A

PROJECT REPORT ON

EFFECTIVE CASH BALANCE MANAGEMENT

OF

SUBMITTED TO

BALAJI INSTITUTE OF MODERN MANAGEMENT, PUNE

BY

MANISH KUMAR MISHRA

SRI BALAJI SOCIETY’S

BALAJI INSTITUTE OF MODERN MANAGEMENT, PUNE
S No – 5/2-7, TATHAWADE, WAKAD, PUNE - 411033
 EFFECTIVE CASH BALANCE MANAGEMENT

A SUMMER PROJECT REPORT

Submitted By

MANISH KUMAR MISHRA

ROLL NO: MM1618168

in partial fulfillment of the requirement for the award of the Post

Graduate Diploma in Management

PGDM (FINANCE)

IN

Balaji Institute of Modern Management

S. No 55/2-7, Tathawade, Wakad, Pune - 411033

1
 DECLARATION

I, Manish Kumar Mishra, student of Balaji Institute of Modern Management

(BIMM), Pune.

Hereby declare that the project entitled as “A study on Effective Cash Balance
Management”, under the guidance of “Mr. Jitendra Jawalekar, Vice president
Finance, Sigma Electric Manufacturing Corporation Pvt. Ltd.(SEMCO).” and
submitted to “Balaji Institute of Modern Management (BIMM), Pune” as an integral
part of the Post Graduate Diploma in Management, is exclusively a bonafide and
original work (except for those available in Public domain) done by me during
academic year 2016-18. No part of this report has been submitted to anyone at any
time before.

NAME: MANISH KUMAR MISHRA

ROLL NO. : MM1618168

PGDM (finance) 2016-18

Signature of student

2
CERTIFICATE

3
 PREFACE

 “Experience is the best teacher.” This saying plays a guiding line in our
lives and also in project reports that are an integral part of the PGDM
Programmed in SRI BALAJI SOCIETY.

 Today’s age is an age of management. Management is the backbone of any

organization or any activity done. The real success of management lies in
applying the professional management techniques an all managerial activities.

 The basic purpose of this project is to have a through and deep understanding
of financial position of the firm. A number of books had been consulted for
writing theory; data had been collected from the balance sheet and other
source.
 The project has been in accordance with the guidelines provided by BALAJI
INSTITUTE OF MODERN MANAGEMENT as part of my summer
project during my Post Graduate Diploma in Management in FINANCE.
Summer project is an essential part in PGDM curriculum. It enables the
student to share the real experience in industry.

 The duration of the project was 2nd May 2017 to 30th June 2017. It was
indeed a great pleasure and incredible experience working with SIGMA
ELECTRIC MANUFACTURING CORPORATION PVT.
LTD(SEMCO). On the project “CASH BALANCE MANAGEMENT”

 I hope I have been able to match the expectations of SIGMA ELECTRIC

MANUFACTURING CORPORATION PVT. LTD. With regard to work
and attitude during my summer project.

4
 ACKNOWLEDGEMENT

“Behind every study there stands a myriad of people whose help and contribution
make it successful”.

I sincerely feel the credit of this project cannot narrow down to one individual. This
work is an integrated effort of all those concerned, through whose cooperation and
guidance we could achieve its completion. I take this opportunity to express my
gratitude to the people who have been instrumental in the successful completion of
this project. I am grateful for their constant support and help.

My sincere thanks to Mr. Jitendra Jawalekar (Vice President-Finance), SEMCO

& Mr. Nitin Natu (Manager- Finance) for guiding me on various aspects and
adding valuable inputs useful for the project and showing the right path to its
completion. I would like to show my greatest appreciation to them for their valuable
guidance, continuous encouragements and tremendous patience in discussing my
problem.

That has been of the greatest help in bringing out my task in the present shape. The
project would not have been possible without their valuable time and support.

I would also like to thank all the finance staff of SEMCO for their help and support.

5
Sr. CONTENTS Page No.
No.
 Executive summary 7
1 Chapter 1
Introduction
1.1 Company Profile 8-20
21-32
1.2 Cash Balance Management
2 Chapter 2
Objectives & Scope 33

3 Chapter 3
3.1 Research methodology 34-35
3.2 Limitations 36

4 Chapter 4
Literature review 37-38

5 Chapter 5
Data analysis and interpretation 39-45
6 Chapter 6
6.1Findings 46
6.2Recommedations 47
6.3Conclusion 48

7 Chapter 7
Bibliography 49

6
 EXECUTIVE SUMMARY

A study of effective cash balance management of Sigma Electric Manufacturing

Corporation Pvt. Ltd, Pune. The main purpose of the study is to get proper
understanding of use of cash and suggest ways to invest idle cash (if any) in
productive manner.

Cash is a backbone of any manufacturing unit. The effective cash management is an

assumed responsibility of Finance department and how to do it is very important to
understand. It involves use of financial tools of control, risk management, forecasting,
good financial reporting and analysis.

The project on cash balance management has been a very good experience. Every
manufacturing company requires cash to carry out their day to day activities. An
organization can maximize its returns if they are able park their idle funds in return
yielding opportunities. At the same time company has to make sure that they have
enough liquidity to deal with sudden cash requirements and how to strike perfect
balance between them is the major focus of this project.

The project also covers the various banks A/Cs managed by the company discusses
about the various aspects and techniques used in effective cash balance management.

Further project focuses on various data analysis and interpretation based upon the last
years (2016-17) banking transactions.

7
 CHAPTER 1

1.1 COMPANY PROFILE

SEMCO is a leading, vertically integrated manufacturer of electrical fittings and other

precision engineered solutions serving as a trusted, reliable supply chain partner to a
global customer base. We manufacture and sell metal castings and injection molded
products and accessories used in a variety of industries including commercial,
industrial and residential construction, and power transmission.

Nine world-class manufacturing plants in India produce castings and components in a

wide range of material grades and alloys such as aluminum, zinc, copper, iron (grey,
malleable, and ductile), stainless steel, and steel. It has excellent facilities boast a UL-
accredited lab able to perform tests under UL’s Witness Test Data program, a state-of-
the-art tool room, R&D center, and liquid painting and powder coating operations. In
addition, Sigma has a special purpose machine design/development center, high-end
precision machining and sub-assembly capabilities along with global supply chain
management expertise.

Sigma’s 180,000 sq. ft. warehouse / distribution and technical center near Raleigh,
NC, USA services our large North American customer base. All Sigma locations
practice lean manufacturing and are certified for the latest quality management
systems. In addition, Sigma offers their customers the peace of mind that comes with
knowing Sigma is compliant with environmental and global safety standards.

Sigma’s superior facilities along with their engineering expertise allow them to offer
customers design/engineering support, DFM solutions, and VA/VE projects to
optimize costs. With a workforce of over 3,000, including 350 engineers, Sigma is
able to provide the excellent products and services that customers expect.

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MISSION

To be a global leader in manufacture of ferrous and non- ferrous castings, precision

machined components and sub-assemblies.

The aim is to achieve profitable growth by providing premium customer service in the
market segments such as electrical, lighting, industrial, power tools, process
instrumentation, appliances and telecom.

US based Sigma Electrics Manufacturing

SEMCO Pvt Ltd ,Pune SEMCO Pvt Ltd, Jaipur

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US based sigma electric’s manufacturing corporation divisions in India, SEMCO
pvt. ltd., Pune and SEMCO pvt. ltd., Jaipur are geared specifically to cater to
international clients. They offer very high levels of response and Reliability to their
Customers because they:

 Do every manufacturing activity themselves- from product design up to

packaging.
 Employ more than 200 engineers for product design, tool design and
manufacturing.
 Use technology to deliver higher quality products from concept to
production within 8 weeks.
 Use Toyota Production system to drastically cut lead times.
 Use Six- Sigma Methodology to deliver defect free products.
 Provide Web-based interface like EDI with customers, for online
interaction with the manufacturing plants.
Their satisfied customers include global companies like General Electric and
ABB to name a few. Sigma’s one manufacturing division in India, SIGMA
Electric Pvt. Ltd., based in Jaipur, manufactures sand castings in malleable iron
and copper based alloys. It is an ISO 9002 certified company.
SEMCO Pvt. Ltd., Chakan, Pune is a 100% Export Oriented Undertaking.
SIGMA was incorporated in 1996 and came into operations in September 1997
with the strength of 42 employees. It has grown rapidly to reach a turnover of
Rs.325 crores with the strength of 1200 employees. Over the last 10 years
SIGMA has acquired proficiency in management of concept-to-product life cycle
in the casting/foundry industry. Its team of 1200 motivated and skilled members
are engaged in-
 Design Engineering
 Tool Making
 Metal Casting
 Machining and Assembly
 Finishing, Painting, Plating
 Packaging

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These functions are adequately supported by-
 Business Development
 Project Management
 Stringent quality Systems
 Efficient Supply Chain
 Information Technology

It is an ISO 9001-2000 certified company and now pursuing ISO 14001 and
OHSAS 18001. All products manufactured by SIGMA are approved by Canadian
Standards Association and are listed with Underwriters laboratory.
The primary operations of SIGMA being Pressure/Gravity die casting of
Aluminium, Zinc, and other non-ferrous metals and subsequent secondary
operations including a fully automatic paint plant. It provides a wide range of
conduit fittings, cable connectors and fasteners, outlet boxes, power line hardware
and custom components for industrial, commercial, residential and utility markets
around the world.

It has three modern plants (A0, A1, A2) situated at Chakan, Pune engaged in
manufacturing Electrical Wiring Accessories out of Aluminum, Zinc and Copper
alloys (mainly conduit fittings, transformer conductors etc) for United States,
Canada and other western countries i.e. all the products manufactured by SIGMA
are sold and distributed by its US based parent company Sigma Electric
Manufacturing Corporation and SIGMA is also engaged in aluminum, zinc and
aluminium bronze (Pressure and gravity) die casting.

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Gravity Die-Casting Machines

In-house built special purpose Machines 55,000 sq ft Area

With the aim to deliver world-class quality to its customers and to help reduce
manufacturing costs and lead-time, SIGMA has built a state of the art tool
manufacturing facility with latest design software and latest generation CNC
machines like CNC High Speed Machining Centres, CNC EDM Sinking and Wire
EDM, CNC Turning Centres, 3D Coordinate Measuring Machine, Hydraulic Die
Spotting Press. To ensure consistency in quality of products Special Purpose
Machines are built in house.
All of its business and manufacturing processes are integrated through state-of –
the art technologies such as JD Edwards ERP package, corporate wide IT network
infrastructure, project management. Leading-edge digital techniques are
leveraged for design and process simulations. They have engaged Price
Waterhouse Coopers as their auditors.

12
HISTORY
1982 Incorporated in New Orleans, LA, USA

1989 JAIPUR (J0) plant started- Iron products

1992 USA base shifted to North Carolina

1996 JAIPUR (J1) plant started—Copper products

1997 PUNE (A1) plants started- Zinc products

2000 Pune (A0) plants started- Aluminum Bronze products

2002 Pune (A2) plant started – Aluminum products, IT enabled supply

chain management

2003 Jaipur (J2) plant started – Aluminum, Copper and sand cast
Products

2003 Lean journey initiated

2007 Majority stake acquired by Goldman Sachs

2008 Pune (A3) plant started – Steel fitting product

2011 Pune (A4) Aluminum plant and Jaipur (J3) Iron plant started

2013 Indian entities name changed from SEMCO to SIGMA

ELECTRIC

13
PRODUCTS
FITTINGS & WEATHERPROOF

For their retail and private label partners, Sigma Electric offers a broad range of metal
conduit fittings and weatherproof products designed and manufactured to meet or
exceed the NEC codebook requirements.

Sigma has over 30 years of manufacturing fittings experience in aluminum and zinc
die castings, copper alloys, iron sand castings and steel. Sigma designs and produces
fittings for all standard conduits and cable systems including: Rigid, IMC, EMT, Flex,
BX/MC/AC cable, Liquid-Tight, SE cable, NM cable, and flexible cord. Sigma also
produces a line of grounding products.

In addition, Sigma is an industry leader in weatherproof products from floodlight kits

to innovative outlet boxes and covers. All products for weatherproof lines are
designed, tested and UL approved for outdoor application.

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CUSTOM PRODUCT

Sigma partners with customers from the initial design to the final delivery. By
utilizing engineering resources coupled with project management skills, Sigma has
the requisite infrastructure in place to cater to the needs of demanding markets.

CONTRACT MANUFACTURING OF CUSTOM PRODUCTS

Engineering capability allows Sigma to work with customers to design and

manufacture a wide range of specialty castings, machined components and sub-
assemblies to their demanding specifications. In addition, ability to build in house
special purpose machines helps Sigma to optimize cost of high volume parts.

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BAR STOCK MACHINED COMPONENTS

Sigma has the capability to machine high precision components from bar stock. These
components have close dimensional tolerances and critical surface finish values.
Sigma’s machined components are manufactured from a variety of raw materials
including Aluminum zinc, copper alloys, stainless steel, and steel.

Process

DIE CASTING

Die casting is a metal casting process that is characterized by forcing molten metal
under high pressure into a mold cavity. The mold cavity is created using two hardened
tool steel halves which have been machined into shape. Most die castings are made
from non-ferrous metals, specifically aluminum, zinc, copper, magnesium, lead,
pewter and tin based alloys. Depending on the type of metal being cast, a hot- or cold-
chamber machine is used.

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GRAVITY DIE CASTING

Also known as permanent mold casting gets their name from the fact that the process
utilizes permanent metal molds instead of temporary sand molds for the casting
process. Cast iron is the most commonly used mold materials as it offers great
reliability during casting. The cores are made from other metals or sand. The cavity
surface of the mold is coated with fine layers of material that have good heat-resistant
properties such as clay or sodium silicate. The molds used in casting are pre-heated up
to 200°C. Before the molten metal is poured into the cast cavity. Proper thermal
balance is to be maintained throughout the casting process. This is done through a
variety of ways including external cooling techniques using water or relevant
radiation techniques.
Permanent mould casting has the advantage of offering relatively lower design and
development costs as well as productions costs.
At Sigma, the Al-br parts are manufactured for high and medium voltage fuse cut-outs
through permanent mould gravity die-casting process.
Raw material is tested on the spectrometer to determine its chemical composition.
Manufacturing process starts with melting followed by feeding the molten metal into
the casting machine. Raw cast parts go down stream process like trimming, machining
and surface coating.

GREEN SAND CASTING

Green sand casting is a low cost means of producing many of the engineered
components of today's modern equipment and machinery. The term "green sand" is
known principally because of the moisture content within the sand and it is a prepared
mixture of silica sand (both new and reclaimed), various bonding clays, carbonaceous
materials and water. To get mould, the prepared sand compacted around the pattern to
take shape of the desired casting. The sand mold is vibrated until it is released from
the casting after solidification.
These castings can vary greatly in size and weight, ranging from a couple grams to
several kilograms. In general, the sand casting process involves the use of a melting
furnace, liquid metal, pattern and sand mold where molten metal poured under gravity
into sand moulds. The patterns are designed and made in in-house tool room.

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SURFACE FINISHING - POWDER COATING
Sigma has state-of-the art powder coating facility equipped with automated pre-
treatment line and has the ability to use a wide range of colors. The facility is
environment friendly which avoids volatile organic compounds (VOCs), thus
ensuring corrosion resistance and maintains consistent film thickness of 40-90 µ.
Sigma’s powder coated products attain good mechanical properties and pass
demanding impact, abrasion resistance and hardness tests complying with the UL
standards.

SURFACE FINISHING - LIQUID PAINTING

Sigma’s state-of-the-art in-house paint testing lab is equipped with
Spectrophotometer, Tri-Gloss master gloss meter and D65 chamber. The liquid
painted components attain good mechanical and chemical properties and pass the
demanding impact, abrasion resistance and hardness tests complying with the UL
standards.

SURFACE FINISHING - ELECTROPLATING

The plant production capacity is 400 MT/month Sigma has a fully automatic
electroplating plant which operates on SCADA system. It is equipped with modern
facilities like online trivalent passivation, auto dodging system to control PH and
additives through HMI system and fume extraction system to extract, scrub, clean and
discharge clean air into atmosphere.

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19
OUR LEADERSHIP

VIREN JOSHI
Chief Executive Officer & President

NEVILLE KHARAS
Executive Vice President – Electrical Business

NITEEN INAMDAR
Executive Vice President – Global Operations

KIRAN KUMAR ACHARYA

Global CFO &Executive Vice President

UMESH JOSHI
Executive Vice President – Global HR

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1.2 INTRODUCTION TO CASH BALANCE MANAGEMENT

 Treasury Management:
Treasury management is defined as ‘the corporate handling of all financial matters,
the generation of external and internal funds for business, the management of
currencies and cash flows and the complex strategies, policies and procedures of
corporate finance.’

Tight money, escalating interest rates and economic volatility have called for
specialized skills called ‘treasury management’. Until recently, no major efforts were
made to manage cash.

The demand for funds for expansions coupled with high interest rates, foreign
exchange volatility and the growing volume of financial transactions have
necessitated efficient management of money. The treasury management mainly deals
with working capital management and financial risk management.

The former constitutes cash management and decides the asset-liability mix. Financial
risk management includes forex and interest rate management, a part from managing
equity and commodity prices.

The key goal of treasury management is planning, organizing and controlling cash
assets to satisfy the financial objectives of the organization. The goal may be to
maximize the return on the available cash, or minimize interest cost or mobilize as
much cash as possible for corporate ventures.

Dealing in forex, money and commodity markets involves complex risks of

fluctuating exchange rates, interest rates and prices which can affect the profitability
of the organization.

Treasury managers try to minimize losses by adopting risk transfer and hedging
techniques that suit the internal policies of the organization. Options, futures and swap
are a few of the major derivative instruments, the Treasury Managers use to hedge
their risks.

21
One of the main functions of a treasury department is to control and manage the
bank's money (in terms of capital and liquidity) and to make sure that all parts of the
bank can readily access the cash they need for their business activities. By doing so, it
makes sure that the bank remains financially secure, stable and able to function
effectively to help its clients.

A treasury department is also responsible for liaising with the bodies that regulate
banks, which set rules regarding banks' capital and liquidity.

In order to ensure that banks are better able to withstand any future market stresses,
their capital and liquidity requirements have become an area of increasing focus.
Banks' treasury departments work closely on these issues and have a critical role to
play.

Treasury Management Services

Treasury services are a broad collection of services that banks will offer to
corporate/business clients, such as company treasurers.

In addition to simple services like deposit-gathering and check writing, banks will
also help companies manage their accounts receivable and accounts payable.
Managing working capital and payroll is a significant headache for many companies,
and while banks charge for these services, many customers find that the charges are
less than the cost of fully staffing and operating their own treasury functions

Treasury management services are designed to streamline reporting, optimize your

use of funds, and improve daily banking operations. Services include:

Account information and management: Efficiently monitor account activity and

access the information you need to make decisions

Depository services: Choose from a wide range of deposit accounts to meet your
specific needs and help streamline your cash management

Electronic debit/credit services: Automate payments, including payroll and

collections, so you can better forecast and optimize your cash flow and simplify your
accounting

Disbursement services: Control disbursements, reconcile accounts cost-effectively,

and help protect against fraud

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Role and Functions of Treasurer:
(a) Forecasting of cash requirements and preparation of cash budgets.

(b) Estimation of working capital requirements and planning the levels of investment
in current assets.

(c) Establishment of banking relationships, arrangement of funds for working capital

requirements, providing of security for working capital finance.

(d) Monitoring the credit collection.

(e) Monitoring the liquidity and funds position of different divisions of the firm.

(f) Investment of temporary surplus funds in short-term marketable securities and sale
of it when the need of cash arises.

(g) Ascertainment of collection and payment floats, efficient playing of the float etc.

(h) Transmission of funds to various divisions and receipt of funds from various
collection centers.

(i) Ensure that sufficient cash is available for meeting day to day financial obligations.

(j) Maintaining sufficient cushion for meeting contingencies and unexpected financial
obligations.

(k) Identify surplus funds in certain divisions and transfer them to the divisions which
are facing deficit of cash.

CASH MANAGEMENT

Cash performs vital role in the business. Cash is termed as basic component to satisfy
not only day today requirements of business but also making payments to creditors.
That is why maintaining adequate cash balance is important task in cash management.

Meaning:

The term cash has different meanings, in narrow sense, it refers to currency notes,
coins, bank draft etc. In broader sense it means near cash assets. Such assets are
marketable securities, time deposit in banks and treasury bills etc. Both cash and near
cash assets are used in cash management. Cash is therefore described as the oil to
lubricate the ever turning wheels of business.

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Cash is the lifeblood of a business and a business needs to generate enough cash from
its activities so that it can meet its expenses and have enough left over to repay
investors and grow the business. While a company can fudge its earnings, its cash
flow provides an idea about its real health.

Cash management involves managing cash efficiently, the proper usage of cash while
assessing liquidity and the cash flow and investments.
Every business tends to focus on both short term stability and long term survival and
growth and strives to maintain accordingly. If cash is managed efficiently, the
company stays healthy and flexible and remains solvent. In this way, providing funds
to the business as and when needed is the key to success of a business.
In contrast to this, if adequate cash is not available, the situation may lead to
bankruptcy - Hence the need of cash management.
Not necessarily, yet commonly, having been presented as the first item in one of the
main Financial Statements, Balance Sheet, cash is regarded to be the king, as it is the
most liquid asset of a company. As such, management of cash is of a great value and
significance to a business.
Providing sufficient funds to a business and protecting it against the possibility of
insolvency is the basic requirement of working capital management that entails cash
and liquidity. In fact, there are many a reason when a business needs to be in the
money always while managing it properly: A company needs to make repayment of
Loans. It has to pay taxes or it is that it needs to purchase inventory or raw materials.
Moreover, holding the cash entails a precautionary measure in order to meet
unforeseen events. Therefore, the cash must be managed properly and be provided for
arising contingencies.
Cash management necessitates speeding cash inflows while slowing down cash
outflows, but it may not be considered in isolation. No sooner do the payments come
due from customers or clients than they must be collected, while constant follow ups
must be maintained. It would thus lead to the maximization of collectability.
Similarly, the payments must be made as close to the cut-off-date as possible, yet
being benefited with the discount facility if it is available.

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Precisely, cash management enables to process cash receipts and payments efficiently.
If done in an efficient way, cash management leads a business towards the desired
level of success while enabling it to maintain both short term stability and long term
survival and growth with sound financial health and flexibility.

Motives for holding cash

1] Transaction Motive: It refers to the holding of cash to carry day to day business
transactions. The requirement of cash balance to meet routine business needs is
known as Transaction Motive.

2] Precautionary Motive: According to this motive the concern keeps cash balance
to meet some unexpected cash needs arising may be the result of; floods, strikes,
increase in cost of raw material etc.

3] Speculative Motive: This refers to maintaining cash balance to take advantages of

investing in profit making opportunities which are outside the normal course of
business. This motive presents a positive and aggressive approach of management.

4] Compensation Motive: This motive for holding cash is to compensate banks for
providing certain services to their clients free of charge. Best e.g. of this motive is
minimum balance kept in savings bank account or current account.

Objectives of Cash Management

The main objectives of cash management are as below:

1] Meeting Cash Disbursement: The basic objective of cash management is to make

timely payments of cash in normal course of business. Thus, the finance manager
ensure sufficient cash balance to meet payment schedule

25
2] Minimizing Funds Committed to Cash Balances:
In addition to above objective, the cash management ensure to minimize the amount
blocked up as cash balance. In this process two conflicting aspect have to be
reconciled. A high level balance and a low level cash balance. The final aim of cash
management should be to have an optimum amount of cash balances.

Factors Determining Cash Needs:

Following factors are to be considered before determining the amount of cash

requirements.

1] Synchronization of cash flows

2] Consideration of short costs

3] Position of accounts receivables

4] Operating and cash cycle

5] Control of cash disbursements

6] Nature of Product / Business

7] Management’s attitude towards procurement

8] Availability of other sources of funds

Cash is King

By generating enough cash, a business can meet its everyday business needs and
avoid taking on debt. That way, the business has more control over its activities. In a
situation in which a business has to take on debt to meet its expenses, it is likely that
its debtors will have a say in how the business is run. If they have contrary opinions to
the management’s, that could be an impediment to the way management executes its
vision for the business.

Without generating adequate cash to meet its needs, a business will find it difficult to
conduct routine activities such as paying suppliers, buying raw materials, and paying
its employees, let alone making investments. And it should have sufficient cash to pay
dividends and keep its investors happy.

26
REASONS FOR EXTRA CASH

There are often good reasons to find more cash on the balance sheet than financial
principles suggest prudent. A persistent and growing reserve often times signals
strong company performance. Indeed, it shows that cash is accumulating so quickly
that management doesn't have time to figure out how to make use of it.

Highly successful firms in sectors like software and services, entertainment and media
don't have the same levels of spending required by capital-intensive companies. So
their cash builds up.

By contrast, companies with a lot of capital expenditure, like steel makers, must
invest in equipment and inventory that must be regularly replaced. Capital-intensive
firms have a much harder time maintaining cash reserves. Investors should recognize,
moreover, that companies in cyclical industries, like manufacturing, have to keep cash
reserves to ride out cyclical downturns. These companies need to stockpile cash well
in excess of what they need in the short term.

Bad Reasons for Extra Cash

All the same, textbook guidelines should not be ignored. High levels of cash on the
balance sheet can frequently signal danger ahead. If cash is more or less a permanent
feature of the companies balance sheet, investors need to ask why the money is not
being put to use. Cash could be there because management has run out of investment
opportunities or is too short sighted and doesn't know what to do with the cash.

Sitting on cash can be an expensive luxury because it has an opportunity cost, which
amounts to the difference between the interest earned

27
Advantages of Adequate Cash

When a firm manages to keep adequate cash balance, following benefits obtained.

1] Higher Productivity and Liquidity

2] Firm can avail cash as well as trade discounts

3] It helps to improves credit worthiness, good will

4] It provides regular flows of cash

5] Firm can enjoy new business opportunities

6] It helps to overcome short term crises

7] It creates good confidence among the investors

8] It ensure timely procurement of raw material

Issues in Cash Management

The main aim of cash management is to match the inflow and outflow of cash. It is
very essential for a business to maintain adequate cash balance. Many times a concern
operates profitability and yet finding it difficult to predict cash flows accurately.

Cash management is important since it is very difficult to correct prediction of cash

flows. To gain control on company’s cash flows, a firm or finance manager should
develop some strategies for cash management with the help of following points.

1. Cash Planning
2. Managing Cash flows
3. Optimum Cash level
4. Investing Idle Cash

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Avoiding Cash Deficit or Cash Insolvency
While managing cash flows, if company gets in to position from where it is difficult
to meet its operating expenses, following stapes should be taken:

1. Utilise unveiled credit limits.

2. Sell marketable securities

3. Accelerates collection from debtors

4. Negotiates for short term loans from banks

5. Sell redundant assets

6. Accounts receivables may be discounted with banks

7. Put control over expenditures

8. Defer payments may be extent to the possible

Utilization of Surplus Cash

It is quite possible that firm may comes in a position that having surplus or excess
cash. At this time a finance manager should take utmost care to put this excess in such
a way that at the time of deficit this excess helps organisation. Cash surplus should be
utilized in following way:

1. It should be invested in temporary investment

2. Idle cash may be used for modernization etc.

3. It can be used to reduce firm’s short term loans.

4. It is to be invested in high liquid and low risk securities

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Marketable Securities and its Types
As seen earlier, excess cash should be invested in high liquid and low risk marketable
securities, it is necessary to get knowledge of marketable securities and its different
types. Thus, Marketable Securities are those which can be converted back to cash
without delays.

There are different types of such securities available in the market.

Cost of Being Short Cash

The term short cost refers to, cost associated with a shortage of cash in the firm’s cash
requirements. Such cost may be incurred in any of the following form :

1. Loss of Discount: Due to shortage of cash, firm can’t avail the facility of discount.

2. Transaction Cost: Brokerage, related to sale of assets

3. Borrowing Cost: High rate of interest, penalty charges

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Cash Forecasts Types and Methods

Cash forecasts are nothing but a summary of expected cash inflow and outflow over a
period of time. It is mainly concerned with an assessment of probable future events.
On the basis of objective cash forecasts can be grouped as under:

1] Short-Term Cash Forecasts: It is normally cover period of 12 months. It is also

called Cash budgeting.

2] Long-Term Cash Forecasts: All the forecasts beyond one year comes under this
head.

Cash Forecasts Types and Methods

Methods of cash forecasts can be illustrated as below;

I. For Short-Term Cash Forecasts:

(a) Receipt and Payment Method

or

Cash Budget Method

(b) Adjusted Net Income Method

II. For Long-Term Cash Forecasts:

(a) Fund Flow Statement Analysis

or

Balance Sheet Forecast Method

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CASH MANAGEMENT MODELS
It may be necessary for a cash management to know what should be the optimum cash
balance must be maintain. There are number of cash management models developed
to determine the optimum level of cash balances. Below mentioned are two important
cash models:

1] William J. Baumol Model

2] Merton Miller and Daniel Orr Model

IMPROVING CASH MANAGEMENT

Even if a company is making a profit, by making more revenue than it incurs in

expenses, it will have to manage its cash flow correctly to be successful. A company’s
cash flow is tied to its operations or business activities, to its investment activities
(such as the purchase or the sale of capital equipment), and to its financing activities
(such as raising debt or equity funding or repaying such funding). The cash that a
company generates from its operations is tied to its core business activities and
provides the best opportunities for cash flow management.

Striking the Right Balance

There is a right balance between having too much cash on hand, out of precaution,
and having an inadequate supply. If a business has too much cash, it is missing out on
opportunities to invest the cash and generate additional earnings.

On the other hand, if it doesn’t have an adequate supply of cash, it will have to
borrow the money, and pay interest, or sell off its liquid investments to generate the
cash it needs. If the business expects to generate a better return on its investments than
it pays in interest on its borrowings, it might decide to invest its surplus cash and
borrow any additional money it needs for its activities. In analyzing a company’s
balance sheet, certain ratios such as a firm’s acid-test ratio, or the ratio of its most
liquid current assets (including cash, accounts receivable, and marketable securities)
to its current liabilities provide an idea about its cash management. While a ratio of
greater than one indicates a healthy current assets situation, a very high ratio could
indicate that the firm holds too much cash or other liquid assets.

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 CHAPTER 2

OBJECTIVES

1. To understand the concept of effective cash balance management.

2. To make study of all the bank a/c in Sigma and frequency of their use.
3. To close down the Bank A/Cs which are not frequently used.
4. To find out the alternatives for investment of idle funds.

SCOPE

The study is conducted at “Sigma Electric Manufacturing Corporation Pvt. Ltd,Pune”

for 8 weeks duration. The study of effective cash balance management is purely based
on secondary data and all the information is available within the company itself in the
form of records. To get proper understanding of this concept, I have done the study of
the banking statements of all the bank A/Cs. I have also interacted with employees of
finance department. So, scope of the study is limited up to the availability of official
records and information provided by the employees. The study is supposed to be
related to the period of last one year (2016-17).

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 CHAPTER 3

3.1 RESEARCH METHODOLOGY

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

Objective of research study is analysis of Cash Balance of SIGMA ELECTRIC
MANUFACTURING CORPORATION PVT. LTD.

Time period of the study:

The present study was undertaken during 8 weeks from 2nd May – 30th June.

Purpose:
The purpose of this study is to properly analyze the cash balance of Sigma Electric
Manufacturing Corporation Pvt. Ltd., Pune over the period 2016-2017.

PRIMARY DATA:-

 Banking Statements
 Company records
 Direct observation of the Banking Transactions in the company

SECONDARY DATA:-

 Internet
 Interaction with personnel of the company

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Sampling design
Sampling unit : Bank Statements

Sampling Size : Last one year’s financial statements

Tools used:- Ms-Excel has been used for calculations and charts.

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3.2 LIMITATIONS OF THE STUDY

1. The study duration 2 months is short.

2. The analysis is limited to just one years of data study.

3. Limited interaction with the concerned heads due to their busy schedule.

4. The findings of the study are based on the information retrieved by the
selective unit.

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 CHAPTER 4

LITERATURE REVIEW

1. According to Alfred (2007), as cited by Akinyomi (2014), the importance of

managing cash in a business comprises of
the following advantages:
 Managing cash helps in achieving liquidity in a business and proper
control;
 It assists in the planning towards reducing cash expenses and
increasing cash receipts to ensure the business is liquid.
 Proper managed cash is vital as the future cash flow behaviour cannot
be predicted. Therefore, it’s essential to plan
 Through proper controls of cash, innovative procedures could be
implemented for cash receipts and cash payments in the business.

2. According to Bobitan and Mioc (2011) cash management embodies all

incomes and payments made within a certain period, and highlight potential
inconsistencies of cash management practices.
 Good cash management is necessary because too much cash is costly
due to interest payments. Too little cash is also costly, because
businesses will not be able to reap the advantages from economies of
scale .
 Good cash management practices are crucial for business managers.
The business becomes insolvent when it fails to meet its debt
timeously. Consequently, businesses need to manage their costs
efficiently and effectively. Proper cash management prevents
bankruptcy, thereby increasing profitability and sustainability of
businesses

37
3. Kippers (2004) revealed that small business owners knew their business like
nobody else. They put their heart, soul and time into making their business
successful. The area in which they lacked expertise was the financial aspect of
record keeping.

 Kippers (2004) found that businesses lacked the much needed cash
management knowledge to properly control the business money. They
desired to have a positive cash balance from the start of business.
Unfortunately, they did not know how to go about to achieve this
positive balance.

4. According to Kakuru (2001) Cash management is concerned with the

management of cash flow that is to say inflow and outflow of cash, this seeks
to archive control of cash by paying obligations like meeting organizational
needs.

5. According to Pandey (2003) cash management is a technique used to manage

and control the use of cash. It involves preparation of forecasts of cash receipts
and payments so as to give out an idea of the future financial requirements.
Therefore the management of the school needs to determine the schedules of
monthly disbursements and collection schedules of creditors. with efficient
cash planning system, the financial needs of the school will be met, with
reduced possibility of the cash balances which lowers the school’s profitability
and cash deficits which can lead to school’s failure.

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 CHAPTER 6

DATA INTERPRETATION AND ITS ANALYSIS

The company has 12 ongoing bank A/Cs which are majorly the current A/Cs.

The name and the purpose of these a/cs are mentioned below

(NOTE: Due to confidentiality, the A/C names are considered

HYPOTHETICALLY)

Name of A/Cs Type Purpose

ICICI 323 Current A/C Basic Banking A/C
ICICI409 Current A/C Salary A/C
IDBI 1670 Current A/C Basic Banking A/C
SBI CA 1839 Current A/C Basic Banking A/C
SBI CA 5473 Current A/C Basic Banking A/C
HSBC CA 001 Current A/C Basic Banking A/C
HSBC DEP 002 Deposit A/C Basic Banking A/C
HSBC CA b27 Current A/C Basic Banking A/C
CITI CA 19 Current A/C Basic Banking A/C
Kotak CA 01 Current A/C Basic Banking A/C
HDFC CA 390 Current A/C Basic Banking A/C
HSBC DEP 001 Deposit A/C Basic Banking A/C

AUTO SWEEP SERVICE: It is a service provided by the bank where the bank
creates an auto Fixed Deposit when the amount exceeds a particular limit which is set
by the company (Rs.2500000).

Company also sets a lower limit (negative balance) where in if the bank balance goes
below that limit, the fixed deposit will get liquidated and amount will get credited
back to the amount.

39
DELAYED DISBURSEMENT:

A cash management technique that involves a company paying vendors and/or other
creditors by checks drawn on banks located in remote areas. Commercial banks will
typically delay the availability of funds to the depositor of such checks for up to five
days as they await payment from the paying bank.

Petty Cash Imprest System:

For better control on cash, generally the companies use petty cash imprest system
wherein the day to day petty expenses are estimated taking into account past
experience and future needs and generally a week’s requirement of cash will be kept
separate for making petty expenses.

The Financial manager of a company could benefit from a study of the movement
over time of the cash to current assets ratio. Another approach to determining the
amount of cash that the company may need to carry cash is to examine the cash
balance in relation to the sales of the period.

40
 ANALYSIS OF A/C ICICI 323

If we focus on the monthly idle balance of this a/c, then we get the following data
where other than April and December, there is positive balance in every month.

Moths ICICI 323

April (80,764)
May 719,038
June 470,887
July 533,566
August 220,667
September 264,191
October 581,778
November 223,248
December (4,004,374)
January 328,715
February 1,811,842
March 304,620

It means the company is losing an opportunity to make money in the form of interest.
Let’s say for example the bank is giving interest@ 4% P.A, then the opportunity loss
by the company is

Interest= 0.04* 1373412.67

= Rs. 54936.50696

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ANALYSIS OF ICICI 409(salary A/C)

Moths ICICI409
April 378,914
May 614,432
June 241,772
July 494,100
August 488,849
September 470,035
October 488,594
November 165,308
December 583,530
January 825,008
February 410,508
March 706,312

As per the information obtained from interaction with financial in charge, they
are required to maintain a certain amount in this a/c at all the time so this
balance can’t be used for investment purposes but then also funds in January
and march are comparatively high when compared to other months which can
be utilsed.

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 ANALYSIS OF IDBI 1670

Moths IDBI 1670

April 228,410
May 217,697
June 306,832
July 274,918
August 509,908
September 7,146,223
October 741,485
November 298,102
December 183,942
January 114,233
February 378,050
March 311,394

This current a/c is a frequently used but then also the amount of balance kept
idle is prominent and could be utilised in better ways. In the month of
September the average idle amount is upto Rs. 70,000

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 ANALYSIS OF LESS USED A/Cs

Moths SBI CA 5473 HSBC CA 001 HSBC CA b27

April 11,642 759,223 80,225
May 11,642 669,138 81,105
June 11,642 665,474 81,985
July 11,642 664,229 82,850
August 11,642 664,229 83,738
September 11,642 662,835 84,638
October 11,642 661,641 85,227
November 11,642 661,641 85,250
December 11,642 661,641 85,250
January 11,642 661,641 85,250
February 11,642 661,641 85,250
March 8,213,822 661,641 85,250

This A/Cs are not used frequently. The amount of transactions in these three a/cs have
been very less, then also the funds kept in these A/Cs are high which are not yielding
returns.

Also the company is paying service charges to the banks for A/C maintenance.

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 TOTAL AMOUNT ANALYSIS

Going further into the data details and evaluating the data on the basis of total Idle
Balance month wise of all the Bank A/cs we get the following details:

Moths Total Idle Balance

April 188,205,282.02
May 493,175,184.90
June 802,228,154.49
July 692,705,483.35
August 339,307,352.41
September 769,864,149.89
October 1,022,691,104.08
November 354,669,455.02
December 159,042,283.84
January 87,073,992.87
February 386,309,518.92
March 459,574,721.57

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After looking at the data, we get the understanding that the total amount which
remains idle all together is huge and there is no need to maintain such high balances.

CHAPTER 6

6.1 FINDINGS

 Out of 12 existing A/Cs, 4 A/Cs are not used frequently.

 The amounts of idle cash lying in all A/Cs are very high.

 Company is losing huge opportunities of earning returns on the funds.

 The company has auto sweep feature for only two bank A/Cs.

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 6.2 RECOMMENDATIONS

 The company should look towards closing two bank A/Cs which are

“SBI 5473,HSBC DEP 001” as they are incurring service costs from bank and

also these A/Cs are not used frequently.

 The company should either use Auto Sweep feature for all the A/Cs or they

should at the end of the day move all excess balance from various A/Cs to one

A/C and then get it fixed under the Auto Sweep Feature.

 There is a Financial Advisory company “FUNDS INDIA” which provides

facility to the companies to handle their funds and invest them into Money

Market with immediate liquidity with nominal service charges.

 As the company has special treasury branch, they should use their employee

skills to invest these funds for short term in money market instruments like

call money market, commercial papers etc.

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 6.3 CONCLUSION
After the detailed study of cash balances of the company, we come to a
conclusion that:
 The study helped me greatly to understand the various uses of cash in the
company.
 Manufacturing companies require ready liquidity in order to pay to their
suppliers.
 Managing cash balance of the company is very crucial task for the company as
the idea is to avoid idle balance as well as have ready liquidity.
 The company is aware of its opportunities of yielding certain returns on the
idle balances.
 Doing this project has given me insights upon the use of cash in the company
and also their active approach towards investing the idle amount so that they
do not loose chance of earning returns.

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 Chapter 7

BIBLIOGRAPHY

Web Reference

1. www.sigmaelectric.com

2. http://www.accountingnotes.net/financial-management/cash-balance/5-ways-for-

the-management-of-cash-balance-with-diagram/11085

3. jbsq.org/wp-content/uploads/2011/10/Sep-2011-2.pdf

4. http://www.bdc.ca/en/articles-tools/money-finance/manage-

finances/pages/financial-ratios.aspx

5. http://www.bbt.com/business/small-business-resourse-center/growing-a-

business/cashmanagement.page

6. http://academic.regis.edu/dbush/finance/financial%20statement%20analysis/ca

shmanagement.htm

Book Reference

1. Gupta, Financial Accounting for Management, 4th Edition, Pearson

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