SUMMER INTERNSHIP PROJECT WORK ON

“WORKING CAPITAL MANAGEMENT”

UNDERTAKEN AT

STERLING GENERATORS PVT LTD.

SILVASSA, DNH.

THE PROJECT SUBMITTED TO THE UNIVERSITY OF MUMBAI

FOR THE AWARD OF DEGREE OF
MASTER OF MANAGEMENT STUDIES (MMS)

SUBMITTED BY
ANIL RAMJI MISAL
MMS – FINANCE
ROLL NO. F 327
BATCH (2018 - 2020)

PARLE TILAK VIDYALAYA ASSOCIATION’S INSTITUTE OF

MANAGEMENT
VILE PARLE (E), MUMBAI – 400 057
2018-2020

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COMPANY CERTIFICATE

Page | 2
 Parle Tilak Vidyalaya Association’s
PTVA’s Institute of Management
(Approved by AICTE, DTE and Affiliated to university of Mumbai)

Telephone:- 022-26100100, Email: admin@ptvaim.com, Web: www.ptvaim.com

CERTIFICATE

I Mrs. Dr. Sucheta Pawar hereby Certify that Mr. Anil Ramji Misal, MMS
student of Parle Tilak Vidyalaya Association’s Institute of Management, has
completed a project title “Working Capital Management” - undertaken at
Sterling Generators Pvt. Ltd. in the Academic Year 2019-20. The work of the
student is original and the information in the project is true to the best of my
knowledge.

Dr. Sucheta P. Pawar Dr. Harish Kumar S. Purohit

Faculty Guide Director

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 DECLARATION

I, MR. Anil Ramji Misal MMS Student of Parle Tilak Vidyalaya Association’s
Institute of Management (PTVA’S IM), hereby declare that I have completed the
project titled “WORKING CAPITAL MANAGEMENT” UNDERTAKEN at
STERLING GENERATORS PVT LTD. During the academic year 2019 the
report work is original and the information/data and the references included in the
report are true to the best of my knowledge.

(Signature of the Student with Date)

ANIL RAMJI MISAL

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 ACKNOWLEDGEMENT

It gives me great pleasure to deep sense of gratitude towards Mrs Dr. Sucheta
Pawar for her guidance, motivation and help.

I would like to express my thanks to Dr. Harish Kumar S. Purohit and other
staff of PTVA’s Institute of Management for providing an environment to
complete project successfully.

My heartfelt gratitude and thanks to all those who have helped me for completing
my project.

I am also thankful to my colleagues and friends for their suggestion and support.

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 TABEL OF CONTENTS
CHAPTER TITLE PAGE NO.
NO.
1 INTRODUCTION 10

2 OVERVIEW OF ELECTRICITY AND POWER SECTOR 11

2.1 Electricity and power sector
3 PROFILE OF STERLING GENERATORS PVT LTD 12
3.1 Introduction
3.2 Present staus
3.3 Competitors
3.4 Company details
3.5 Product
4 LITERATURE REVIEW 15

5 OBJECTIVES & NEED FOR THE STUDY 17

5.1 Objectives
5.2 Need for the study

6 RESEARCH METHODOLOGY 18
6.1 Data collection
6.2 Tools used
6.3 Formulas used for ratio analysis
6.4 Importance of working capital ratios

7 DATA ANALYSIS 21
7.1 Concepts used
7.2 Analysis of working capital for the five years ended
7.3 Statement of change in working capital
7.4 Liquididty & working capital ratios
7.5 Calculation of operating cycle
7.6 Findings
8 FINDINGS AND LIMITATION 37

9 RECOMMENDATIONS AND SUGGESTIONS 39

10 CONCLUSION 40
11 BIBLOGRAPHY 41
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 LIST OF TABELS

TABEL TABEL OF PAGE

NO. NO.
1 Importance of working capital 20
2 Data of five years ended 22
3 Net working capital for five years ended 23
4 Statement showing change of working capital in 2015 to 2016 24

5 Statement showing change of working capital in 2016 to 2017 25

6 Statement showing change of working capital in 2017 to 2018 26

7 Statement showing change of working capital in 2018 to 2019 27

8 Current ratio 28
9 Liquidity ratio 29
10 Proprietary ratio 30
11 Raw material conversion period 31
12 Work in progress conversion period 32
13 Finshed good conversion period 33
14 Inventory conversion period 34
15 Debtors collection period 35
16 Gross operating cycle in days 36
17 Creditors payment periods in days 37
18 Net operating cycle 38

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 LIST OF CHARTS

CHART CHART PAGE

NO OF NO
1 Net working capital 24
2 Current ratio 28
3 Liquidity ratio 29
4 Proprietary ratio 30
5 Raw material conversion period in days 31
6 Work in progress conversion period in days 32
7 Finished goods conversion period in days 33
8 Inventory conversion period in days 34
9 Debtors collection period 35
10 Gross operating cycle 36
11 Creditors payment period in days 37
12 Net operating cycle 38

LIST OF FIGURES

SR.NO LIST OF FIGURES PAGE

NO.
1 Figure 3.5.1 Product Image 14

2 Figure 6.1.1 Secondary data 18

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 EXECUTIVE SUMMARY

The working capital management refers to management of the working capital, or to be more
precise, the management of current assets. A firm’s working capital consists of its investments in
current assets which include short term assets such as cash &bank balance, inventories,
receivables(including debtors &bills), &marketable securities. So, the working capital
management refers to the management of the level of all these individual current assets. The
need for working capital management arises from two considerations. First, existence of working
capital is imperative in any firm. The fixed assets which usually requires a large chunk of total
fund , can be used at an optimum level only if supported by sufficient working capital , &
second, the working capital involve investment of funds of the firm. If the working capital level
is not properly maintained & managed, then it may result in unnecessary blocking of scare
resources of the firm. The insufficient working capital, on the other hand, put different
hindrances in smooth working of the firm. Therefore, the working capital management needs
attention of the entire financial manager.
The working capital management includes the management of the level of individual current
asset as well as the management of total working capital. However, each individual current asset
has unique characteristics which the financial manager must consider in deciding how much
money should be invested in each of these current assets. In other words, he must decide the
level of all current assets.
The financial management of business firms involves: the management of long term assets, fixed
assets, management of capital and management of short term assets and liabilities. The first of
three functions is the capital budgeting, the second is the management of capital structure and the
last but not the least is the management of working capital.
Dr. Shailesh Kasande, “Research Methodology”, First Edition, February 2015, Nirali Prakashan
books helps me for gathering correct data from the all the available data about the project.

The study is to be completed within a period of two months, so the scope of study is determined
in such a way that it will be completed successfully in such time limit.
.

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 CHAPTER 1 INTRODUCTION

Whatever may be the organization, working capital plays an important role, as the
company needs capital for day to day expenditure. Thousands of companies fail each year due to
poor working capital management practices. Entrepreneurs often don’t Account for short term
Disruptions to cash flow and are forced to close their operations.

In short working capital is an excess of current asset over the current liabilities. Good working
capital management reveals higher return of current asset than the current liabilities to maintain a
steady liquidity position of the company. Otherwise working capital is the requirement of fund to
meet the day to day working expenses. So a proper way of management of working capital is
highly essential to ensure a dynamic stability of the financial position of an organization.

The financial management of business firms involves: the management of long term assets,
fixed assets, management of capital and management of short term assets and liabilities. The first
of three functions is the capital budgeting, the second is the management of capital structure and
the last but not the least is the management of working capital.

Working capital is one of the most fundamental measures of a firm’s financial strength. If a firm
possesses a significant value of liquid assets, it can easily fund its day-to-day business
obligations.
Working capital management is the way in which a firm manages both its current assets and
current liabilities.

Good working capital management is characterized by:

Maintaining optimal cash balances
Investing any excess liquid funds in marketable securities that provide the best possible return,
considering any liquidity or default-risk constraints
Effectively managing accounts receivables
Efficiently managing inventory
Maintaining an appropriate level of short-term financing in the least expensive and most flexible
Manner.

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 CHAPTER 2 OVERVIEW OF ELECTRICITY AND POWER
SECTORS IN INDIA

2.1 Electricity and power sectors

The electricity industry in India has evolved significantly to provide a wide range of
opportunities across the value chain, in both, the regulated as well as deregulated businesses.
Our market is the world’s fifth largest in terms of generation capacity and the third largest in
term of network. The growing demand, network extension and upgradation, reduction in
energy intensity, unboundling of supply services and growth of cross-border trade present
various opportunities for this industry. However, a number of challenges remain, such as of
fuel supply, counter-party risk posed by distribution companies, monopoly restrictions on
open access and the availability of project finance.

We have been active advisors to the electricity industry since 1991 and associated with
many landmark developments over this time. The power sector advisory team has over 150
specialist staff brining a rich life-cycle experience or scaling their electricity business in
India.

The power industry is the backbone of the industrial world, supplying essential energy to
industrial, manufacturing, commercial and residential customer around the globe. In
developed economies with mature power markets, investment is drive by transition Of fuel
and energy sources, increased environmental fleet and transmission/distribution
infrastructure. In contrast, developing economies continue to expand their power bases to
meet growing demand for electricity-starved regions. For these reasons, the power industry
continues to have the largest investments and number of projects in the industrial world.

Industrial info offers the most extensive market intelligences for the power industry,
providing timely and accurate information. Our global research teams identify and
constantly update key details regarding project spending in the industry as well as pre-
commissioned, commissioned and decommissioned plants around the world. In addition to
identifying and tracking important information on capital and maintenance project events,
we also provide vital details on equipment in existing power stations. This includes
information for the generation and T&D sectors as well as emerging segments such as
battery storage and micro-grids.
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 CHAPTER 3 PROFILE OF STERLING GENERATORS PVT LTD.

3.1 INTRODUCTION.

Sterling Generators Pvt. Ltd. is a manufacturing unit situated at Silvassa. It’s headquarter is at
Mumbai. The name of Chairman is Khurshed Daruwala and the president of the Company is
Nagendra M. Singh.

The Products Manuf

Sterling Generators is a single point DG power solution provider started in 2005 and is one of the
Asia’s largest Diesel Generators manufacturing plant at Silvassa which is spread over a vast area
of 45000 square meter property. It includes a 14 tank pretreatment plant for surface treatment
and powder coating.

The company partners like Escorts-India, MTU-Germany, Perkins-UK, Volvo-Sweden and

MHEPL-India has helped company to bring efficiency, reliability and adherence to global
emission norms.

3.2 Present Status:

Manufactures DG Sets upto 3 MW

Electrical LT, HT and MV Panels

Future Aspirations: Increase capacity upto Rs. 1000 Cr.

3.3 Competitors are:

Caterpillar, Cummins, Wartsila, Kirloskar, MTU, Escorts, Super Nova, GEMCO, Lotus,
Schneider, Adlec, Legrand, Ambit, C&S, L&T

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3.4 COMPANY DETAILS

CIN U99999MH1995PTC085899

Company Name STERLING GENERATORS PRIVATE LIMITED

Company Status Active

RoC RoC-Mumbai

Registration Number 85899

Company Category Company limited by Shares

Company Sub Non-govt company

Category

Class of Company Private

Date of Incorporation 24 February 1995

Age of Company 24 years, 0 month, 9 days

Activity EXTRA TERRITORIAL ORGANIZATIONS AND

BODIES

Number of Members 5

Share Capital & Number of Employees

Authorised Capital ₹ 1,000,000,000

Paid up capital ₹ 300,000,000

Listing and Annual Compliance Details

Listing status Unlisted

Date of Last Annual General Meeting 29 September 2018

SOURCE COMPIELD FROM COMPANY WEBSITE STERLING GENERATORS PVT LTD.

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3.5 Product

DIESEL GENSET MODEL

SGE 12.5 PR
Figure 3.5.1

Optional equipment and finishing shown. Standard

may vary.

PRODUCT HIGHLIGHTS

►Engine
● CPCB II compliant
● Fast load response
● Stable frequency
● Low vibrations and structure borne noise level
● Competitive fuel and lube oil consumption
● High power to weight ratio
● Proven low life cycle cost

►D. G. Package
● Highly optimised and efficient package design
● Excellent performance under most demanding environmental conditions
● Near zero down time for continuous power supply
● Sturdy base frame made from folded sheet metal for increased strength
● Efficient anti-vibration mounts
● Stringent shop floor testing to ensure class leading, hassle-free performance
● Testing carried out using state-of-the-art PLC based, resistive load bank

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 CHAPTER 4 LITERATURE REVIEW

Jain P.K. and Yadav Surendra (2001) studied the corporate practices related to
management of working capital in india, Singapore and Thailand. In this paper the authors
have tried to understand the working capital management and current assets and current
liabilities, and their inter-relationship. Further the authors have shown an aggregative
analysis of current assets and current liabilities in terms of major liquidity ratios. It also
states working capital position in terms of these ratios pertaining to various industries. From
the paper one can infer that the available data in respect of the sample companies from the
three countries confirm the wide inter-industry variations in liquidity ratios. Towards the
end, the authors suggest that serious consideration needs three countries in order to take
corrective measures to take care of and rectify the areas of concern.

Howorth Carole and Westhead Paul (2003) have studied to find out the working capital
management routines of a large random sample of small companies in the UK. Considerable
variability in the take-up of eleven working capital management routines was detected.
Principal components analysis and cluster analysis confirmed the identification of four
distinct “type” of companies with regard to the patents of working capital management.
While the first three ‘types’ of companies focused upon cash management, stock or debtors
routines respectively, the fourth ‘type’ was less likely to take-up any working capital
management routines. The objective of the study is to encourage additional research rather
than to provide an exhaustive overview of all the factors associated with the take-up of
working capital management routines by small companies. The results suggest that small
companies focus only on areas of working capital management where they expect to
improve marginal returns.

Mr. Shivakumar and Dr. N Babitha Thimmaiah (2016) studied the working capital
management of coal india ltd to examine the liquidity position of coal India Ltd to know the
relationship between the liquidity and profitability. Working capital supports the day-to-
today operations of the firm. As it included items like cash, inventory, receivables, payables
etc the working capital shows the activities of the companies. Referring to the satisfactory
for the study period
The firm has shown significant improvement in the performance in terms of liquidity and
profitability aspects. However, there is a need for improvement in some ratios related to
debtors and working capital turnover in order to enhance the liquidity and profitability

Page | 15
position to the greater level. Overall the working capital performance of coal India ltd is
satisfactory.

Bhunia Amalendu (2010) studied how India Pharmaceutical Industry has played a key role
in promoting and sustaining development in the vital field of medicines. Financial analysis
often assesses a firm’s production and productivity performance, profitability performance,
liquidity performance, working capital performance, fixed assets performance, fund flow
performance and social performance. The study concludes with the observation that the
financial performance of the selected pharmaceuticals’ liquidity position was strong in case
of KAPL and RDPL, thereby reflecting the ability of companies to pay short term
obligations on due dates. Long-term solvency in case of KAPL and RDPL in all the years
shows that companies relied more on external funds in terms of long-term borrowings,
thereby providing a lower degree of protection to the creditors. Debtors turnover ratio of
RDPL needs to be improved as the solvency of the firm depends upon the sales income
generated from the use of various assets.

Akoto Richard K., Vitor Dadson A. and Angmor Peter L. (2013) closely studied the
relationship between working capital management policies and profitability of the thirteen
listed manufacturing firms in Ghana. At the end of the study, a significantly negative
relationship between profitability and accounts receivable days is found to exist.
Profitability is significantly positively influenced by the firm’s cash conversion cycle
(CCC), current assets ratio and current asset turnover. It is also suggested that managers can
create value for the shareholders by creating incentives to reduce their accounts receivable
to 30 days.

Kouma guy, (2001) a studied on “working capital management in health care”.

Working capital is the required to finance the day to day operations of an organization.
Working capital may be require to bridge the gap between buying of stocked items to
eventual payment for goods sold on account. Working capital also has to fund the gap when
products are on hand but being held in stock. Products in stock are at full cost. Effectively
they are company cash resources which are out of circulation therefore additional working
capital is requires to meet this gap which can only be reclaimed when the stocks are sold
(and only if these stocks are not replaced) and payment for them is received. Working
capital requirement have to do with profitability and much more to do with cashflow.

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 CHAPTER 5 OBJECTIVES & NEED FOR THE STUDY:

5.1 OBJECTIVES

 To examine the pattern of management of working capital and analyze the working
capital trends.

 To evaluate inventory management in sterling generator private limited , silvassa (Dadra

and Nagar Haveli)

 To evaluate the efficiency and liquidity of working capital Management in To analyze

receivable management in sterling generator private limited , silvassa (Dadra and Nagar
Haveli)

 To examine cash management practice in sterling generator private limited , silvassa (Dadra
and Nagar Haveli.)

5.2 NEED FOR THE STUDY:

Working capital is one of the important measurement of the financial position is the life
blood and nerve centre of the business. A firm’s profitability is determined in part by the
way its working capital is maintained. The objective of working capital management is to
manage firm’s balance sheet in such a way that a satisfactory level of working capital is
maintained. The present study is confined to the data provided by the organisation for the
past five ended on 31st march 2017.

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 CHAPTER 6 RESEARCH METHODOLOGY

6.1 Data Collection

PRIMARY DATA:

Primary data are those which are collected after and for the first time, and thus happen to be
original in character.

SECONDARY DATA:

It’s the data collection from the various alternative sources available such as:
Figure 6.1.1

SECONDARY
DATA

Articles Journal Internet Report

The Primary data was collected through interaction with organization guide and secondary
data was collected from annual report of past five years of the company, internet and
company website.

6.2 TOOLS USED:

Ratio Analysis

6.3 FORMULAs USED FOR RATIO ANALYSIS:

1. Current Ratio = Current Assets

Current Liabilities

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 2. Liquid Ratio = Current Assets – stock
Current Liabilities

3. Proprietary Ratio = Shareholder’s funds

Total Assets
4. Raw Material Conversion period = Raw material inventories * 365
Raw material consumed

5. Work in progress conversion period = Finished goods inventory*365 Sales

Consumed
6. Inventory Conversion Period = Raw material conversion period in days + work in
progress conversion period in days + finished goods conversion period in days

7. Debtors conversion period = Debtors*365

Sales

8. Gross operating cycle = inventory conversion period + debtors conversion period (in
days)

9. Creditors payments Period (in Days) = Trade Creditors*365

Cost of sales
10. Net operating Cycle = Gross operating Cycle – Creditors Payment Period

6.4 IMPORTANCE OF WORKING CAPITAL RATIOS:

The ratios analysis can be used by financial executive to check the efficiency with which
working capital is being used in the enterprise. The following are the important ratios to
measures the efficiency of working capital. The following easily calculated, ratios are
important measures of working capital utilization.

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 Table no 1 Importance of working capital ratio.

₹ Formula Result Interpretation

The average of the turnover value is to entries the stock

every x days. You may need to break this down into
Stock turnover Average stock / product groups for effective stock management. Obsolete
(in days) Cost of goods stock, slow moving lies will extinct overall stock
sold*365 =X days turnover days. Faster production fewer product lines, just
in time ordering will reduce average days.
It takes average x days to collect monies due to you. If
Receivable Debtors/ the official credit term are 45 days and it takes you 65
Ratio Sales*365 = X days days one or more large or slow debts can drag out the
(in days) average days. Effective debtor management will
minimize the days.
On average you pay your supplier every x days. you
Creditors/cost negotiate better credit terms this will be increase if you
Payables ratio of sales = X days pay earlier.
( in days) (or purchase)*365

The current ratio is the classic measure of liquidity. It

indicates whetherthe business can pay debts due within
one year out of the current assets. The current ratio
Total current asset/ reveals how much “cover” the business has for every £1
Current ratio total current that is owed by the firm. For example, a ratio of 1:5:1
liabilities would mean that a business has £1.50 of current assets
for every £1 of current liabilities.

Total current assets Similar to the current ratio but take account of the fact
Quick ratio inventory/ total that it may take time to convert inventory invest cash.
current liabilities

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 CHAPTER 7 DATA ANALYSIS
Con
7.1 Concepts used
Gross Working Capital:
The concept of gross working capital refers to the total value of current assets. In other
words, gross working capital is the total amount available for financing of current assets.
However, it does not reveal the true financial position of an enterprise. How? A borrowing
will increase current assets and, thus, will increase gross working capital but, at the same
time, it will increase current liabilities also.

Gross Working Capital = Total Current Assets

Net Working Capital:

The net working capital is an accounting concept which represents the represents the excess
of current assets over current liabilities. Current assets consist of items such as cash, bank
balance, stock, debtors, bills receivables, etc. and current liabilities include items such as
bills payables, creditors, etc. excess of current assets over current liabilities, thus, indicates
the liquid position of an enterprise.

The ratio of 2:1 between current assets and current liabilities is considered as optimum or
sound. What this ratio implies is that the firm/ enterprise have sufficient liquidity to meet
operating expenses and current liabilities. It is important to mention that net working capital
will not increase with every increase in gross working capital. Importantly, net working
capital will increase only when increase only when there is increase in current assets without
corresponding increase in current liabilities

Thus, in the form of a simple formula:

Net Working Capital = Total Current Assets – Total Current Liabilities.

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7.2 ANALYSIS OF WORKING CAPITAL FOR THE FIVE YEARS ENDED 31 ST
MARCH 2019
A) Estimation of working capital for the five years ended 31st march 2017

Table no: 2 Data of Five Years Ended

Particulars 2015 2016 2017 2018 2019
Current Asset (Amount in (Amount in (Amount in (Amount in (Amount in
Crore) Crore) Crore) Crore) Crore)
Inventories 9,563.32 10,271.54 7,994.07 10,707.06 8,971.85
Trade receivables 17,845.50 17,490.37 28,356.93 27,135.23 23771.38
Cash and Bank 35.65 427.97 2347.74 271.213 107.97
Balance
Short term loans 90.10 54.96 2537.26 5478.71 3895.65
And advances
Other Current 3295.36 2212.89 1995.28 3647.96 5884.79
Asset
Total Current 30829.93 30458.73 43225.28 47240.173 42631.67
Asset (A)
Current liabilities
Short Term
Borrowings 23629.60 15441.44 8080.57 15882.71 11134.73
Trade payables 11264.90 9234.07 22890.40 19324.73 19627.71
Other current
Liabilities 709.96 678.48 1636.08 1474.10 1792.84
Short term
Provisions 192.99 208.02 226.55 254.92 54.44
Total Current
Liability (B) 35797.45 25562.01 32833.6 36936.46 32609.72
Net Working
Capital (A-B) -4967.52 4896.72 10391.68 10303.713 10021.95
Source: compiled from annual report of sterling generators pvt ltd.

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 Table no: 3 Net Working Capital For five year ended

Year Current Assets Current Liabilities Net Working Capital

(Amount in lakhs) (Amount in lakhs) (Amount in lakhs)

2015 30829.93 35797.45 -4967.52
2016 30458.73 25562.01 4896.72
2017 43225.28 32833.6 10391.68
2018 47240.173 36936.46 10303.713
2019 42631.67 32609.72 10021.95

Chart No. 1 Net Working Capital

10391.68 10303.713 10021.95

4896.72

2015 2016 2017 2018 2019

-
4967.52

Interpretation:

This chart shows that during the year 2015 the Company’s working capital was ₹ -4967.52
lakhs which increased to ₹ 10021.95 lakhs in the year 2019.

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7.3 STATEMENT OF CHANGE IN WORKING CAPITAL:
(A) Statement of change in working capital for the year ended of 2015 to 2016

Table No: 4 Statement Showing Change of Working Capital In 2015 to 2016.

Particular 2015 2016 Increase in Decrease in

Working Working
Capital Capital
Current assets (Amount ₹ (Amount ₹ (Amount ₹ (Amount ₹
in crore) in crore) in crore) in crore)
Inventories 9563.32 10271.54 708.22
Trade receivables 17845.50 17490.37 355.13
Cash and bank 35.65 427.97 392.32
Balance
Short term loans and 90.10 54.96 35.14
Advances
Other current assets 3295.36 2212.89 1082.47
Total Current Assets 30829.93 30457.73
(A)
Current Liabilities
Short term borrowing 23629.60 15441.44 8188.16
Trade payables 11264.90 9234.07 2030.83
Other current 709.96 678.48 31.48
Liabilities
Short term provision 192.99 208.02 15.03
Total current liability 35797.45 25562.01
(B)
Working capital (A- -4967.52 4895.72 11351.01 1487.77
B)
Increase In Working 9863.24 9863.24
Capital
4895.72 4895.72 11351.01 11351.01
Source: compiled from annual report of sterling generators pvt ltd.

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Interpretation:

The statement shows the changes in working capital from the year 2015 & 2016. Net
working capital in 2015 &2016 has been ₹ -4967.52 lakhs and ₹ 4895.72 lakhs respectively.
It shows that working capital has increased by ₹ 9863.24 lakhs in the year 2016.

(B) Statement of Change in Working Capital for the Year Ended of 2016 to 2017.

Table no: 5 Statement Showing Change of Working Capital in 2016 & 2017.

Particulars 2016 2017 Increase Decrease

In In
Working Working
Capital Capital
Inventories 10,271.54 7,994.07 2277.47
Trade receivables 17,490.37 28,356.93 10866.56
Cash and bank balance 427.97 2341.74 1913.77
Short term loans and 54.96 2,537.26 2482.3
Advances
Other current assets 2212.89 1995.28 217.61
Total Current Assets (A) 30457.73 43225.28
Current Liabilities

Short term borrowing 15441.44 8080.57 7360.87

Trade payables 9234.07 22890.40 13656.33
Other current liabilities 678.48 1636.08 957.6
Short term provision 208.02 226.55 18.53
Total current liability (B) 25562.01 32833.6
Working capital (A-B) 4895.72 10391.68 22623.5 17127.54
Increase In Working 5495.96 5495.96
Capital
10391.68 10391.68 22623.5 22623.5
Source: compiled from annual report of sterling generators pvt ltd.

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 Interpretation:
The statement shows the change in working capital from the year 2016 to 2017. Net working
capital in 2016 & 2017 has been ₹ 4895.72 lakhs and ₹ 10391.68 lakhs respectively. It
shows that working capital has increased by ₹ 5495.96 lakhs in the year 2017.

C. Statement of Change in Working Capital for the Year Ended of 2017 to 2018.
Table no: 6 Statement Showing Change of Working Capital in 2017 & 2018.

Particulars 2017 2018 Increase Decrease

In In
Working Working
Capital Capital

Inventories 7,994.07 10,707.06 2712.99

Trade receivables 28,356.93 27,135.23 1221.7
Cash and bank 2341.74 271.213 2070.527
Balance
Short term loans and 2,537.26 5,478.71 2941.45
advances
Other current assets 1995.28 3647.96 1652.68
Total Current Assets 43225.28 47240.173
(A)
Current Liabilities
Short term borrowing 8080.57 15882.71 7802.14
Trade payables 22890.40 19324.73 3565.67
Other current 1636.08 1474.10 161.98
liabilities
Short term provision 226.55 254.92 28.37
Total current liability 32833.6 36936.46
(B)
Working capital (A- 10391.68 10303.713 11034.77 11122.737
B)
Dec In Working 87.967 87.967
Capital
10391.68 10391.68 11122.737 11122.737
Source: compiled from annual report of sterling generators pvt ltd.

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(D). Statement of Change in Working Capital for the Year Ended of 2018 to 2019.

Table no: 7 Statement Showing Change of Working Capital in 2018 & 2019.

Particulars 2018 2019 Increase Decrease

in In
Working Working
Capital Capital
Inventories 10,707.06 8,971.85 1735.21
Trade receivables 27,135.23 23,771.38 3363.85
Cash and bank 271.213 107.97 163.243
balance
Short term loans 5,478.71 3,895.68 1583.03
and advances
Other current assets 3647.96 5884.79 2236.83
Total Current 47240.173 42631.67
Assets (A)
Current Liabilities
Short term 15882.71 11134.73 4747.98
borrowing
Trade payables 19324.73 19627.71 302.98
Other current 1474.10 1792.84 318.74
Liabilities
Short term 254.92 54.44 200.48
Provision
Total current 36936.46 32609.72
liability (B)
Working capital 10303.713 10021.95 7185.29 7467.053
(A-B)
Dec In Working 281.763 281.763
Capital
10303.713 10303.713 7467.053 7467.053
Source: compiled from annual report of sterling generators pvt ltd.

Page | 27
 7.4 LIQUIDITY & WORKING CAPITAL RATIOS:

1. CURRENT RATIO:

Current ratio= CurrentAssets

Current Liabilities

Table No. 8 Current Ratio

Year Current Assets Current Current Ratio

(Amount ₹ in Liability
lakhs) (Amount ₹ in
lakhs)
2015 30829.93 35797.45 0.86:1
2016 30458.73 25562.01 1.19:1
2017 43225.28 32833.6 1.32:1
2018 47240.173 36936.46 1.27:1
2019 42631.67 32609.72 1.31:1
Chart No.2 Current Ratio

1.32 1.31
1.27
1.19

0.86

2015 2016 2017 2018 2019

Interpretation:

Current ratio indicated the relationship between the total current assets and current
liabilities. The above charts show that during the year 2015 the current ratio was 0.86:1,
which increased to 1.32:1 in 2017 & then it again reduced to 1.31:1 in the year 2019.

Page | 28
 2. Liquid Ratio:

Liquid Ratio = Current Assets - Stock

Current Liabilities

Table No: 9 Liquid Ratios

Year Current Stock Current Liquid

Assets (Amount ₹ liability Ratio
(Amount ₹ in lakhs) (Amount ₹
in lakhs) in lakhs)
2015 30829.93 9563.32 35797.45 0.59:1
2016 30458.73 10271.54 25562.01 0.78:1
2017 43225.28 7994.07 32833.6 1.07:1
2018 47240.173 10707.06 36936.46 0.98:1
2019 42631.67 8971.85 32609.72 1.03:1

Chart No. 3 Liquid Ratio

1.07
1.03
0.98

0.78

0.59

2015 2016 2017 2018 2019

Interpretation:

Liquid ratio shows the relationship between liquid assets and current liabilities. During the
year 2015 the liquid ratio was 0.59:1 the liquid ratio increased to 1.07:1 in 2017 & then it
again reduced to 1.03:1 in the year 2019

Page | 29
 3. Proprietary Ratio:

Proprietary Ratio = Shareholder’s funds

Total Assets

Table No: 10 Proprietary Ratios

Year Shareholder Fund Total Assets Proprietary

(Amount ₹ in
lakhs) (Amount ₹ in lakhs) Ratio
(in percentage)
2015 3000.00 37791.65 7.33
2016 3000.00 37590.39 7.38
2017 3000.00 52665.49 5.69
2018 3000.00 55779.46 5.38
2019 3000.00 51439.68 5.33

Chart No. 4 Proprietary Ratios

Proprietory Ratio
7.33 7.38

5.69
5.38 5.33

2015 2016 2017 2018 2019

Interpretation:

This ratio indicates the relationship between shareholder funds and total assets of the
business. Proprietary ratio of the company in the year 2015 was 7.33%.The proprietary ratio
decreased to 5.33% in the year 2019.

Page | 30
7.5 CALCULATION OF OPERATING CYCLE:

1. Raw Material Conversion period:

Raw Material Conversion period = Raw material investment * 365

Raw material consumed

Table No: 11 Raw Material Conversion Periods

Raw No. of Raw Raw material

Year Material Days In A Material Conversion
Inventories Year Consumed Period in
(₹ in (₹ in
crore) crore) Days
2015 9563.32 365 81200 42
2016 10271.54 365 82500 45
2017 7994.07 365 83100 35
2018 10707.06 365 84500 46
2019 8971.85 365 85700 38

Chart No: 5 Raw Material Conversion Period in

Days
45 46
42
38
35

2015 2016 2017 2018 2019

Page | 31
Interpretation:

The ratio indicates the number of the raw material conversion period in days has increase
from 35 days in 2017 to 46 days in 2018. The raw material conversion period in days has
decrease to 38 days in the year 2019.

2. Work In Progress Conversion Period

Work In Progress Conversion Period = Work In Progress Inventory * 365

Cost of Goods Sold

Table No: 12 Work In progress Conversion Periods

Year Work in No. of days Cost of Work in

progress in a year goods sold Progress
inventory (₹ (₹ in lakhs) Conversion
in lakhs) period in
Days
2015 2618.4 365 98049 10
2016 3031.2 365 130233.6 8
2017 2749.32 365 107853.9 9
2018 2886.79 365 124032 8
2019 2493.75 365 85260 11

Chart No: 6 Work In Progress Conversion Period

In days
11
10
9
8 8

2015 2016 2017 2018 2019

Page | 32
Interpretation:

The ratio in the year 2015 was 10 days which decreased to 8 days in the year 2016. The ratio
of the company in the year 2019 was 11 days which is high in comparison to other years.

3. Finished Goods Conversion Period:

Finished Goods Conversion Period = Finished Goods Inventory * 365

Sales
Table No: 13 Finished Goods Conversion Period

Year Finished No. of Sales (₹ in Finished

Goods days in a crore) Goods
Inventories Year Conversion
(₹ in crore) Period in
Days
2015 3180.03 365 122883.6 10
2016 3816 365 129027.78 11
2017 3506.37 365 135479.17 9
2018 4032.33 365 142253.13 10
2019 3865.77 365 149365.8 9

Chart No: 7 Finished Goods Conversion

Period In Days
11
10 10
9 9

2015 2016 2017 2018 2019

Page | 33
Interpretation:
This ratio of the company in the year 2015 was 10 days which increased to 11 days in the
year 2016. The ratio of the company in the year 2017 & 2019 was 9 days which was the
lowest in comparison to other years.

4. Inventory Conversion Period:

Inventory Conversion period = Raw Material Conversion Period in

days + Work in progress conversion period in days + Finished goods
conversion period in days

Table No. 14 Inventory Conversion Period in days

Year Raw Work in Finished Inventory

material progress Goods Conversion
conversion conversion conversion period in
period in period in period in Days
days Days Days
2015 42 10 10 62
2016 45 8 11 64
2017 35 9 9 53
2018 46 8 10 64
2019 38 11 9 58

Chart No: 8 Inventory Conversion Period In Days

64 64
62
58
53

2015 2016 2017 2018 2019

Page | 34
Interpretation:
The inventory conversion period has increased from 62 days on 2015 and decreased to 58
days in 2019. The inventory conversion period was the lowest is 53 days in 2017 than the
comparison to other years.

5. Debtors Collection Period

Debtors Collection Period = Debtors * 365

Table No: 15 Debtors collection period

Year Debtors No. of days Sales (₹ in Debtors

(₹ in lakhs) lakhs) Collection
Period in
Days
2015 17845.50 365 122883.6 53
2016 17490.37 365 129027.78 49
2017 28356.93 365 135479.17 76
2018 27135.23 365 142253.13 69
2019 23771.38 365 149365.8 58
Source: Compiled From Annual Report OF Sterling generators pvt ltd

Chart No: 9 Debtors Conversion Period In

Days
76
69

58
53
49

2015 2016 2017 2018 2019

Page | 35
Interpretation:

It indicates the quality of debtors, from the speed of their collection. The overall time taken
for collection of debtors has increase from 53 days in 2015 to 58 days in 2019, but the
largest time taken in 76 days in the 2017 than comparison to other year.

6. Gross Operating Cycle

Gross Operating Cycle = Inventory Conversion Period + Debtors

Conversion Period (in days)

Table No: 16 Gross Operating Cycle (in days)

Year Inventory Debtors Gross operating

Conversion conversion cycle (in days)
period (in days) period (in days)
2015 62 53 115
2016 64 49 113
2017 53 76 129
2018 64 69 133
2019 58 58 116

Chart No: 10 Gross Operating Cycle

133

129

116
115
113

2015 2016 2017 2018 2019

Page | 36
Interpretation:

Gross operating cycle is relation between the inventory conversion and debtor’s conversion
period. The total taken for the conversion as well as trade receivables in the form of gross
operating cycle 133 days in the year 2018 as compared to 115 days in 2015.

7. Creditors Payments Period in Days

Creditors Payments Period (in days) = Trade Creditors * 365

Cost of sales
Table No: 17 Creditors Payment Period in Days

Year Trade Days Purchase (₹ Creditors

Creditors (₹ in crore) Payments
in crore) Period (in
days) Period
2015 11264.90 365 438700 9
2016 9234.07 365 680560 5
2017 22890.40 365 756000 11
2018 19324.73 365 810500 9
2019 19627.71 365 958600 8

Chart no 11 Creditors Payments Period (InDays)

11

9 9
8

2015 2016 2017 2018 2019

Page | 37
Interpretation:
This ratio indicates the relationship between trade creditors and total cost of sale in
purchases. The ratio indicates creditor’s payment period in day’s. It increased from 9 days in
2015 and decreased 8 days in 2019

8. Net Operating Cycle

Net operating Cycle = Gross Operating Cycle – Creditors Payment period

Table No: 18 Net Operating Cycle.

Year Gross Operation Creditors Net Operating

Cycle Payment Period Cycle
in days
2015 115 9 106
2016 113 5 108
N
2017 129 11 118
2018 133 9 124
2019 116 8 108
Chart No: 12 Net Operting Cycle

124

118

108 108
106

2015 2016 2017 2018 2019

Interpretation:

Net operating cycle in days is the relation in the gross operating cycle and creditor’s
payment period. The ratio shown in the above table indicates the number of the net
operating cycle in days which increased from 106 days in 2015 to 108 days in 2019.

Page | 38
 CHAPTER 8 FINDINGS & LIMITATION

8.1 FINDINGS

Working capital is very much needed to run day-to-day business activities smoothly not
being overemphasizes. Working capital management is very important in business.
The overall requirement of working capital has increased over the period of five years from
working capital of ₹ -4967.52 crore in 2015 which increase to ₹ 10021.95 crore in years
2019.
The current ratio was in 2015, which increased to 0.86:1 in 2018, further the organization
was able to increase its current ratio to 1.31:1 in 2019.
The company’s liquid ratio was 0.59:1 in the year 2015 and is increased to 1.03:1 in the year
2019.
The company’s proprietary ratio in the year 2015 was 7.33 which decreased to 5.33 in the
year 2019.
The raw material conversion period in days has decreased from 42 days in 2015 to 38 days
in 2019.
The inventory material conversion period has decreased from 62 days in the year 2015 to 58
days in 2019.
The creditor’s payment period was 9 days in the year 2015 which decreased to 8 days in
2019.
The net operating cycle of the company increased from 106days in 2015 to 108 days in
2019.

8.2 LIMITATIONS

The study was confined to the limitation that analysis is done on the basis of the data
available for reference as per the company’s disclosure policy.

Page | 39
 CHAPTER 9 RECOMMENDATIONS AND SUGGESTIONS

1. The company should maintain its inventory at a certain level otherwise it would incur
unnecessary block up of the funds which will result in heavy increase in working capital.

2. After the analysis it is seen that debtors are not getting converted into cash even after
granting credit period of 90 days. The company should strictly monitor its debtors and vigorous
follow up should be made for the timely realization of its overdue debtors.

3. The payment to creditors should be made within time limit to avoid excess liabilities
which would harm the credit worthiness of the company and to get liberal credit terms from its
suppliers.

4. The company should implement the cost saving measures very effectively at all the
stages of its operations i.e. for raw material procurements, production process, material handling
process, administrative cost and better management of financial resources.

CHAPTER 10 CONCLUSION:

“A Study on Working Capital Management with reference to Sterling Generators pvt.ltd.

The researcher has been able to understand the scope of working capital management for an
organization. The company has to maintain the working capital. Company need to manage
the working capital management as it is very important. The researcher has analysed the
objective laid for the study. The analysis is done on the basis of the data available for
reference as per the company’s disclosure policy. The overall working capital position of the
organization is satisfactory.

Page | 40
 CHAPTER 11 BIBLOGRAPHY

A) Books.

Dr. Shailesh Kasande, “Research Methodology”, First Edition, February 2015, Nirali Prakashan,
[Page No.29. ]

Dr. N. M. Vechlekar “Advanced Financial Management”, Published by Nirali Prakashan

Publications - Pune, in the year June 2016.[ page nos.15,17]

Dr. P. C. Tulsion, “Financial Management”, S. Chand, First Edition 2015,[page nos.25,26,27,28 ]

B) Research Articles
1. Jain P.K. and Yadav Surendra.
https://shodhganga.inflibnet.ac.in/bitstream/10603/91572/11/11.%20chapter%203.pdf
2. Howorth Carole and Westhead Paul.
https://shodhganga.inflibnet.ac.in/bitstream/10603/91572/11/11.%20chapter%203.pdf
3. Mr. Shivakumar and Dr. N Babitha Thimmaiah.
https://zenodo.org/record/223836#.XZ8qSNIzbIU
4. Bhunia Amalendu.
https://www.academia.edu/36058124/REVIEW_OF_LITERATURE_3.1_Studies_on_Working_Capital_Man
agement_in_India_and_Abroad_3.2_Studies_on_components_of_Working_Capital_in_India_and_Abroad
5. Akoto Richard K., Vitor Dadson A. and Angmor Peter L.
https://www.academia.edu/36058124/REVIEW_OF_LITERATURE_3.1_Studies_on_Working_Capital_Man
agement_in_India_and_Abroad_3.2_Studies_on_components_of_Working_Capital_in_India_and_Abroad

6. Kouma guy, (2001) a studied on “working capital management in health care”

https://www.slideshare.net/priyanchandran3/a-study-on-working-capital-management-at-nagarjuna-
herbal-concentrates-ltd

C) Websites & links

https://www.capitaline.com/SiteFrame.aspx?id=1

http://www.sterlinggenerators.com/Company-profile.html

http://www.sterlinggenerators.com/services.html

Page | 41
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