A Synopsis on

“THE STUDY OF WORKING CAPITAL

MANAGEMENT WITH RATIO ANALYSIS”

SUBMITTED TO

SCHOOL OF COMMERCE AND MANAGEMENT

Yashwantrao Chavan Maharashtra Open University

Nasik

By: Mr. Akash Arjun Bagal

'PRN:- '2021017000331083

Under the Guidance of

Mr. Yogesh B. Tambe

Through

The Coordinator- Mr. Waghule

Sir Study Center Code- 2217A

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 Introduction
The life or death of any business enterprise depends upon the availability of
cash. A Business firm / enterprise incurring losses still survive because of sufficiency
of cash. Similarly, lack of cash can give rise to failure in the face of actual or
prospective earnings.
Efficient cash planning through a relevant and timely cash budget may enable
a firm to obtain optimum working capital and ease the strains of a cash shortage,
facilitating temporary investment of cash and proving funds for funds for normal
growth.
Many company/ factories are interested in increasing their profits. However, very
few companies worry about managing their working capital. Many companies fail
due to bad management of working capital. They may be profitable, but they are not
able to pay their bill.
Working capital management involves the relationship between a company’s
shortterm assets and its short-term liabilities. The goal of working capital
management is toensure
thatacompanyisabletocontinueitsoperationandthatithassufficientabilitytosatisfyboth
maturing short-term debt and upcoming operational expenses. The management of
working capital involves managing inventories, accounts receivable and payable and
cash management
Working capital refers to the amount of capital that is readily available to an
organization. Organization needs both-terms and short-term fund, Funds are needed
for longterm purposes of fixed assets, such as plant and machinery, land building,
furniture. Funds are also required for short-term purpose like purchases of raw
materials, payment of wages and other day-to-day expenses. The objective of
working capital management is to maintain the optimum balance of each of working
capital components.
Working capital Managements takes place at two levels:
1. Ratio Analysis can be used to monitor overall trends in working capital and to
identify areas requiring management.
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2. The individual components of working capital can effectively managed by using
various techniques and strategies.
When considering these techniques and strategies, company needs to
recognize that each department has a unique mix of working capital components.
The emphasis that needs to be placed on each component varies according to the
department
Working capital management keeps your cash flowing as quickly as possible. If
cash flow is considered as the lifeblood of a business then working capital
management becomes the heart-this is what pumps cash around a successful
business, perfectly as quickly as possible! Pricing and costing can be considered as
the lungs because they are the system that takes in revenue, expels costs and makes
sure you have plenty of oxygen to keep the business alive. A healthy body needs
healthy lungs and in the same way to build or maintain a healthy business you need
to:
➢ Set prices and control costs for your healthy lungs.
➢ Manage working capital for your healthy heart.
Liquidity and profitability are two more important and major aspects of
corporate business life. No firms can survive, if it has no liquidity. A firm may exist
without making profits but cannot survive without liquidity may soon meet with its
downfall and ultimately die. Working capital management is thus a basic and broad
measure of judging the performance of a business.
Further more working capital management is not an end in itself. It is an
integral part of a company’s overall management. The needs of efficient working
capital management must be considered in relation to other aspects of the
company’s financial and non-financial performance.
Thus, an attempt has been made to study the management of working capital
of “Mula Sahkari Sakhar Karkhana Ltd. Sonai”

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 Importance and Significance of the Study

Importance of Working Capital:

Working capital is a vital part of a business and can provide the following
advantages to a business:
1. Higher return on capital: Firms with lower working capital will post a
higher return on capital. Therefore, shareholders will benefit from a higher
return for every dollar invested in the business.
2. Improved credit profile and solvency: The ability to meet short-term
obligations is a prerequisite to long-term solvency. And it is often a good
indication of counterparty’s credit risk. Adequate working capital
management will allow a business to pay on time its short-term
obligations. This could include payment for a purchase of raw materials,
payment of salaries, and other operating expenses.
3. Higher profitability: According to some researchers, the management
of account payables and receivables is an important driver of small
businesses’ profitability.
4. Higher liquidity: A large amount of cash can be tied up in working
capital, so a company managing it efficiently could benefit from additional
liquidity and be less dependent on external financing. This is especially
important for smaller businesses as they typically have limited access to
external funding sources. Also, small businesses often pay their bills in
cash from earnings so efficient working capital management will allow a
business to better allocate its resources and improve their cash
management.
5. Increased business value: Firms with more efficient working capital
management will generate more free cash flows which will result in higher
business valuation and enterprise value.
6. Favorable financing conditions: A firm with a good relationship with
its trade partners and paying its suppliers on time will benefit from
favorable financing terms such as discount payments from its suppliers
and banking partners.
7. Uninterrupted production: A firm paying its suppliers on time will
also benefit from a regular flow of raw materials, ensuring that the
production remains uninterrupted and clients receive their goods on time.
8. Ability to face shocks and peak demand: Efficient working capital
management will help a firm to survive through a crisis or ramp up
production in case of an unexpectedly large order.

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Significance of the Working Capital:
Working capital plays a vital role in business. This capital remains blocked
in raw materials, work in progress, finished products and with customers.
The needs for working capital are as given below:
1. Adequate working capital is needed to maintain a regular supply of raw
materials, which in turn facilitates smoother running of production
process.
2. Working capital ensures the regular and timely payment of wages and
salaries, thereby improving the morale and efficiency of employees.
3. Working capital is needed for the efficient use of fixed assets.
4. In order to enhance goodwill a healthy level of working capital is
needed. It is necessary to build a good reputation and to make payments to
creditors in time.
5. Working capital helps avoid the possibility of under-capitalization.
6. It is needed to pick up stock of raw materials even during economic
depression.
7. Working capital is needed in order to pay fair rate of dividend and
interest in time, which increases the confidence of the investors in the firm.

OBJECTIVE OF WORKING CAPITAL MANAGEMENT

By optimizing the investment in current assets and by reducing the

reducing the level of current liabilities. The company can reduce the
looked-up of the fund in working capital thereby. It can improve the
return on capital employed in the business.

The second important objective of working is that the company

should always be in a position to meet. It’s current obligation which
should properly be supported by current asset available with the firm. But
maintaining excess funds in working capital means locking of fund without
return.
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 The firm should manage its current assets in such way that the
Marginal return on investment in these assets is not less than the cost of
capital employed to financial the current asset.

The firm should maintain proper balance sheet current assets and
current liabilities to enable the firm to meet its day to day financial
obligation

Hypothesis

Hypothesis has definite utility and important place in social research. The
Formulation of hypothesis is pre-requisite of any successful research.
One of the most important areas in the day-to-day management of the firm
is the Management of working capital.

1. There is a positive relationship between efficient working capital

management and profitability of the company

2. The different components of the working capital have a major effect on

the management of the working capital in the company.

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 1. Research Methodology

1.1. Primary Data:

The information is collected through the primary sources like:

 
1. Collecting data through Unstructured Interviews of the executive and
Discussion with Mr. Ashutosh Kumar (Team Leader) of the Finance
department.

2. Getting information by observations e.g. in Business processes.

1.2. Secondary Data:

The methodology, I have adopted for my study is the various tools, which
basically analyse critically financial position of to the organization:
 
1. Common-Size P/L A/C.
2. Common-Size Balance Sheet.
3. Comparative P/L A/C
4. Comparative Balance Sheet.
5. Trend Analysis.
6. Ratio Analysis.
7. Annual Reports of the company.
8. Office manuals of the department.
9. Magazines, Reports in the company
10. Policy documents of various departments.

The above parameters are used for critical analysis of financial

position. With the evaluation of each component, the financial position
from different angles is tried to
be presented in well and systematic manner. By critical analysis with the h
elp of differenttools, it becomes clear how the financial manager handles
the finance matters
in profitable manner in the critical challenging atmosphere, the recommen
dation are madewhich would suggest the organization in formulation of a
healthy and strong position financially with proper management system.

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Expected Contribution

 This project will help to assess the Product development cycle of

the organization
 It will put some light on the Development cycle of the M/s
Jayashree Polymers Pvt ltd Industries for the given period
 It will show the areas where the organization must reduce its
timeline to enhance its Development Activity
 It will help the organization in the development timeline decision-
making by pointing out critical areas for the development timeline

2. Chapterisation
Chapter- I Introduction
Chapter- II Theoretical Background
Chapter_ III Industry Profile
Chapter- IV Data Presentation and Analysis
Chapter- V Findings, Conclusions, and Suggestions

Bibliography
Appendix

Amale Pradip Ganpat Mr. Vishvendu Mehta

Sign of Research Candidate Sign of Research Supervisor

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