Professional Documents
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A SYNOPSIS
ON
Specialization: FINANCE
Remarks of Evaluator
Approved/Disapproved Approved/Disapproved
Session: 2009-2011
GJUS&T, Hisar
ANNEXURE-II
ANNEXURE-III
CERTIFICATE
This is to certify that Mr. ROHIT KUMAR THAPA, Enrolment No. 09061144045 has
preceded under by supervision his Research Project Report on “Managing with Zero Working
Capital” in the specialization area “FINANCE”.
The work embodied in this report is original and is of the standard expected of an MBA student
and has not been submitted in part or full to this or any other university for the award of any
degree or diploma. He has completed all requirements for Research Project Report and the work
is fit for evaluation.
ANNEXURE-IV
DECLARATION
This is to certify that the Project Report entitled “Managing with Zero Working Capital” is an
original and has not been submitted in part or full to this or any other university/institute for the
award of any degree or diploma.
Signature of candidate
Specialization: FINANCE
Session: 2009-2011
Introduction
Working capital is the comparison of current assets to current liabilities. For most organisations,
current assets exceed current liabilities and working capital therefore represents the liquid
reserves for meeting current obligations. Creditors prefer high levels of working capital since
they are concerned about receiving payment. However, management prefers low levels of
working capital since working capital earns an extremely low rate of return. Some companies are
now driving working capital to record low levels, so called Zero Working Capital. By keeping
working capital at zero, funds are released for many other opportunities.
This study discusses the use of "zero working capital management" could lead to greater benefits
for the enterprise point of view. "Zero Working Capital Management" by reducing the
Investment in current assets, so that their total working capital turnover ratio tends to the
smallest, for businesses to put more money into higher-yielding fixed assets or long-term
investment; by a large number of borrowing short-term debt to meet working capital needs,
reduce the corporate cost of capital. As a result, an increase from two aspects of the enterprise's
earning. In addition, the study also discusses the management methods for achieving an effective
way to make it operational. Finally, by combining the actual situation in our country and put
forward China's implementation of "zero working capital management" process should pay
attention to several problems.
Review of Literature
“On the zero working capital management” 2003, china university press.
The working capital to enterprises to implement a "zero working capital management", and strive
to achieve the goal of zero working capital, and its essence is to improve the use of capital
efficiency, with minimal investment to get the maximum output, the ideas and input-output
theory, the "best allocation of resources" principle is the same. Therefore, we can say "zero
working capital management," the basic principles and management of funds ideas, in our
corporate financial management theory and practice, has a certain reference significance and
practical value and application prospect of this method is worthy of us to explore and research.
One is that avoiding the fixed costs associated with a fixed-asset purchase will keep a company’s
total fixed costs lower than would otherwise be the case, which allows it to have a lower break-
even point, so that it can still turn a profit if sales take a turn for the worse.
Also, if there are few and meagre funding sources, the added variable costs will not seem like
much of a problem when weighed against the amount of cash that a company has just avoided
investing in fixed assets.
Finally, the centralization of operations and use of outsourcing will reduce the amount of
management attention that would otherwise be wasted on the outlying locations that are now no
longer there or the departments that have been shifted to a supplier. In smaller companies with a
dearth of managers, this is a major advantage.
“American Standard Prophet of Zero Working Capital” by Shawn Tully, June 13, 1994
Emmanuel Kampouris, the Egyptian-born CEO of American Standard, studies the Bible not just
for moral lessons, but for management guidance too. His idol is the redoubtable Nehemiah, who
in 445 B.C. rallied a small group of Israelites to rebuild the wall around Jerusalem in just 52
days. ''It's an example of excellent leadership and smart management,'' marvels Kampouris.
Inspired by the Old Testament, Kampouris is performing an epic feat of his own. In the past five
years he has overcome the double scourge of huge debt and depressed markets to steer his
company, a diversified manufacturer, from near ruin to robust health. Kampouris's strategy is a
model for managers in mature industries. He has succeeded by relentlessly reducing American
Standard's appetite for working capital especially that tied up in inventories.
Problem Statement
In the time of credit squeeze and softening economies, almost every company is looking for way
to reduce its fixed/current cost. In such difficult times, continuing with the traditional framework
of capital would not help companies to focus on long-term financial decisions. Thus, companies
are concerning more on short term investments especially on Working Capital. Working capital’s
effective provision can ensure the success of any business; its inefficient management can lead
to, not only loss but also the ultimate failure of the concern.
Research Methods
(a) Sources of data:
Sources of data are mainly Finance Journals, Articles and Newspapers. Some data
collected from the Annual Reports of the companies which are here studied in the
perspective of Zero Working Capital. Little help is also taken from the World Wide Web
and its reliable website data sources.
References
1. Jing new "Financial Management", China Renmin University Press, 1998 Clear
December 2nd edition reposted elsewhere in the paper for free download
2. Summer Fun book "Corporate Finance Financial Studies," Chinese Politics and Economy
Press, December 1998 Version 1
3. Gu Qi "Financial Management", Northeast University of Finance Press, 2000, Clear
December 3rd edition.
4. [US] Douglas K * Emery, "the company's financial management", the Chinese People's
University Press, November 1999.
Websites:
www.ft.com
www.financeyard.com
www.finance30.com
www.businessweek.com