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A Project report on A STUDY OF WORKING CAPITAL MANAGEMENT OF LARGE

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 A Project report on

A STUDY OF WORKING CAPITAL MANEGEMENT

OF LARGE COMPANY

Submitted by

AHMED TAHER KADHIM

IN PARTIAL FULFLLMENT OF THE MASTERS DEGREE OF

COMMERCE TO THE UNIVERSTY OF PUNE

RESEARCH GUIDE

Prof . RESHMI HEBALKAR

SYMBIOSIS SOCIETY’S COLLEGE OF ART AND COMMERECE

PUNE -41104

2010 -2011
 A Project report

A STUDY OF WORKING CAPITAL MANEGEMENT

OF LARGE COMPANY

Submitted by

AHMED TAHER KADHIM

IN PARTIAL FULFLLMENT OF THE MASTERS DEGREE OF

COMMERCE TO THE UNIVERSTY OF PUNE

RESEARCH GUIDE

Prof . RESHMI HEBALKAR

SYMBIOSIS SOCIETY’S COLLEGE OF ART AND COMMERECE

PUNE -41104

2010 -2011
 A Project report

A STUDY OF WORKING CAPITAL MANEGEMENT

OF LARGE COMPANY

Submitted by

AHMED TAHER KADHIM

IN PARTIAL FULFLLMENT OF THE MASTERS DEGREE OF

COMMERCE TO THE UNIVERSTY OF PUNE

RESEARCH GUIDE

Prof . RESHMI HEBALKAR

SYMBIOSIS SOCIETY’S COLLEGE OF ART AND COMMERECE

PUNE -41104

2010 -2011

Internal examiner External Examiner

 ACKNOWLEDGEMENT

The efforts that have gone in to the project have proved to be of immense value

and has left me far richer , not only in knowledge of the subject but also of the

subject but also of various other disciplines and system that l have come across in

the course of my project .

l wish to place on record my deep sense of gratitude to all those who contributed

to the success in the completion of my project .

l would like to specially thank DR. Rashmi Hebalkar for the valuable guidance

provided by her during the course of the project .

lam sure that the experience l have gained during the completion of this project

will prove to be beneficial in the process of attainment of my educational and

career goals .
 DECLARATION

I, the undersigned, hereby declare that the Project report entitled

" A STUDY OF WORKING CAPITAL MANEGEMENT IN LARGE

COMPANY "

written and submitted by me to the University of Pune, in partial

fulfillment of the requirements for the award of degree of Master of in
commerce(M.COM) as special subject (advanced accounting and
taxation)

for academic year 2011-2010 under Guidance of( DR. Rashmi Hebalkar )
is my original work and the conclusion drawn therein are based on the
material collected by me.

Researcher

Ahmed taher kahdim

 INDEX

HEADLINES Page NO.

Chapter 1- INTRODUCTION

1.1Introduction.

1-2 Title.

1-3 Objectives.

1-4 Need of the study.

1-5 Limitation of the study .

1-6 Working capital definition.

1-7 Hypothesis.

1-8 Organization of study.

1-9 Conclusion.
Chapter 2- REVIEW OF LITRATURE

2-1 Introduction .

2-2 Book review.

2-3 Articles review.

2-4 Conclusion.

Chapter 3- RESEARCH DESIGN

3-1 Introduction.

3-2 Research design.

3-3 Questionnaires.

3-4 Conclusion.
Chapter 4- ANALYSIS AND INTERPRETATION

4-1 Introduction.

4-2 Profile of Cidadel ECO- Build Pvt. Ltd.

4-3 Questionnaire.

4-3 Analysis and interpretation.

4-5 Conclusion.

Chapter 5- CONCLUSION

5-1 Introduction.

5-2 Findings.

5-3 Suggestions & recommendation.

5-4 Testing of hypothesis.

5-5 Area for further studies.

5-6 Conclusion
 Chapter 1

A study of working capital

Management

1
 WORKING CAPITAL MANAGEMENT

Introduction

One of the most important areas in day to day management of the firm is the
management of working capital.

Working capital management is the fictional area of fiancé that covers all the
current account of the firm.

Working capital management involves the relationship between a firms short term
assets and its short term liabilities the goal of Working capital management is to
ensure that a firm is able to continue it's a operations and that it has sufficient
ability to satisfy both maturing short term debt and upcoming operational
expenses.

In general form the View point of the chief financial officer (CFO) management of
Working capital is simple and a simple concept of ensuring the ability of the
organization to finance the different between the current assets' and current
liabilities a "Harris 2005".

However a total approach should be followed which cover all the company’s
activities relating to vendor customer and product (HALL 2002)

In reality management of working capital has become one of the most tnatmopmi
ooe oi pimt iat op eom apiit t itopsis popr oni rem oiot imts p imai i pm ssi
it popmoiasiiati p iron moniopimt idoo rii m t optimal level of working capital
(lamberson 1995) .

2
iyapo ue pmnsi. companies can minimize risk and improve the overall performance
by understanding the role and determinants of iworking capital.

iThe main objective of the working capital management is to maintain an optimal

balance between each of the working capital components.

Business success heavily on the ability of financial executives to effectively

manage receivables inventory and payables (e nd riiopiicse 5002 ).

Firms can reduce their financial costs and increase the amount of investment lied
up in short term assets .

Most of the financial manager’s time and effort are allocated in optimizing the
level current assets and liabilities back toward optimal levels (lamberson 1995).

In p tonirett pmiooo moiot irapo i t iiooiap iasimt i tnatmopmiratnap pmiasi

imamoniooo moiasiois tt . A firm may be able to reduce the investment of total assets
by renting or leasing plant and machinery . whereas the same policy cannot be
followed for the components of working capital . the high level of current assets
the risk of liquidity associated with the opportunity cost of funds that may have
been invested in long-term assets . the impact of working capital policies on
profitability is highly important , however a little empirical research has been
carried out to examine this relationship.

Thus efficient management of working capital in an important prerequisite for

successful working of a business concern it reduces the chances of business failure
generates a feeling of security and confidence in the minds of personnel in the
organization it assurance solvency of steady of organization.

3
1.2 Title

A STADY OF WORKING CAPITAL

MANAGEMENT OF

CITADEL Eco Pvt. Ltd.

4
1.3 Objective

1. To examine the effectiveness of working capital management polices with

the help of accounting ratio.

2. To evaluation the financial performance of the company.

3. To test hypothesis .

4.To make suggestion for policy makers for effective management of

Working capital

5
1.4 Need of the study

l.The projects is helpful in knowing the company's position of funds maintenance

and setting the standards for working capital inventory levels, quick ratio current
amount turnover level and web torn turnover level.

2.This project is helpful to the management for expanding the dualism and the
project viability and present availability of funds.

3.This project is also useful as it companies the present year data with the previous
year data and thereby it show the trend analysis i.e increasing fund or decreasing
fund.

4.The project is useful in further expansion decision to be taken by

Management.

6
1.5 Limitation of the study.

The following are the various aspects involved in the analysis of the

Study .

1. Study is limited to the accounting year 2010-2011

2. Study is based on information provided by the company

3.Study the working capital management does not take in to account

the price level changes.

7
1.6 Working capital definition

Working capital (WC) Can be defined in simple words as that part of the
total capital which is required for daily working of business. It is the capital
with which the business is worked over. According the subbing working
capital is the amount of funds necessary to cover the cost of operating the
enterprises.
Thus the funds required by the business for conducting the day to day
operation. E.g .. purchase of raw material or finished goods, payment of
expenses like salary, wages, rent etc ...
The term working capital is also defined as "Excess of current assets over
current liabilities"

(Sources M.O Patker, Management Accounting)

Gross working capital (GWC)

When the term working capital is used to donate the total current assent it is
stated as gross working capital

(Sources M.G Patker, Management Accounting)

8
3. Net working capital (NWC)

When the term working capital is used to donate the net current assets

(i.e current assets as net working capital)

(Sources M.G Patker, Management Accounting)

4.Permanent working capital (PWC) :

It is the minimum amount of the current assets which are needs to conduct the
business even during the dullest season of the year. This amount varies from
year to year depending upon the growth of a company and stage of the business
cycle in which it operates. It represents the current assets which are required on
a continuing basis over the year .

(Sources M.G Patker, Management Accounting)

5.Temporary working capital (TWC) :

It represent the additional assets which are required at different time during the
operating year.

(Sources M.G Patker, Management Accounting)

9
 6. Negative working capital

It emerge when current liabilities exceeds current assets such a situation is

absolutely theoretical and occurs when a firm is nearing a crisis of some
magnitude.

(Sources M.G Patker, Management Accounting)

7. Working capital management (WCM) :

It is the management of short term financing requirement of a firm. This

includes maintaining optimum balance of working capital components
receivables inventory and payables and using the cash efficiently for day to
day operations it also defines the management of current assets and current
liabilities to maximize short term liquidity.

(Sources M.G Patker, Management Accounting)

10
1.7 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.

11
1.8 ORGANISATION OF STUDY

The study of research is divided into five chapters each chapter is a part of the

study:

First Chapter:

The first chapter of the research study deals with the farming of objectives and
setting up of the hypothesis. It introductions the research study and also discuss
about the significance, limitation and various accounting definitions.

Second Chapter:

The second chapter deals with the review of literature, It explains the various
sources of data collection by use of books, magazines, newspaper, journal, library,
and the Internet websites .
It explains the helps provided to the researcher by referring to various literatures
related to the study. The researcher has to collect various literatures related to
study.

12
Third Chapter:

The third chapter for this research, the researcher has to collect various data
required for the research study this chapter deals with the framing of questionnaire
for collection of data required for the research work. It explains how to come up
with a proper questionnaire and also discusses about interview method of data
collection.

Forth Chapter

The fourth chapter deals with the analysis and interpretation of data collected by
researcher. The researcher has to properly analyze the data collected for the study
and interpret it systematically so that the broader meaning of the data can be
exposed.

Fifth Chapter:

The fifth chapter is the last chapter of this research study in which the researcher
makes the conclusion on the study after analysis and interpretation of the acquired
data. The objectives frame are checked whether they are fulfilled or not and the
hypothesis are tested, the researcher also gives some suggestions and
recommendations based on the findings from the research study.

13
 1.9 Conclusion

Since the researcher has chosen the study of working capital management from
company the researcher will need literatures i.e. books articles newspapers etc .
Which are related to same problem so as to get some idea about what is working
capital and how to be calculated .

Then the researcher can frame his objectives limitation and hypothesis on working
capital and the researcher should also see that the objective are fulfilled and its
hypothesis are tested and proven .

14
 Chapter 2

REVIEW OF LITERATURE

15
 2.1 INTRODUCTION

This chapter includes a brief about the books reviewed by the researcher while

preparing this project, prior researches on working capital management which

have been made by the previous researchers and conclusion.

A researcher reviewed literature on relevant research methods, approaches of

Working capital management and related theories that can be used as a

background.

16
2.2 BOOK REVIEW

BOOK 1

 Name of the book: PRINCIPLES OF FINANCIAL

MANAGEMENT.

 Author: SATISH M. INAMDR.

 Publisher: EVEREST PUBLISEDING HOUSE

 Edition: THIRD 2006

 Total number of pages: 530 pages.

 Total number of chapter: 14 chapters.

,

17
PREFACE

Chapter 1

Introduction

This chapter including The concept and importance of finance, Approach to the
term finance, Scope of finance function, Financing decisions, Investment
decisions, Dividend policy decisions, Organization of finance function and Duties
and responsibilities of finance executive.

Chapter 2

Forms of business organization.

This chapter including Proprietary firms, partnership firms, joint stock companies,
private limited company and public limited company.

Chapter 3

Financial statements.

This chapter including Financial statements, nature of Financial statements,

structure of Financial Statements, structure of Balance Sheet, Role Played By
Financial Statements, analysis And Interpretation of Financial Statements.

Chapter 4&5

Interpretation of Financial Statements

This chapter including Interpretation of Ratios, Role of Ratio Analysis,

Classification of Ratios, Limitations of Ratio Analysis, Construction of Funds
Flow Statements & Cash Flow Statement.

18
Chapter 6, 7, 8, 9& 10

These chapters involving Financial Plan and Capitalization, Sources of Long Term
and Medium Term Finance& Capital Structure.

Chapter 11

This is very important chapter which help the researcher in the study of working
capital, this chapter including Working Capital Management, Management of
Inventory& Management of Receivables.

Chapter 12, 13& 14

These chapters are very important which including most of the information related
to the project like Management of Cash, Capital Budgeting& Management of
Earnings.

Learning:

After reading this chapter, the researcher is be able to:

Understand how financial statements convey information

about liquidity.

Interpretation of Ratios, and Role of Ratio Analysis

19
 BOOK 2

 Name of the book: RESEARCH METHODOLOGY AND

PROJECT WORK.

 Author:
1. PROF. A.G GOSAVI - M.Com., M.PM - Principle
Modern College of Arts, Science& Commerce,

Shivajinagar, Pune 411 005.

II. DR. Y.R. WAGHMARE - M.Com., Ph.D., F.CA -Vice -

Principle Modern College of Arts, Science&

Commerce, Shivajinagar , Pune 411 005.

 Publisher: Sheth Publishers Private Limited.

 Edition: October, 2003.
 Total number of pages: 189 pages.
 Total number of chapter: 12 chapters.
 Price: 100 only

INTRODUCTION

20
This book on 'Research Methodology' is helpful for the students of M.Com. (Part
II) course of Pune University. The book has been written as per syllabus,
prescribed by the University from June 2003.

The scheme of chapters has been prepared as per revised syllabus in respect of
M.Com. (Part II) course. The students specially studying for the three special
papers viz.

1) Advanced Accounting and Taxation.

2) Advanced Cost Accounting and Cost System .

3) Business Administration.

This book is most useful for studying the .paper 'Research Methodology" I p. l"
term. No doubt, the students who have opted for remaining four special papers
would also find this book useful. Besides, the book would also serve as a text-book
for M .Phil Students, for their studies on "Research Methodology". As well, the
book will find as guidelines to those who intend to undertake research studies in
one form or the other.

Chapter 1 Theory of Research

This chapter is about the definition, nature, characteristics of research,

importance of research, research and research methodology, objectives of

21
research, types of research and research in accounting.

Chapter 2 Research Process

This chapter is about the research processes which are in the chronological order:

1)Formulating the research problem.

2)Setting up the objectives of research.

3)Review of literature on the previous work done.

4)Developing the hypothesis.

5)Deciding the sampling design or the experimental design.

6)Preparation of preformed /questionnaire/schedules for recording of data.

7)Collection of data.

8)Compilation and tabulation of data.

9)analysis of data, testing of hypothesis.

10)discussion of results.

11) Preparation of report.

Chapter 3 Research Design

This chapter is about the contents of research design, sample

22
design, random sampling, advantages of sampling, and types of

sampling designs, steps in sampling and characteristics of good

sampling design.

Chapter 4 Methods of Data Collection

This chapter is about types of data, methods of primary data

collection and categories of methods of data collection.

Chapter 5 – 6

These chapters talk about the preparation of data for analysis (processing of data,
classification of data, tabulation, frequency distribution and graphic representation
of data) and about testing of hypothesis (definition, types of hypothesis, function
of hypothesis, sources of hypothesis and characteristic of hypothesis) .

Chapter 7 - 8 - 9

These two chapters are about testing of hypothesis and analysis of data.

Chapter 10 The Research Report

23
 This chapter is: about the meaning of research report, style of report writing and
contents of research report.

Chapter 11 Role of Computer in Research

This chapter is about the importance of computers to researchers, broad idea about
computer, types of computers, some features of computers and its limitations and
computer application in research and development.

Chapter 12 Project Work

This chapter is concerning about organizing and writing project report, definition,
necessity, purpose and importance of project. work, steps in project work,
processing and analysis of data and a suggested format for the project report.

Learning:

The researcher has gain insight into the basic of research methodology. The
researcher has also acquired theoretical as well as practical knowledge from the
book. Important hints with respect to preparation of research report up to
submission of project work are provided.

BOOK 3

 Name of the book: ESSENTIALS OF FINANCIAL

ANALYSIS.
24
  Author: GEORGE T.FRIEDLOBL YDIA L.F. SCHLEIFER.

 Publisher: John Wiley & Sons, Inc., Hoboken, New jersey

Published simultaneously in Canada

 Total number of pages: 518 pages.

 Total number of chapter: 7 chapters.

Introduction

The financial analysis of companies is usually undertaken so that investors,

creditors, and other stakeholders can make decisions about those companies.
The focus of this book is on the financial analysis of companies that are publicly
traded and therefore make public the data and information needed by stakeholders,
who can then use the analytical procedures included in this book.

25
Analyzing Liquidity

Analyzing the liquidity of a company involves examining the relation-ship

between current assets and current liabilities to determine whether the company
can fulfill its obligations for current liabilities in the short run.

Solvency relates to a long-run perspective of the company's ability to pay its debts
and whether it IS a going concern. Many of the companies that declare bankruptcy
get to the point where they do not have adequate cash flow and are pushed over the
edge by the calling of a loan or the loss of a line of credit.

At this point, lending institutions no longer think that the company is a good risk.
A thorough financial analysis includes looking at a company's financial statements
through the eyes of a banker. Bankers want to know whether companies can make
interest and principal payments on loans. Because of this need, a company's can
these areas be assessed?

Assessing Working Capital and Its Components

The term working capital truly means "current assets," but in common use is used
to signify net working capital.Net working capital (which will be referred to as
simply working capital) is the difference between current assets and current
liabilities.

Current assets are those that are expected to be liquidated or converted to cash
within a year .current liabilities are expected to be settled within a year. These are
the broad descriptions of current assets and liabilities.
26
Analysts are actually interested primarily in certain current assets and certain
current liabilities; ones that may results in a cash inflow to the company.
Prepaid insurance does not refer to a subsequent cash flow, but rather to a period
of time covered by insurance.

Accounts payable results in a cash outflow will result in a company's earning

some cash already received. for the company, and unearned revenue is a liability to
fulfill that So, overall, an analysis of working capital management will (should)
focus on receivables and payables rather than prepaid items and unearned revenue.
In addition, this analysis typically also involves inventory because its
sale will result in a cash inflow.

New working capital = Current assets -Current liabilities

OR = Cash + Accounts receivable + Inventory -Accounts payable

Working capital ratio = Current assets 7 Current liabilities

OR = (Cash +Accounts rec. + Inventory) 7 Accounts payable

The main components of working capital are examined to find out how
productively the company is using its current assets and liabilities (turnover ratios)
and how efficient the company IS (represented by number of days related to a
turnover).

Learning:

After reading this chapter, the researcher is be able to:

 Understand how financial statements convey information

about liquidity.

27
  Assess working capital and its components.

 Evaluate the liquidity of a business.

 Calculate ratios used to evaluate liquidity.

 Understand the concept of solvency.

 Understand the auditor's role in assessing going concern status.

BOOK 4

I
 Name of the book: FUNDAMENTALS OF FINANC MANAGEMENT.

 Author: JAMES C. VAN HORNE& JOHN M. \I•

WACHOWICZ JR.
 Publisher: Financial Times Prentice Hall imprint 2005.
I
 Edition: Twelfth.

 Total number of pages: 330 pages.

28
  Total number of chapter: 20 chapters.

Introduction

Many approaches might be used in teaching the basic financial management

course. Fundamentals of Financial Management sequences things in order to cover
certain foundation material first, including: the role of financial management; the
business, tax, and financial setting; the mathematics of finance; basic valuation
concepts; the idea of a trade off between risk and return; and financial analysis,
planning, and control.

More specifically, the book goes on to investigate current asset and liability
decisions and then moves on to consider longer-term assets and financing.
A good deal of emphasis is placed on working-capital management.
Working capital management encompasses the administration of the firm's current

29
assets namely; cash and marketable securities, receivables, and inventory and the
financing (especially, current liabilities) needed to support current assets.

The fundamental decisions underlying this management involve the level of

investment in current assets and the appropriate mix of short-term and long- term
financing used to support this investment in current assets.

Such decisions are governed by the important financial principle of a trade-off

between risk and profitability. Usually, increased profitability is only possible with
the addition of risk. In broad terms, the profitability and risk associated with
current assets are a function of the level, composition, and financing of these
assets.

As the level of current assets increases (a movement to a more "conservative"

working capital strategy, the riskiness of the firm generally decreases but, so too
does the firm' profitability .When we speak of working capital, we mean current
assets.

Therefore, "temporary" working capital is the amount of current assets that varies
with a firm's seasonal needs. A "Permanent" current asset, on the other hand, is the
amount of current assets required to meet a firm's long-term minimum needs.

If a firm adopts a hedging (maturity matching) approach to financing, each asset

would be offset with a financing instrument of the same approximate maturity.
Temporary or seasonal variations in current assets would be financed with short-
term debt.

The permanent component of current assets would be financed with long-term debt
or equity. Increasing the firm's liquidity increases the safety margin against
adverse cash flow fluctuations (increases the probability of interest and principal
repayment and thus reduces all the risks outlined above .

30
 Too large an investment in working capital lowers the firm's profitability without a
corresponding reduction in risk. (In fact, risk might actually increase.
Too small a level of working capital could also lower profitability due to stock
outs and too few credit sales (because of an overly strict-credit policy).

Learning:

This book helps the researcher to investigate current assets and current liabilities

decisions then move on to consider longer-term assets and financing.

A good deal of emphasis is placed on working-capital management.

Also it helps in knowing working capital components, how to finance them in a

proper way, the relationship between the levels of current assets and profitability of

the firm and the .trade of between risk and profitability.

31
2.3 ARTICLES REVIEW

ARTICLE 1

 Source: International Review of Business Research Papers.

 Title: Review of Literature in Working Capital Management

 Writer: Abdul Raheman and Mohamed Nasr.

 Date: March 2007.

.Many researchers have studied working capital from different views and in
different environments. The following ones were very interesting and useful for the
research:(Eljelly, 2004) elucidated that efficient liquidity management involves
planning and controlling current assets and current liabilities in such a manner that
32
eliminates the risk of inability to meet due short-term obligations and avoids
excessive investment in these assets.

The relation between profitability and liquidity was examined, as measured by

current ratio and cash gap (cash conversion cycle)on a sample of joint stock
companies in Saudi Arabia using correlation and regression analysis. The study
found that the cash conversion cycle was of more importance as a measure of
liquidity than the current ratio that affects profitability. The size variable was found
to have significant effect on profitability at the industry level The results were
stable and had important implications for liquidity management in various Saudi
companies.

First, it was clear that there was a negative relationship between profitability and
liquidity indicators such as current ratio and cash gap in the Saudi sample
examined.

Second, the study also revealed that there was great variation among industries
with respect to the significant measure of liquidity .(Deloof, 2003) discussed that
most firms had a large amount of cash invested in working capital.

It can therefore be expected that the way in which working capital is managed will
have a significant impact on profitability- of those firms, Using correlation and
regression tests he found a significant negative relationship between gross
operating income and the number of days accounts receivable, inventories and
accounts payable of Belgian firms.

On basis of these results he suggested that managers could create value

for their shareholders by reducing the number of days' accounts receivable and
inventories to a reasonable minimum.

The negative relationship between accounts payable and profitability is consistent

with the view that less profitable firms wait longer to pay their bills.(Ghosh and
Maji~ 2003) in this paper made an attempt to examine the efficiency of working
33
capital management of the Indian cement companies during 1992 – 1993 to 2001 -
2002.

For measuring the efficiency of .working capital management, performance,

utilization, and overall efficiency indices were calculated instead of using some
common working capital management ratios. Setting industry norms as target-
efficiency levels of the individual firms, this paper also tested the speed of
achieving that target level of efficiency by an individual firm during the period of
study.

Findings of the study indicated that the Indian Cement Industry as a whole did not
perform remarkably well during this period. (Shin and Soenen, 1998) highlighted
that efficient Working Capital Management (WCM) was very important for
creating value for the shareholders.

The way working capital was managed had a significant impact on both
profitability and liquidity. The relationship between the length of Net Trading
Cycle, corporate profitability and risk adjusted stock return was examined using
correlation and regression analysis,· by industry and capital intensity.

They found a strong negative relationship between lengths of the firm's net-trading
Cycle and its profitability. In addition, shorter net trade cycles were associated
with higher risk adjusted stock returns .(Smith and Begemann 1997) emphasized
that those who promoted working capital. Theory shared that profitability and
liquidity comprised the salient goals of working capital management.

The problem arose because the maximization of the firm's returns could seriously
threaten its liquidity, and the pursuit of liquidity had a tendency to dilute returns.
This article evaluated the association between traditional and alternative working
capital measures and return on investment (ROI), specifically in industrial firms
listed on the Johannesburg stock exchange (jse).

34
The problem under investigation was to establish whether the more recently
developed alternative working capital concepts showed improved association with
return on investment to that of traditional working capital ratios or not. Results
indicated that there were no significant differences amongst the years with respect
to the independent variables.

The results of their stepwise regression corroborated that total current liabilities
divided by funds flow accounted for most of the variability in
Return on Investment (ROI). The statistical test results showed that a traditional
working capital leverage ratio, current liabilities "divided by funds flow, displayed
the greater associations with return on investment.

Well-known liquidity concepts such as the current and quick ratios registered
insignificant associations whilst only one of the newer working capital concepts,
the comprehensive liquidity index, indicated significant associations with return on
investment. All the above studies provide us a solid base and give us idea
regarding working capital management and its components.

They also give us the results and conclusions of those researches already
conducted on the same area for different countries and environment from different
aspects. On basis of these researches done in different countries, we have
developed our own methodology for research.

Learning:

This article helps the researcher to know some studies which prepared by many
researchers in the topic working capital management in views and different
environment and to avoid the duplication of research and to enable" him to thrust
upon those issues which are not tackled earlier.

35
36
37
ARTICLE 2

 Source: Management and Accounting Research Journal.

 Title: Working Capital Performance of Corporate India.

 Writer: Ms. Ruchika Bachchani (Executive Office Journal Section,

The Institute of Chartered Accountants of India PO Box No7100,
Indraprastha Marg, New Delhi-ll0002.

The study is continuation of our earlier attempt of developing quantitative

benchmarks at the firm as well as at the industry level to evaluate working capital
management performance of corporate India from time to time.

It experimented with a number of new parameters and different weights in the

overall score to have better picture of working capital management performance of
corporate India.

In this study three financial parameters viz., Cash Conversion Efficiency (CCE)
and Days Working Capital (DWC).It is believed that the presence of these three in
the overall working capital performance criterion not only helps in performance
evaluation, but will capture also the dynamics of risk – return trade off'.

Learning:

The form and amount of working capital components vary over the operating
cycle. It would be hard to get the amounts of the components used in
operations for an operating cycle.

Hence the working capital management efficiency is measured in terms of the

"days of working capital" (DWC) or Cash Conversion Efficiency (CCE).

38
2.4 CONCLUSION

The researcher has referred to books and articles so as to know more about the
research study. This review of literature like books, articles, newspapers, journals,
etc. helps researcher to find out the problems related to accounting system.

With the help of the review of literature, the researcher can frame questionnaire of
the research study. Therefore the next chapter is Research Design

39
 Chapter 3

RESERCH DESIGN

40
3.1 INTRODUCTION

research design is the base on which researcher proceed toward the study of the
problem after formulating hypothesis. It refers to the methodology used to
conducting the research investigation. It is a process of making decisions before
the situation arises in which the decision has to carried out. It is the blueprint of the
detailed procedure of testing the hypothesis and analysis of the obtained data.

A research design in simple words is a plan of action, a plan for collecting and
analyzing data in an economic, efficient and relevant manner.

The purpose of preparing research design could be either to test the hypothesis or
to give a cause effect relationship to the given situation. A research design is the
arrangement of conditions for collection and analysis data in a manner that aims to
combine relevance to the research purpose with economy in procedure.

41
3.2 RESEACH DESIGN

The collection of essential information to prove their hypothesis is a significant

and distinctive stage of research in any science. The sources of information are
generally classified as primary

data and secondary data.

1. Primary Data:

Primary data are information collected or generated by the researcher for the
purpose of the project immediately at hand.

When the data are collected for the first time, the responsibility for the processing
of data also rest-with the original researcher.

The primary data are those which are collected a fresh and for the first time. This
type of data is also called basic or original data. In other words the primary data
refer to observations, measurements, answers, information which the researcher
collect for the purpose of research.

42
 1.1 Questionnaire:
.
A questionnaire is a very popular method of data collection. It is being adopted by
private individual, research workers, private and public organizations and even by
governments.

In this method a questionnaire is sent to the person concerned with a request to

answer the questions and return the questionnaire.

A questionnaire consists of a number of questions printed or typed in a definite

order on a form or set of forms.

The questionnaire is mailed to respondents who are expected to read and

understand the questions and write down the reply in space meant for the purpose
in the questionnaire itself. The respondent has to answer the questions on their
own.

The researcher carefully analyzing the questionnaires which are 13 yes or no

questions (binary questions) , 6 (multiple choice questions) and 5 (open- ended
questions).

43
1.2 Interview:

In every field of research the interview of research method is used very

extensively.

Interview is a technique used to administer the schedule. Only through interview,

varied types of data can be gathered intensively and extensively. Besides, interview
is a meant for assessing the personality of the respondent. Interview is one of the
chief means of collecting data is social science research. All types of persons
whether educated or uneducated can be covered by this method.

It is generally, interaction assumed that the personal interview helps to obtain the
most accurate information. Interviewing IS a process of social .

1. Secondary Data:

Where by the analysis relies on already existing data that may be either published
or unpublished. This source of data is updated source of information.

Researcher has collect data from books in university of Pune and libraries further
Internet websites and published journals, which published by The Institute of
Chartered Accountants of India.

44
3.3 QUSTIONNAIRE

BINARY QUESTIONS

Please tick ( v) next to the appropriate answer:

Q1-There is no relationship between working capital management efficiency and

profitability.

YES__________NO__________

Q2-The proportions of working capital components affect the efficiency of the

Working capital .

YES__________NO__________

Q3-Profitability could be increased at the expense of liquidity.

YES__________NO__________

Q4-Working capital. can be managed efficiently by maintaining optimum level of

its components.

YES__________NO__________

Q5- it is considered a good working capital management if current assets of the

company are able to fulfill all its current liabilities.

YES__________NO__________

45
Q6 - Cash position and bills receivable decide the liquidity of a firm

YES__________NO__________

Q7- There is a negative relationship between liquidity of the company

and its profitability.

YES__________NO__________

Q8- Working capital management in the company involves the control of cash.

YES__________NO__________

Q9- Negligence in proper assessment of the working capital lead to cash crisis and
ultimately to liquidation.

YES__________NO__________

Q10- Efficient working capital management is expected to improve a company's

profitability and liquidity.

YES__________NO__________

Q11.Management of working capital by managing cash, debtors and creditors are

important to the financial health of businesses.

YES__________NO__________

46
Q12. Large amount of cash invested in working capital will have a negative
significant impact on profitability.

YES__________NO__________

Q13.Good management of working capital generate cash and help to improves

profits and reduces risks.

YES__________NO__________

47
MULTIPLE CHOICE QUESTIONS

Q14.Working capital management plays an important role to increase;

a)Profitability.

b) Liquidity.

c) Both.

Q15. Working capital can be optimized by

d) Managing cash.

e) Managing bills receivable and payables.

f) Managing debtors and creditors.

g) All of these.

Q16. Poor working capital management can lead to

h) Over capitalization.

i) Over trading.

j) Both.

48
Q17. Working capital for the bank is calculated

k) Weekly.

l)Monthly.

i)quarterly

m) Yearly.

Q18. Good working capital management help in

n) Helping to earn interest or reducing interest payments over trading.

o) Helping managers take financial responsibility.

p) Helping managers to measure their own performance and the performance of

their team.

q) All of these.

Q19. For working capital assessment documents/papers required are

r) Balance sheet.

s) Profit &loss account.

t) Both.

49
OPEN-ENDED QUESTIONS

Q20. What do you .want to say about working capital management in

your company?

Q21.How the assessment of working capital is calculated?

Q22. What are the areas of concern about working capital management of your
company? In general?

.'
Q23. What measures company need to take for sound working capital
management?

50
3.4 CONCLUSION

In this chapter the researcher talks about how to collect data which refer to the
same problem.

As there are two kinds of data primary data and secondary data. According to the
primary data the researcher selects two methods questionnaire method.

After collection of data, these data should be analyzed by the researcher this
process what is next chapter talk about..

51
 Chapter 4

ANALYSIS AND

INTERPRETATION

52
4.1 INTRODUCTION

Analysis of data is the ordering of data into constituent parts in order to obtain answers to
the research questions.

The first step in data analysis will depend on the amount of specified hypothesis the
researcher have. In such a study the analysis is almost a mechanical procedure.

Analysis consists of organization data in a particular manner. Then it is the interpretation

idea that governs this task. Without interpretation coming into play the task of analysis
will not be complete . Interpretation is the research operation, which is geared to
exposing or bringing to light the broader meaning of the research findings or conclusions
by linking then to other available knowledge or established theories and principles. It
helps to understand what the given research findings really mean.

It can be descriptive or analytical or it can be from a theoretical standpoint . Negative

results are much harder to interpret then positive results . Interpretation consists of the
conclusion the researcher has reached. Positive results are evidence of the fact that
methodology, the measurement and the analysis are satisfactory.

53
4.2 PROFILE OF CIDADEL ECO-BUILD PVT. LTD.

citadel Eco Build

Citadel Eco-Build is established in the year of 2001. It is engaged in the

promotional activates of the mechanized manufacturing of AAC Block of Baltic
Building Elements Ltd. India ".

Citadel Eco-Build is team of professionals with impeccable educational

qualifications and professional credentials .It offers an entire product service of
Aerated Autoclaved Cellular Block(AAC) and Fly Ash .

54
Vision
Conventional Construction Material like red bricks are produced from enriched soil. We should
not forget that to reproduce enriched soil naturally, it take more than 2000 years. This is
eventually causing damage to environment.

Our Vision is to make environment friendly construction materials from the waste like Fly Ash
which is actually given out by Thermal Power Plant. So that by using this, we can maintain
environment in balanced state.

Mission

The Company aims to provide their customers an environment friendly and innovative building
materials by mean of trading, importing, exporting and adapting latest technology for
manufacturing which would lead to a faster, durable and economical construction.

Function
The archenemy of concrete is water which attacks concrete at its weakest point, where the
aggregate and the cement come together .Large planar crystals(calcium hydroxide).,typically
exists next to aggregate in the concrete are very week and tend to crack.

As these cracks interconnect the concrete becomes permeable allowing the water to seep in. The
water carries salt & other elements and begins to corrode the rebar, which causes cracking and
spilling that lets in more water to continually worsen the cycle.

55
When Fly Ash is added to mixture ,the silica in it reacts with these large crystals to transform
them into strong cement paste. Calcium Silicate Hydrate that blinds the concrete together .i.e.,
the silica in Fly Ash combines with Calcium Hydroxide Crystals to form more Calcium Silicate

Hydrate past .This eliminates micro-cracking to create a less permeable and much more durable
concrete. Using high percentage of Fly Ash is most effective and economical way to improve
the durability and effectiveness of the concrete them epoxy coated rebar or exotic admixtures.

The Benefits
In Plastic state, the ball-bearing effects of Fly Ash particles create a Lubricating action.

 Easily Workable
 Easy Pumping
 Improved Finishing
 Reduced Bled Striking
 Reduced Segregation

In its hardened state, fly ash adds benefit to the concrete performance

 Compressive Strength
 Decreased Permeability
 Increased Durability
 Reduced Sulfate Attack
 Reduced Efflorescence
 Reduced Shrinkage
 Reduced Heat of Hydration
 Reduced Alkali Silica Reactivity

56
4.3 QUESTIONNAIRE
 Sample of Study:

 Name: Cidatel ECO-build pvt. Ltd

.
 Address:.#759/35 Samadhan apts , Bhandarkar Road

Good luck cross, shivginagar, pune 411004

 Type of organization: LTD COMPANY

Head Office: shivginagar Pune.

 Special Features:

 faster assembly .

 material available through out the year.

 cutting , chasing nailing etc easily possible

better sound adsorption.

 enhances the seismic resentence of the buildings.

57
4.4 ANALYSIS OF QUESTIONNAIRE

The researcher after getting the questionnaire answered by the manager needs to
analyze it carefully keeping in' mind of the familiarity with the background of the
survey and with all the stages require for proper analysis.

The researcher should also take note that the answers are being answered in
accordance to the questions put up by the researcher.

The researcher carefully analyzing the questionnaires which are 13 yes or no

questions, 6 multiple questions and 5 open ended questions.

c,••

1. Question: There is no relationship between working capital

management efficiency and profitability .

Answer: No there is relationship between working capital management efficiency and

profitability as the efficient working capital management increases the profitability.

2. Question: The proportions of working capital components affect the efficiency of the
working capital management.

Answer: Yes the proportions of working capital components affect the efficiency of the
working capital management.

3. Question: Profitability could be increased at the expense of liquidity.

Answer: Yes profitability Increases at the expenses of liquidity as there is negative

relationship between liquidity and profitability any increase in profitability there is
decrease in liquidity and any decrease in profitability there is increase in liquidity.

58
4. Question: Working capital can be managed efficiently by maintaining optimum
level of its components.

Answer: Yes working capital can be managed efficiently by maintaining optimum

level of its components (cash, marketable securities .... etc)

5. Question: It is considered a good working capital management if current assets

of the company are able to fulfill all its current liabilities.

Answer: Yes if the current assets are able to fulfill all its current liabilities the
working capital in this case is good because current assets more than current liabilities.

6. Question: Cash position and bills receivable decide the liquidity of a firm.

Answer: Yes Cash position and bills receivable decide the liquidity of a firm.

7. Question: There is a negative relationship between liquidity of company and its

profitability.

Answer: Yes there is a negative relationship between liquidity of company and its
profitability any increase in profitability there is decrease in liquidity and any decrease in
profitability there is increase in liquidity.

59
8. Question: Working capital management in the company involves the control of cash
only. (Also Q. No.9).

9. Question: Working capital can be optimized by.

20. Managing cash.

21. Managing bills receivable and payables.
22. Managing debtors and creditors.
23. All of these.

Answer the questions (No. 8-9) as they have the same

answer: working capital management in the company does not involve the
control of cash only but also marketable securities, bills receivable, bills payable,
debtors and creditors.

10.Question: Negligence in proper assessment of the working capital lead to cash

crisis and ultimately to liquidation.

Answer: Yes negligence in proper assessment of the working capital lead to cash
crisis and ultimately to liquidation.

11.Question: Efficient working capital management is expected to improve a

company's profitability and liquidity.

Answer: Yes efficient working capital management is expected to improve a

company's profitability and liquidity.

12.Question: Management of working capital by managing cash, debtors

and creditors are important to the financial health of businesses.

Answer: Yes management of working capital by managing cash, debtors

and creditors are important to the financial health of businesses.
60
13.Question: Large amount of cash invested in working capital will have a negative
significant impact on profitability .

Answer: yes large amount of cash invested in working capital will have a negative
significant impact on profitability . ,.

14.Question: Good management of working capital generate cash and help to

improves profits and reduces risks.

Answer: Yes good management of working capital generate cash and help to improves
profits and reduces risks.

15.Question: Working capital management plays an important role to increase.

u) Profitability.
v) Liquidity.
w) Both.

Answer: Working capital management plays an important role to increase

profitability as well as liquidity.

16.Question: Poor working capital management can lead to.

24. Over capitalization.

25. over trading
26. Both.

Answer: Poor working capital management can lead to over capitalization

as well as over trading. Characteristics of over-capitalization are excessive debtors,
and cash, low return on investment with long term funds tied up in non-earning short
term assets. Overtrading leads to escalating debtors and creditors, and if. unchecked,
ultimately to cash starvation.

61
17.Question: Working capital for the company is calculated

27. Weekly.
28. Monthly.
29. Yearly.

Answer: Working capital for the company is calculated yearly exactly at the end of the
year when the balance sheet of the company is done.

18.Question: Good working capital management help in

30. Helping to earn interest or reducing interest payments over trading.

31. Helping managers take financial responsibility.
32. Helping managers to measure their own performance and the performance of their
team.
33. All of these.

Answer: Advantages of good working capital management include all of these helping
to earn interest or reduce interest payments over trading, helping managers take financial
responsibility and helping managers to measure their own performance and the
performance of their team.

19.Question:.For working capital assessment documents! papers required are

34.Balance sheet.
35.Profit &loss account.
36.Both.

Answer: Assessment of working capital depends on the balance sheet only

as it is concerned of current assets and current liabilities only.

62
20.Question: What do you want to say about working capital management in your
organization?

Answer: Working capital management in the company is playing an important

part in balancing between profitability and liquidity.
We are always making sure that company's current assets meet company's current
liabilities.

21.Question: How the assessment of working capital is calculated?

Answer:

Working capital = current assets - current liabilities

(Less) 25% from that amount
= Maximum Permissible company Finance.

22.Question: What are the areas of concern about working capital management
of your company? In general?

Answer: Risk of inability to meet due short-term obligations. In general: Balancing

between profitability and liquidity.

23.Question: What measures Citadel ECO Build or company need to take for sound
working capital management?

Answer: Liquidity Ratios (Current ratio, Quick Ratio)

63
4.5 CONCLUSION

Analysis of data is the most skilled task. The researcher himself should do it. A
familiarity with the back ground of survey and with all its stages is required for
proper analysis.

The steps envisage in the analyzing of data will vary depending on the type of study. The
researcher after analyzing the data should critically interpret the results obtained so that
the broader meaning of it can be exposed and proper explanation of research findings -
can be laid.

64
 Chapter 5

FINDINGS AND SUGGESIONS

65
5.1 INTRODUCTION

The researcher after analyzing the interpretation of the obtained data needs to
discuss the findings and give some suggestions and recommendations.

This chapter is the last major step in research process, which tells the interested
reader the problem investigated, the method used to solve the problem, the results
and the conclusions.

It must contain relevant details required by the reader to comprehend the findings
and to determine validity of the results.

The researcher must try to clarify his own thoughts in order to make the results
meaningful to the users. It should contain the main findings of the research
investigation.

This must clearly explain weather the hypothesis has been established or rejected
supported by scientific and logical arguments.

66
5.2 FINDINGS

Findings are the end result of the project study. It is the conclusion, which the
research establishes after analyzing the data from the questionnaire.

Some of the findings the researcher found out after carefully analyzing
The questionnaire are as follows:

1) The way of working capital was managed has a significant impact

on both profitability and liquidity.
.
2) There is a negative relationship between liquidity and profitability
of the company so company with high level of liquidity are expected to
post low level of profitability and company with low level of liquidity
are expected to post high level of profitability .

3) There is a possible positive relationship between efficient working capital

management and profitability. company more efficient in managing their working
capital are expected to pose high level of profitability and vice versa.

4) The ultimate objective of any company is to maximize the profit, But,

preserving liquidity of the company is an important objective too.

5) Efficient working capital management involves planning and on the one hand
and avoid excessive investment in these assets on controlling current assets and
current liabilities in a manner that eliminates the risk of inability to meet due short
term obligations the other hand.

6) Profitability can be increased in the expense of liquidity.

7) Working Capital Management is a very sensitive area in the field of financial

management as it involves the. decision of the amount and composition of current
assets and the financing of these assets.

67
5.3 SUGGESTIONS OR RECOMMENDATION

1)Establish systems to measure working capital. Check whether. levels of working

capital can be measured accurately and regularly, ideally on a daily basis, and
certainly on a weekly basis.

It needs system that will allow the company to state the, amount of cash, bills
receivable, bills payable, debtors and creditors.

2) Record past and current levels of working capital knowing the point.
This helps in setting a realistic budget and will enable the company to establish
times of the month/year when elements of working capital are higher/lower.

3) Management of cash is one of the most important areas in the management of

working capital in company.

Managing cash should involves the following issues:

a. The preparation and use of cash budget.

b. Management of short-term cash investment.
c. Use of cash management models.

4) companies should determine how much working capital should be invested and
how should the investment in working capital be financed.

5) The decision regarding the level of overall investment in working capital is a

cost/benefit trade-off between Liquidity & profitability, or Cash flow& profits.

68
5.4 TESTING OF HYPOTHESIS

Regarding to the hypothesis which the researcher has mentioned in the first
chapter. It is concluded that the hypothesis is

1)accepted as there is a positive relationship between efficient working capital

management and profitability of the company.

The companies more efficient in managing their working capital are expected to
pose high level of profitability and vice versa. According to Hypothesis

2) is accepted as the different components of the working capital which are

management of cash, management of receivables& payables and management of
debtors& creditors have a major effect on the management of the working.
capital in the company. In the same way it is accepted the hypotheses

3) that there is a negative relationship between liquidity and profitability of the

companies as so the companies with high level of liquidity are expected to post
low level of profitability and vice versa.

69
5.5 AREA FOR FURTHER STUDIES

There is much to be done about working capital in companies sector in future.

We suggest that further research be conducted on the same topic with different
companies and extending the years of the sample.

The scope of further research may be extended to the working capital components
management including cash, marketable securities and receivables management.

70
5.3 CONCLUSION

Firms are created to generate revenues for their owners in the long-term. However,
the long-term value is a sum-total of short – term values.

Working capital management takes care of the short – term value creation.
Working capital management requires managing the short-term levels of
investment and financing them.

Managing working capital levels refer to the investment in cash , inventories and
receivables as well as short-term financing sources such as trade credits and bank
loans.

Working Capital is the lifeline of every industry, irrespective of whether it's a

manufacturing industry, services industry.

Working Capital is the prime and most important requirement for carrying
out the day to day operations of the business. Working Capital gives the much-
needed liquidity to the business. Working Capital Finance reduces the overall fund
requirement, required to build up the Current Assets, which in turn help you
improve your Turn over Ratio.

Most of capital is managed will have a significant impact on Profitability of those

companies . We have found a strong negative relationship between net operating
profitability and the liquidity and a positive relationship between efficient working
capital management and profitability of the company.

71
On basis of the above information, we may further conclude that these results
(findings) can be further strengthened if the companies manage their working
capital in ways that are more efficient. Management of working capital means
"management of current assets and current liabilities, and financing these current
assets".

If those companies properly manage their cash, accounts receivables and

inventories in a proper way, this will ultimately increase profitability of those
companies.

72
 BLBLIOGRAPHY

1.ELJELL Y, A. 2004. "Liquidity-Profitability Tradeoff: An empirical

Investigation III an Emerging Market", International Journal of Commerce &
Management, Vol 14 No 2 pp. 48 – 61.

2. DELOOF, M. .2003. "Does Working Capital Management Affects Profitability

of Belgian Finns?", Journal of Business Finance & Accounting, Vo130 No 3 & 4
pp. 573 – 587.

3. GHOSH, S. K. AND ~.1AJI, S. G. 2003. "Working Capital Management

Efficiency: A study on the Indian Cement Industry", The Institute of Cost and
Works Accountants of India .

4. CHIOU, J. R., CHENG, L. AND WU, H.W. (2006). "The determinants of

working capital management", The Journal of American Academy of Business,
Vol. 10, No.1, pp. 149-155.

5. SCHLEIFER, 2003, Essentials of Financial Analysis, John Wiley & Sons, Inc.,
Hoboken, New Jersey. Published simultaneously in Canada.

6.KOLHAPUR, March 2007, Management Accounting,

Mrs. Bhagyashree M. Phadke.

7. DR. S N MAHESHWARl, 2004, Financial Management, SULTAN CHAND

&SONS.

73

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