liquidity, it increases the level of its working capital. However, this policy is likely
to result in a reduction of the sales volume, therefore of profitability. Hence, a
company should strike a balance between liquidity and profitability. In this paper 
an effo
effort
rt has
has been
been made
made to make
make an empi empiri
rica
call stud
studyy of Indian
Indian Consum
Consumer er 
Electr
Electron
onics
ics Indust
Industry
ry for assess
assessing
ing the impact
impact of work
workining
g capi
capita
tall po
poli
lici
cies
es &
 practices on profitability during the period 1994–95 to 2004–05. The impact of 
work
workining
g capi
capita
tall po
poli
lici
cies
es on prof
profit
itab
abil
ilit
ity
y has
has been
been exam
examinined
ed   by comput
computing
ing
coefficient of correlation and regression analysis  between profitability ratio and
some key working capital policy indicator ratios.

Management of Working Capital

Nandini Sharma

"Management of short term assets and short run sources of finance is described as
working capital management. Working capital management is concerned with all
decisions and acts that influence the size and effectiveness of working capital. The
goal of working capital management is to manage each of the firm's current assets
and current liabiliti
liabilities
es in such a way that an acceptabl
acceptablee level of working capital
capital is
maintained. It is concerned with the determination of appropriate levels of current
assets and their efficient use as well as the choice of financing mix for raising the
current resources. "Proper management of working capital is very important for the
success of a concern. It aims at protecting the purchasing power of assets and
maximizing the return on investment. The manner of management of working
capital to a very large extent determines the success of operations of the concern.
Failure of business is undoubtedly due to poor management of working capital.
Shortage of working capital is so often advanced as the main cause of failure of an
industrial concern.

21
An Analysis of Working
Working Capital Management Results Across
Across
Industries
Greg Filbeck, Schweser Study Program
Thomas M. Krueger, University of Wisconsin-La Crosse

The importance of efficient working capital management (WCM) is indisputable.

Working capital is the difference between resources in cash or readily convertible
into cash (Current Assets) and organizational commitments for which cash will
soon
soon be requrequir
ired
ed (Cur
(Curre
rent
nt Liab
Liabil
ilit
itie
ies)
s).. Th
Thee ob
obje
ject
ctiv
ivee of work
workining
g capi
capita
tall
management is to maintain the optimum balance of each of the working capital
comp
compononen
ents
ts.. Busi
Busine
ness
ss viab
viabil
ilit
ity
y reli
relies
es on thethe abil
abilit
ity
y to effe
effect
ctiv
ivel
ely
y mana
manage
ge
receivables, inventory, and payables. Firms are able to reduce financing costs
and/or increase the funds available for expansion by minimizing the amount of 
funds tied up in current assets. Much managerial effort is expended in bringing
non-optimal levels of current assets and liabilities back toward optimal levels. An
optimal level would be one in which a balance is achieved between risk and
efficiency.

A recent example of business attempting to maximize working capital management

is the
the recu
recurr
rren
entt atte
attent
ntio
ion
n bein
being
g give
given
n to thethe appl
applic
icat
atio
ion
n of Six Six Sigm
Sigma®a®
methodology. Six Sigma® methodologies help companies measure and ensure
qual
qu alit
ity
y in all
all area
areass of thethe ente
enterp
rpri
rise
se.. When
When used
used to iden
identi
tify
fy and
and rect
rectif
ify
y
discrepanc
discrepancies,
ies, ineffici
inefficiencie
enciess and erroneou
erroneouss transacti
transactions
ons in the financial
financial supply
supply
chai
chain,
n, Six
Six Sigm
Sigma®a® redu
reducecess Days
Days Sale
Saless Outs
Outstatand
ndin
ing
g (DSO
(DSO),), acce
accele
lera
rate
tess the
the
 payment cycle, improves customer satisfaction and reduces the necessary amount
and cost of working capital needs. There appear to be many success stories,
including Jennifer Towne’s (2002) report of a 15 percent decrease in days that
sales are outstanding, resulting in an increased cash flow of approximately $2
million at Thibodaux Regional Medical Center. Furthermore, bad debts declined
from $3.4 million to $600,000. However, Waxer’s (2003) study of multiple firms
employing Six Sigma® finds that it is really a “get rich slow” technique with a rate
of return hovering in the 1.2 – 4.5 percent range.

22
23
FINANCE DEPARTMENT
Finance department looks into the cash inflow and outflow of the company finance
department headed by assistant vice president who responsible for three main
activities like.
Banking transaction including day dealing with the banks and updating the books
of accoun
account.D
t.Deal
ealing
ing with
with financ
financial
ial instit
instituti
ution
on for
for short
short term
term financ
financing
ing of the
company. Realization activities including for short term and long term financing of 
debtors after the sale of goods on credit.
General accounts
This department maintains all the books of accounts. It maintains the annual
accounts that are audited secretly. It also looks into to the government taxes excise
duty etc.

MIS-Management
MIS-Management INFORMATION SYSTEM
MIS fives a periodic report to about the financial matters of the company to the
head office and board of direction. MIS also handles the budgeting that is based on
the last two year experience and the prediction of the next three year based on that
it also works out of the company policy and helps in its implementation
The supplier will get the L/C and arrange shipment of the material as per order and
negotiate
negotiatess the documents
documents through
through bank.The
bank.The same
same will be delivered
delivered to the L/C
opening bank.
Wool top supply to spinning department for conversion into yarn for making
fabric.

24
25
26
27
CHAPTER 3

OBJECTIVES & RESEARCH METHODOLOGY

28
OBJECTIVE OF THE STUDY

Objective setting is the initial stage or starting point of any project to be

undertaken. It is essential to know what objectives means from the literally
or the study
study point of view.
view.

The main objectives of the study are:

To study the working capital management of PMP INDIA PVT LTD.

To study the various ratios related to inventory, receivable and payable.

To study the factors affecting the working capital.

To develop a practical approach towards problem solving by applying theoretical

knowledge.

29
RESEARCH METHODOLOGY

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

may be understood as a science of study how research is done systematically. This
research on working capital may be referred to as exploratory research in which
 problems and findings are generated from the calculations. When some deduction
is made from data then a problem is located regarding the same and reasons for the
same are also searched for. In the end suggestions and recommendations are made
to make research meaningful and worthy to improvise on the same.

DATA COLLECTION

Data is collected in two ways.

Primary data
Secondary data

The primary data refers to the data which is collected directly. It is collected by
observations, interviews, questionnaires etc. it is generally more accurate. It is
costly in the terms of time. One needs to be very careful while collecting this form
of data. Here primary data is collected from the employees of PMP INDIA PVT
LTD. The data related to financial statements and processes is collected from
finance department. Some production data is collected from various departments.

Secondary data refers to the data which is already collected by somebody. It is

generally collected from websites, magazines, journals etc. here data is collected
from annual report of company for financial analysis. Some data was provided by
company itself. And rest of the required data is collected from books like prasanna
Chandra, im pandey of financial management. Some of the data is also collected
from websites.

30
LIMITATIONS OF THE STUDY

Although full efforts have been made to complete and comprehensive the study on
working capital of PMP INDIA PVT LTD, So that the study could present a true
 picture, Inspite of all the care efforts there are some limitations such as:
Financial resources are limited.

The time of research was not that much sufficient that could be regarded as
opportunity to analyze WCM of such organization.

As data taken is secondary, so it cannot be said to give constant conclusions, as it’s

not revised to present situation.

Company planned training schedule, in which long time period was given to see
 production process of the unit.

31
CHAPTER 4

DATA PRESENTATION, ANALYSIS AND

INTERPRETATION

32
WORKING CAPITAL MANAGEMENT

In PMP INDIA PVT TD there are three main types of current assets.
stock 
sundry debtors
cash
Stock consists of 
raw material and components
stores and spare parts
stock in process
finished goods
Debtors consist of 
debt over six months
other departments
Cash includes
in hand
cash current account
fixed account

33
34
FINANCIAL POLICIES OF COMPANY

DEBTORS POLICIES IN OCM

Material is supplied to the party when the parties pay the invoices. Invoices are
 paid by the suppliers by 2 ways. The two ways are as follows:
Through Bank 
Direct Payment
THROUGH BANK: Suppliers can make the payment through Bank. This is a risky
way of payment for the company. Through bank payment can be made by two
ways that are as follows:
DA (Documents against Acceptance)
DP (Documents against Payment)
In DA. bank give the documents to the suppliers n supplier accepts the documents.
He does not give the money at that time but he make promise to pay the payment.
Bank give the documents on the bases of suppliers promise to pay.
In DP, direct payment is made by the suppliers. Bank take payment from the
supplier and give him the documents.
DIRECT
ECT PAYMENT ENT: In this mode, payment is made direct'. It can
 be made by cheque, draft, and at the centers. The

centers of unit are HDFC Bank and Corporation Bank. Payments are received
mostly by this method.
CREDIT NOTES
These are given to the customers. 10% discount is given to the items that have
minor defects. And the items having major defects are not sent for sales. Goods are
taken back in the later case.
SALES POLICY
FOI (FREE OF INTEREST POLICY): These are for the suppliers of the company.
The policy
policy is diffe
differen
rentt for
for diffe
differen
rentt suppli
suppliers
ers depend
depending
ing upo
uponn the partie
parties.
s. A
specific time period is given to the suppliers to pay the payment for the goods.
Time period given depends upon the amount of payment that he suppliers have to
 pay. In this time period no interest is charged from the suppliers.
Suppliers can make payment:
10lac upto 30Days
10 to 50 lakh upto 45 Days
& above 50 lakh a time period of 60 Days.

35
INTEREST POLICY
The parties that make late payment interest is charged from them. And interest is
given to the parties that make early payment.
The parties that make early payment interest is given as follows:

If the parties make payment within 15 Days then 18% interest is given to those
suppliers.
If the parties make payment after the 15 Days then 15% interest is given to the
supplier.
The parties that make late payment, interest is charged from them as follows:
If the payment is made within 60 Days after the due date then 15% interest is
charged from then
If the payment is made after 60 Days then interest charged is 18%.
INCENTIVE POLICY
To promote the sales, incentives are given to the suppliers depend upon their 
amount of payment. It is between 1 to 5 %. It is as follows:
Amount (in lakhs) Incentives (in %)

2.51 to 3.00 1.50

3.01 to 5.00 2.00

5.01 to 8.00 2.50

8.01 to 10.00 3.00

10.00 to 15.00 3.50

15.01 to 25.00 4.00

25.01 to 50.00 4.50

& Above'50 5.00

The suppliers have to pay 12% interest per annum as a security deposit.

36
 POLICY RELATED TO AGENT’S COMMISSION
Agents are the sales reprehensive of the company. Material is sold by these agents
to different parties. Parties can not buy material directly from the company. They
have to first visit
visit these agents. Booking of
of material (with Commission starts from
from
2 to 7 %. it depends upon the quality of the material they will sold, if the agent sell
material of high quality they are paid more commission. And if they sell low
quality they are paid low commission. Agents are given code. And materials are
also given codes. Their commission are calculated automatically by seeing their 
code and the code of the material they sold.
Eg. Pb C, here Pb stands for Punjab and C is for the quality of the material.
There's a agent in a state. Agent is responsible to receive the payment from the
 party. It is duty of the agent to receive the payment from the party. Every party has
a ledger account. To check the invoice and payment, balance is checked.

SIGNIFICANT
SIGNIFICANT ACCOUNTING POLICIES

1. Basis of
of preparat
preparation
ion of
of financia
financiall statemen
statementt

The financial statements have been prepared on a going concern basis under the
histor
historica
icall cost
cost conven
conventio
tion.
n. Accoun
Accountin
ting
g polici
policies
es not refer
referred
red to otherw
otherwise
ise are
consistent and in consonance with generally accepted accounting principles.
The company follows mercantile system of accounting and recognizes significant
items of income and expenditure on accrual basis. Whenever it is not possible to
determine the quantum of accrual with reasonable certainty e.g. insurance and
other claims, refund of custom/excise duty etc., these continue to be accounted for 
on settlement basis.

2. Sales
Sale
Saless are
are repo
report
rted
ed net
net of turn
turnov
over
er//trad
tradee disc
discou
ount
nts,
s, retu
return
rnss and
and clai
claims
ms..
Rebate/discount other than usual allowances accounted for as and when incurred.

3. Fixed assets
Fixed Assets are stated at their original cost (including other expenses related to
acquisition and installation) less depreciation.

4. Impairment of assets
An asset is treated as impaired when the carrying cost of the same exceeds its
recoverable amount. An impairment loss recognized in prior is reversed if there has
 been change in the estimate of the recoverable
amount.

37
5. Depreciation
Depreciation has been provided on fixed assets (except in case of lease hold land
which is being amortized over the period of lease ) on Straight Line Method in
accordance with the rates, on pro-rata basis, specified in schedule xiv of the
Companies Act, 1956.

6. Foreign currency transaction

Any income or expense on account of exchange difference either on settlement or 
on transaction is recognized in the Profit & Loss Account except in cases where
they relate to the loans and liabilities incurred for acquisition of fixed assets in
which case they are adjusted to the carrying cost of such Assets.

7. Treatment of expenditure during construction period

Expenditure during construction/erection
construction/erection period is allocated to the respective assets
on completion of such construction or erection.

8. Investments
Long term investments are stated at cost less provision for diminution in value
other than temporary, if any. Current investments are valued on category basis, at
cost or below cost, as the case may be.

9. Valuation of inventories
Inventories are valued at lower of cost and net realizable value, except waste, scrap
and by-products valued at net realizable value. Cost is computed on weighted
average basis. Finished goods and process stock include cost of conversion and
othe
otherr cost
costss incu
incurr
rred
ed in brin
bringi
ging
ng the
the inve
invent
ntor
orie
iess to the
the pres
presen
entt loca
locati
tion
on and
and
condition.
10. Borrowing costs
Interest cost relating to funds borrowed for acquisition of fixed assets is capitalized
up to the date asset put to use, and funds borrowed for other purposes is charged to
the Profit & Loss account.

38
SOURCES OF FINANCE

Firstly, we will consider different sources of finance from which the company
gets its working capital.

TRADE CREDIT: - Trade credit is the credit extended by the supplier in the
normal course of business.PMP INDIA PVT LTD has strong financial base it has
got very good reputation in the market. It is considered to be one of best paymaster 
among the suppliers, who in turn do not hesitate in extending normal credit period
to the company. In purchase of raw material no credit is allowed, but while
  purchasing the material in bulk quantity the company tries to obtain maximum
discounts offered by suppliers, such as quantity & cash discount.

ADVANCES: - Advances also form a part of working capital at PMP INDIA. An

advance from customers against orders is a short term source of finance for PMP
INDI
INDIA
A PVTPVT LTD.
LTD. Part
Partie
iess make
make the
the adva
advanc
ncee paym
paymen
entt befo
before
re rece
receiv
ivin
ing
g the
the
material.

FIXED DEPOSIT: - Fixed deposit is another source of finance for the company.
The company has fixed deposits scheme with option for quarterly payment of 
interest or payment of interest at the time of maturity along with principle amount.
However in both the cases maximum rate of interest is 10.5% for a deposit for 3
years and minimum rate of interest is 9.5% for a deposit for 1 year. In cumulative
scheme interest is being compounded at monthly basis. Company makes regular 
 payment of interest as well as of principle amount. The entire fixed deposit scheme
is computerized.

39
 WORKING CAPITAL BORROWINGS FROM BANKS:

Commercial banks are the most important source of short term finance. The major 
 portion of working capital is provided by commercial banks. They provide a wide
variety of loans tailored to meet the specific requirements of a concern. The
different form in which the banks normally provide loans and advances are as
follows:-

CASH CREDIT
PACKING CREDIT
CREDIT IN INDIAN RS.
RS. & IN FOREIGN CURRENCY
FOREIGN BILLS NEGOTIATION
DISCOUNTING OF INLAND BILLS UNDER LETTER OF CREDIT
SHORT TERM LOANS

a) Cash
Cash Credi t : Cash credit is an arrangement by which a bank allows his
Credit 
cust
custom
omer
erss to bo
borrrrow
ow mone
money y up to cert
certai
ain
n limi
limitt agai
agains
nstt hy
hypo
poth
thec
ecat
atio
ion
n of 
inventories, receivables etc. The company can operate cash credit account within
sanctioned credit limits. For this bank charges interest on the last balance of 
everyday. PMP INDIA has the following banks from which it takes the cash credit.

HDFC BANK 
CORPORATION BANK 
UNION BANK OF INDIA
BANK OF INDIA
STATE BANK OF INDIA
PUNJAB NATIONAL BANK 

b). Packing Credit : Packing credit is also popularly known as pre shipment credit.
It is sanc
sancti
tion
oned
ed by comm
commererci
cial
al bank
bankss to bo boos
ostt expo
export
rts.
s. It is avai
availa
labl
blee at
concessional rate of interest as compared to rates charged by banks on cash credit
acco
accoun
unt.
t. Pack
Packin
ing
g cred
credit
it is avai
availa
labl
blee in Indi
Indianan Rupe
Rupees
es as well
well as in fore
foreig
ign
n
curr
curren
ency
cy.. Pack
Packin
ing
g cred
credit
it acco
accoun
untt is nunull
llif
ifie
ied
d agai
agains
nstt pres
presen
enta
tati
tion
on of expo
exportrt
documents to the bank.
c).Foreign Bills Negotiation: After submission of export documents to the bank 
the pre shipment credit is converted into post shipment credit. Usually export
documents are drawn at sight, or against acceptance. Tenure of documents depends
on factor
factorss like
like countr
country,
y, produc
productt expor
exported
ted etc.
etc. Compan
Companyy negoti
negotiate
atess the export
export

40
documents and avail post shipment credit from the banks, which gets liquidated
after realization of export documents. At the time of negotiation bank charges
interest for the
for  the unexpired period from the company along with negotiation charges.
d).Discounting of Inland Documents Drawn Under Letter of Credit:
The company supplies goods to the customers against inland letter of credit drawn
in favor of OCM by customer. After dispatch of material to the customer the
 presents the documents to the bank for discounting and receives the amount from
the bank .
e.)Short term loans: Working capital borrowings from banks are secured by the
hypothecation of entire present and future tangible assets of the company and also
 personally guaranteed by the directors of the company.
f). Letter Of Credit: - A Letter Of Credit popularly known as L/C is an under 
taking by a bank to honor the obligation of its customer up to a specified amount,
should the customer failed to do so. In case the customer fails to pay the amount,
on the due date, to its supplier the bank assumes the liability of its customers for 
the purchases made under the L/C Arrangement. OCM also accepts the payment
from their customers on behalf of L/C, so it becomes the source of finance for 
them.

41
WORKING CAPITAL CYCLE IN PMP INDIA PVT LTD

Working Capital Cycle: In a manufacturing concern, the working capital cycle

starts with the purchase of raw material and ends with the realization of cash from
the sale of finished products. This cycle involves purchase of raw materials and
stores, its conversion into stocks of finished goods through work in progress with
 progressive increment of labor and service costs, conversion of finished stocks into
sales, debtors and receivables and ultimately realization of cash and this cycle
continues again from cash to purchase of raw material and so on.

42
 APPLICATION OF FUNDS
The major portion of company’s working capital consists of inventory, stores,
spar
spares
es,, fini
finish
shed
ed gogood
odss and
and work
work in progprogre
ress
ss etc.
etc. no
now
w we willwill disc
discus
usss them
them
separately:
1. Raw Material:
The major portion of company’s working capital consists of inventories. Company
  purch
purchase
asess machin
machineryery,, spares
spares,, waste
waste paper,
paper, chemic
chemicals
als for manuf
manufact
acturi
uring
ng ,raw
,raw
materi
materialal takes
takes around
around 20 to 40 days days to reach
reach at unit
unit from
from domestic
domestic as well as
international market. Consequently payment is made on the basis of installments
decided at the time of deal.
2. Work in process:
When raw material is purchased the next step is the processing of the material.
Material purchased has to process also. Working capital is needed for following
 purposes:
For the payment of direct labor.
Power supply
.
3. Stores and Spares:
Stor
Stores
es,, spar
spares
es,, oils
oils and
and lubr
lubricican
ants
ts,, pack
packin
ing
g mate
materi
rial
al,, chem
chemic
ical
alss are
are vari
variou
ouss
constituents of inventory of stores and spares. Indent is sent to material department
for procurement. They call quotations from various suppliers and place order to the
supplier who offers better price, quality, payment terms etc. Goods are received at
gate and then gate entry is done. Usually credit period offers by suppliers are 15
days, 30 days, 60 days. Bills duly processed by material department are received in
finance department where they are passed for payment. Finance department enters
thes
thesee bill
billss in comp
compututer
er givi
giving
ng indi
indica
cati
tion
on of du
duee date
date of paym
paymenent.
t. Fina
Financncee
department enters these bills on day to day basis. Fortnightly payment to suppliers
is made on 10 th and 25th of every month. List of bills due for payment is obtained
from computer. Other than this stock and spares normally account to minimum of 
4 crore at anytime, for future needs.

4. Finished goods:-
Finished goods are sold to their customers or debtors. The debtor policy mentioned
above shows the time period offered to pay back. This normally in one lot accounts
to Rs.25 crore.

43
DATA ANALYSIS AND INTERPRETATION
INTERPRETATION

Calculation of gross working capital

Stock 

PARTICULARS 2006 2007 2008

RAW 29541657 25381734 83170779
MATERIAL
WORK IN 39385321 35845838 70624168
PROCESS
FINISHED 173344236 138497501 103458859
STOCK 
STORES END 32494380 3036954 33284652
SPARES
WASTE AND 331750 549592 829249
SCRAP
TOTAL ST
STOCK 275097344 230644319 291367657

Debtors
44
Particulars 2006 2007 2008
Over 6 months 47784158 55639817 81444414
Other debtors 165657116 120134422 341898394
Less : Provision for doubt 35964581 44008482 41467189
debtors
Total debtors 177476693 131765757 381875624

Cash

45
Particulars 2006 2007 2008
Cash in hand 276837 71645 221360
On current account 745530 4555244 2739552
Fixed deposit 22000 64404693 40162000
Total cash 1044367 69031582 43122912

Loans and Advances :

Particulars 2006 2007 2008

Total loans and advances 35744752 22907167 33635982

Gross working Capital :

Particulars 2006 2007 2008

GWC 489363156 454348825 750002175
Grow
Growthth rate
rate (bas
(basee year 
year  - -7.15% 53.26%
2006)

46
47
 Net working capital :

Particulars 2006 2007 2008

Current assets 489363156 454348825 750002175
Current liabilities 205166434 188480460 265573692
NWC 284196722 265868365 484428483
Growth rate - -6.64% 70.45%

INTERPRETATION:
In the above
above calculatio
calculations
ns it is seen that condition
condition of the company
company is becoming
becoming
 better in 2008. Company has recovered from his downfall, or it can be said that
company
company is still recovering
recovering.. It can be clearly seen that
that stock has gone up for the
company in the year 2008 as compared to previous two years. It means company is
getting more orders to be placed in future. The debtors of the company have turned
up with positive response, which earlier in 2007 gone down because of company
was running under losses. Cash is now not left idle in 2008, which again is good
for company to effectively use its cash in day to day operations.
After a steep fall in gross working capital in year 2007 the company again jumped
to good required working capital.
recession struck badly in 2007 as company mostly deals in international market.
The company witnessed some bad response from his creditors and debtors also..
Company got business opportunities from abroad and 2008 again company had a
sound working capital to keep operations running. In all the three years 2008 is
 proving to be better year in financial terms

48
CASH MANAGEMENT

Cash is the most important current assets needed for the uninterrupted and efficient
efficient
flow of various operations of a firm. Cash basically is the business at all times. It is
also the ultimate output that is expected to be realized by selling of the product or 
service of a particular firm. In a narrower sense cash is used to cover currency and
generally accepted equivalent of a cash. Such as cheques, drafts and demand
deposits in banks. However a broader meaning of it includes near cash assets
marketable securities and time deposits. In banks that are characterised as being
reserve pool of liquidity that can be readily sold and converted into cash. They also
 provide a short term investment outlet for excess cash has to be invested while the
deposit has to be borrowed cash management seeks to accomplish this cycle, at a
minimum cost at the same time it also seeks to achieve liquidity and control.
In order to cash the uncertainity regarding the cash flow production an efficient
cash management should follow following steps.

1. Cash planning
Cash inflows and outflows should be planned to project cash surplus or depict for 
each part of the planning period. Cash budget should be prepared for this purpose.
2. Managing cash flows
The flow of cash should be so managed. The cash inflows should be accelerated
while, as far as possible, the cash outflows should be decelerated.
3. Optimum cash level
The firm should decide about the appropriate level of cash balances. The cost of 
excess cash and danger of cash deficiency should be matched to determine the
optimum level of cash balances.
4. Investing surplus ca
cash
The surplus cash balance should be properly invested to earn profits. The firm
should
should decide about the division
division of such cash balance between
between alternative
alternative short
term investment opportunities such as bank deposits, marketable securities
or intercorporate lending.

49
MOTIVES FOR HOLDING CASH

The firm need to hold the cash may be attributed to the following three motives:
Transaction motive
Precautionary motive
Speculative motive
Compensation motive
Basic strategies of Compsny to manage the cash
1. Stretching accounts payable
This implies that the firm pay its accounts payable as late as possible without
damaging its credit standing. However cash discount available on prompt payment
should also availed off.
2. Efficient inventory production management
Another strategy is to increase the Inventory turnover rate avoiding stock out for 
shor
shorta
tage
ge of stoc
stock
k by incr
increa
easi
sing
ng the
the raw
raw mate
materirial
al turn
turnov
over
er,, decr
decrea
easi
sing
ng the
the
 production cycle or increasing the finished goods.

3. Speeding collection of accounts receivable

This refers to the quick collection of receivables without loosing future sales. The
average collection period of receivable can be reduced by changes in the credit
terms, credit standards and collection policies.
.
To ensure speedy collection of receivables, firstly the firm grants a free of interest
 period to its customers. This is 15 to 20 days depending on the reputation of the
customer. During this period, no interest is charged from the customers. Although,
in case of delay in payment of the expiry of this period. The following rates are
charged
22-45 days - 18%
45-65 days - 20%
60-75 days - 22%
75-90 days - 24%
90 onwards - 26%

Seco
Second
ndly
ly cash
cash disc
discou
ount
nt is offe
offere
red
d to the
the cust
custom
omererss by the
the firm
firm regu
regula
larl
rly.
y.
Some
Someti
time
mess the
the comp
compan
anyy anno
announ
unce
cess some
some spec
specia
iall offe
offers
rs to spec
specif
ify
y the
the debt
debt
recovery which is bound by a particular condition that the customer would be
required to pay particular percentage of the total payment. Initially to be entered

50
for the cash discount. Thirdly, the firm has increased the customer management
services network. Earlier 20 banks offering the facility of cash collection, now the
number has increased to 27.
Calculation of cash position ratio:
Formula:
= Cash
C.L.

CASH POSITION RATIO

PARTICULARS 2006 2007 2008
CASH 1044367 69031582 43122912
CURRENT 20516643 18848046
LIABILITIES 4 0 265573692
CASH
CASH POSIT
POSITION
ION
RATIO 0.005 0.37 0.16

INTERPRETATION:
Cash position ratio in all the three years is not able to reach rule of 
thumb. It is matter of worry. In the 2007 ratio was 0.37 which has helped PMP
INDIA
INDIA LTD in the time of of real need.
need. But
But as company
company didn’t
didn’t ever store
stored
d much
cash in hand, and has always invested somewhere to prevent cash being idle, which
is positive sign for PMP INDIA. PMP INDIA has always returned its loans and
other liabilities in time. Because of this it holds good reputation from long time. So
it can be concluded that cash reserved with company is generally reserved out of 
every task that needs to be accomplished in time, but according to rule of thumb
firm must have at least ratio of 0.5 where PMP INDIA lacks.

51
OTHER RATIOS:

Current ratio :

Year C.A. C.L. Ratios

2006 489363456 205166434 2.38 :1
2007 454348825 188480460 2.41 :1
2008 750002175 265573692 2.82 :1

Quick ratio :

Year Quick Assets C.L. Ratios

2006 214265812 205166434 1.04 :1
2007 223704506 188480460 1.18 :1
2008 458634518 265573692 1.17 :1

INTERPRETATION:
Both the above ratios are speaking for good financial health.
The current ratio in all the three years is above rule of thumb i.e. 2:1, which is
considered to be satisfactory for the firm. Quick ratio is also above the rule of 
thumb, i.e. 1:1 which again is satisfactory far the company. This also covers the
shortcomings of the cash ratio. These all ratios show that liquidity is sound and
tells that company is fully able to meet any current obligations.

52
INVENTORY MANAGEMENT

Inventory contribution the most significant part of the current assets of PMP
INDIA for effective management of inventory and therefore the whole procedure
of inventory management is carried on in a systematic manner. Decision relating to
the procurement of inventory are primarily by the executive of the production
 purchase and marketing department
In case of contingencies following policies are obtained.
Whenever raw material is purchased transit insurance is done.
For insuring the building, furniture, fixtures etc. the following policies are there.
Fire insurance
Flood risk policy
Earthquake policy

53
INVENTORY PROCUREMENT IN
PMP INDIA PVT LIMITED

In order to forecast the future requirement of inventory ,it follow a very systematic
 procedure. The raw material is procured twice or thrice a day in case of a stores
and spares and other miscellaneous items.
Firstly a sales conference is held twice a year where dealers from country and
abroad are invited for bookings or order or the finished items for each season,
summer and winter once the booking are done . Then on the basis of demand of a
 particular variety feed back from the market future trends as well as the suppliers
of last season. A sales plan is prepared by the production planning and control
depa
depart
rtme
ment
nt head
headed
ed by the the depu
deputy
ty gene
genera
rall mana
manage
ger.
r. Th
This
is Th
Thes
esee orde
orderr are
are
communicated to the purchase department of arrangement are done to set the
finance from the banks. For this purpose banks issue letter of credit in favour of 
PMP INDIA. These 73 days of operating cycle will takes place when raw material
is already available. But in case the company has to purchase outside the whole
operating cycle will take almost 140 days.
Material procurement = 45 days
Operation = 73 days
Days given to debtors = 21 days
139 days

Hence the company maintains its inventory level keeping in view the operating
cycle and lead time and accordingly maintains its buffer stock and sets its reorder 
 point.
CALCULATION OF INVENTORY TURNOVER RATIO
INVENTORY TURNOVER RATIO:
Inventory Turnover Ratio = Cost of Sales
Average Inventory
Conversion period = 365
Inventory Turnover Ratio
Inventory turnover ratio (ITR) establishes the relationship between the sales during
a period and the average amount of inventory carried during that period.

54
Particulars 2006 2007 2008
Sales 436858856 522133945 966065240
Opening stock 1444170 173344236 138497501
Closing stock 1649795254 138497501 103458859
Average 87394203 151738513 120978180
inventory
ITR 4.99 times 3.44 times 7.99 times

INTERPRETATION:
Inventory turnover ratio has improved as compared to previous two
years. Inventory conversion period seems to be reduced in the year 2008. It is good
for the company. Here it is definitely beneficial as sales made were high and stock 
was also high in 2008. So company is getting good response from market for its
 products and it is more efficient in converting raw material to finished good.

55
RECEIVABLE MANAGEMENT

Receivables are defined as debt owned to the firm by the customers arising from
the sales of goods or services in the ordinary course of business. In other words
rece
receiv
ivab
able
less repr
repres
esen
entt an exte
extens
nsio
ion
n of cred
credit
it to cust
custom
omererss allo
allowi
wing
ng them
them a
reasonable period of time in which to pay for the goods they have received. The
sale of goods on credit is an essential part of the modern competitive economic
system credit sales are of ten treated as a marketing tool aid the sale of goods. It is
also variable to the customers as it arguments their resources it is particularly
appearing to those customers who cannot borrow from other sources or find it
expensive or cumbersome to do so. Thus the objective of receivable management
is to promote sales and profit until that point is reached where the return on
investment in further funding of receivables is less than the cost of funds raised to
finance to that additional credit however extension of credit involves risk also sold
on credit.
Cost benefit involved
The major categories of cost associated with the extension of credit and accounts
receivables are:

1. Collection cost
This involves
involves the administra
administration
tion cost incurred
incurred in collectin
collecting
g the accounts
accounts
receivable such as maintaining the staff, postage, etc. and also expenses involved
in acquiring credit information from outside parties.
2. Capital cost
This is the cost that a firm has to incur due to the time lag between making sales
and receiving payment meanwhile meeting its own obligation like payments of 
wages, procuring raw material etc.
3. Delinquency cost
These are the costs that arise when the firm makes extra effects on collecting
receivables when they become due for payments.
4. Default cost
This involves the bad debts that have to be written off as they cannot be realized.
Key decision areas in management of receivables
Credit policy
The first decision area is the determination of the credit policy. It has two broad
dimensions
Credit standards
Credit standards are the criteria which a firm follows in selecting customers for the
  purpose of credit extension. The firm may have tight credit standards or loose
credit standards.

56
Credit analysis
Credit
Credit standa
standards
rds influe
influence
nce the
the qualit
quality
y of the firm'
firm'ss custom
customers
ers.. There
There are two
aspects of the quality of customers, the time taken by customers to repay credit
obligations and the default rate.
Credit terms
The stipulations under the firm sells to customers are called credit terms. These
stipulations include
Credit period
The length of time which is extended to customers is called the credit period. It is
generally stated in terms of a net date.
Cash discount
A cash discount is a reduction in payment offered to customers induce them to
repay credit obligations within a specified period of time, which will be less than
the normal credit period. It is usually expressed as a percentage of sales.

Collection policy
A collection policy is needed because all customers do not pay the firm's bills in
time. The collection efforts aim at accelerating collections from slow payers and
reducing bad debt looses. The collection policy should ensure prompt and regular 
collections.

CALCULATION OF DEBTOR TURNOVER RATIO:

DEBTORS TURNOVER RATIO
Debtors turnover ratio= Sales
Average debtors
Collection Period = 365
Debtor’s turnover ratio
Percentage of debtors turnover in NWC
Particulars 2006 2007 2008
Debtors 177476693 131765757 381875624
NWC 284196722 265868365 484428483
percentage 62.4 49.5 78.8

57
Particulars 2006 2007 2008
Debtors 177476693 131765757 381875624
Sales 436858856 52133945 966065240
DTR (Times) 2.46 0.397 2.53

PARTICULARS 2006 2007 2008

DTR 2.46 3.96 2.53
AVERRAGE 148 DAYS 92 DAYS 144 DAYS
COLLECTION
PERIOD

INTERPRETATION:
DTR ratio is best in year 2007. But it is not that it was
 profitable for the firm. In the year 2007 company didn’t had much to collect from
outside because of lack of business. So leaving 2007, 2008 seems to be better than
other good busuiness year that is 2006. More of the collection is to be made from
foreign.
foreign. This is another
another reason for long collection
collection time. Overall it is not good for 
company.

58
 CHAPTER 5
SUMMARY CONCLUSION
AND SUGGESTIONS

SUMMARY

59
 The main purpose of this project undertaken was to study the working capital
management of PMP INDIA PVT LTD. Firstly, the basics of the working capital
manage
managemenmentt are explai
explained
ned in detail
detail.. It covers
covers meanin
meaning,g, need,
need, import
importanc
ancee of 
working capital management. Afterwards types of working capital are explained
i.e.
i.e. fixed
fixed and variab
variable
le workin
workingg capita
capital.
l. Then
Then the factor
factorss determ
determini
ining
ng workin
workingg
capital and working capital cycle are explained.
Research methodology and scope of the study is given in chapter no. 3. The study
had various limitations. Very less tools were used in analysis of the company.
Time was another constraint,as other objectives of training were also to be kept in
mind.
mind. Resear
Research
ch was more
more of an explor
explorato
atory
ry resear
research
ch which
which showed
showed valuab
valuable
le
results. Working capital management at PMP INDIA PVT LTD is having strong
 base. The different financial policies adopted by the company are really supporting
the company. Working capital cycle which starts from the purchase of raw material
to the realization of cash involves a long time span. This is because of nature of 
 business. Then every single aspect of working capial management was covered. In
cash
cash manage
managemen
mentt compan
companyy was having
having diffe
differen
rentt polici
policies
es for
for speedi
speeding
ng cash
cash
recovery. In inventory and receivables management both turnover ratios were good
as per nature of business and requirement of business.
Overall the crux of the study says company had sound financial base and is
recovering from recession good. Analysis were made on the basis of the data of 
year 2006, 2007, 2008. The data and ratios went more supportive in the year 2008
as compared to previous two years.

CONCLUSION

60
 After studying the
the components of working capital management
management system .It is found
that the company has a sound and effective policy and its performance is very
good, even in this bad recession situation.Company has managed to pose good
 profit.Company is competing well ar the domestic as well as at international level.
Compan
Company y has shown
shown increa
increase
se in curre
current
nt ratio,
ratio, growt
growth
h rate
rate in gross
gross worki
working
ng
capital,net working capital in the year 2008.sales of company and debtors have
also increased in 2008 as compared to 2006-2007.So we can say that the position
of company is good. All the ratios were speaking for strong financial output
 brought to the company in the year 2008. The company is matured
matured one and it has
contributed well in the countries growth and development and will continue to
  perform and contribute to the whole nation In conclusion we can say that the
compan
companies
ies manage
managemen
mentt is effect
effective
ive one and knoknows
ws well
well the manage
managemen
mentt of 
finance. That’s why it’s working capital management system is very good .

SUGGESTION

61
 For cash management the company largely upon the short term sources of funds.
Instead there should be a more systematic procedure of investing in the short term
securities. So far such decisions are centralized and lie in the hands of the head
office. There needs to be more decentralized in this respect so that more could be
invested in short term securities, which can be realized at any time to pay time to
 pay the short term liabilities
The company's ratio analysis shows too much of surplus liquidity in the hands of 
the company. This cash should not be left idle and should be invested .
The company should make disbursement from a centralized account , so that a
smaller cash balance would be needed at each branch and secondly , the company
would be able to control the schedule tightly and it would be easier to make
disbur
disbursem
sement
ent on the right
right day .in order
order to speed
speed up accoun
accounts
ts recei
receivab
vable,
le, the
company can adopt the lock box system. The would ensure quick recovery of 
receivables. The main advantage of lock box system would be:
The banks of PMP INDIA can handle the remittances prior to deposits at lower 
cost.
The processing time of such remittances is reduced since their collection process
faster than if PMP INDIA would have processed them for internal accounting
 purpose prior to their deposits in the box. This job could still be banks without
delaying the collection.
The major
major advant
advantage
age of accele
accelerat
rating
ing the collec
collectio
tion
n is reduc
reducee the firm's
firm's total
total
financing requirements. And by transferring the clerical function to the bank, the
firm may reduce its cost.

SWOT ANALYSIS

62
 STRENGTH
Thee bigg
Th bigges
estt stre
streng
ngth
th of PMP
PMP INDI
INDIA
A is its
its late
latest
st tech
techno
nolo
logy
gy and
and impo
import
rted
ed
machinery. Moreover, versatility is synonymous to PMP INDIAIn North India, the
 brand is perceived to be a premium and reliable brand because of its presence in
the market for over eight decades.
WEAKNESSES
Thee main
Th main weak
weakneness
ss of PMP
PMP INDI
INDIAA is a conv
conven
enti
tion
onal
al dist
distri
ribu
buti
tion
on chan
channe
nel.
l.
The company relies mainly on the agents for sales promotion.
The company spends less money on advertisement.
The company's capacity is too high thus the fixed cost remains the same at any
amount of production.
OPPORTUNITIES
in today's phase of recession, small units are rather lacking back. And thus PMP
INDIA can take advantage of this situation.

THREATS

BIBLIOGRAPHY

63
BOOKS

I.M.Pandey, “Financial Management” vikas publications.

Prasanna Chandra, “Financial Management Theory and Practice”.

S.K. Gupta and R.K. Sharma, “Financial Management”, kalyani publishers.

C.R. KOTHARI, “Research methodology”.

64