TELLAKULA JALAYYA POLISETTY SOMASUNDARAM

COLLEGE, GUNTUR

MBA II SEMESTER MINI RESEARCH PROJECT

Title of the project: WORKING CAPITAL MANAGEMENT

Name of the student: SHAIK SIDDIK

Roll No: 38

Regd No: Y23BU03059

Subject Name RESEARCH METHODOLOGY

___________________. ___________________
Signature of the student Signature of the Faculty
 CONTENTS
• Chapter 1: Introduction ………………………………………. 1-3
• Chapter 2: Objectives & methodology ……………………….. 4-6
• Chapter 3: Data analysis & interpretation ……………………. 7- 20
• Chapter 4: Findings & conclusion ……………………………. 21 - 25
INTRODUCTION
 Working Capital

Working Capital is the capital available for

conducting the day-to-day operations of an organization, normally, the excess
of current assets over current liabilities.

In accounting terms this is a static balance sheet

concept referring to the excess at a particular moment in time of permanent
capital plus longterm liabilities over the fixed assets of the business. As such it
depends on accounting rules, such as what is capital and what is revenue, what
constitutes a retained profit, the cut-off between long term and short term (12
months from the balance sheet date), and when revenue should be recognized.

If working capital thus defined exceeds net

current operating assets (stocks plus debtors less creditors) the company has a
cash surplus (usually represented by bank deposits and investments);
otherwise it has a deficit (usually represented by a bank loan and/or overdraft).
On this basis, therefore, the control of working capital can be sub divided into
areas dealing with stocks, debtors, creditors and cash.
Definition:

According to Redman and Mory

“Research is systematized effort to gain new knowledge”.

According to Clifford Woody

“Research comprises defining and redefining problems, formulating
hypothesis or suggested solutions, collecting organizing and evaluating data,
making deductions and reaching conclusions and at last carefully testing the
conclusions to determine whether they fit the formulating hypothesis”.
It has also defined as ‘a careful investigation or inquiry especially through
search for new fact in any branch of knowledge’.
Research comprises defining research problems, formulates the hypothesis,
research design including sample designing, data collection, analysis of data,
interpretation, conclusion on the basis of interpretation. Apart from it
suggestions and recommendations are also the part of research.

The research methodology is through secondary data:

• Journals
• Plant visit
• Personal discussion and interaction
• Website
• Financial Books
• Business Magazines
 OBJECTIVES
&
METHODOLGY

OBJECTIVE :
• To study the working capital requirement of the firm.
• To study and analyze whether there is optimum investment in current
assets.
• To analyze a balance between liquidity and profitability.
• To study and analyze the proper flow of funds for current operations.
• To study and to analyze the various financial statements.
• Efficient & Effective Management of Funds through proper planning &
Control.
• To show analysis of current assets of the firm as well as financing these
assets.
• Financial performance in competitive environment .
• Profitability of the business by measuring certain ratios.

HYPOTHESIS :

Working capital management is required to ascertain the

requirement of cash to meet with its operating expenses for the company.

It plays a vital role to determine to determine the time elapses

between the acquisition of raw material and final cash realization and cash
requirement of the industry.
RESEARCH METHODOLOGY :

Research in common parlance refers to a search for knowledge. One can also
define research as a scientific and systematic search for pertinent information
on a specific topic.

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

Research methodology just does not deal research method but also consider
the logic behind the method. It facilitates the researcher with reason for
evaluating the research problem.

LIMITATIONS:

For the purpose of the study, data will be analyzed of Tata motors ltd.
company only doing business in automobile sector.

1. The working capital is taken into consideration and other elements are
not taken into consideration.

2. This project is not compared with other company.

3. Primary data is not taken into consideration as a research methodology.

4. Due to unavailability of Tata’s workshop in the city exact figures cannot

be taken into account.
 DATA ANALYSIS
&
INTERPRETATION

CONCEPT OF WORKING CAPITAL:

 There are two concept of working capital:

i) Gross working capital

ii) Net working capital

Net Working Capital=Current Assets-Current liabilities.

The gross working capital concept is financial or going concern concept

whereas net working capital is an accounting concept of working capital.
These two concepts of working capital are not exclusive; rather both have
their own merits. The gross concept is sometimes preferred to the net
concept of working capital for the following reasons:

1. It enables the enterprise to provide correct amount of

working capital at the right time.

2. Every management is more interested in the total current

assets with which it has to operate than the sources from

where it is made available.
3. The gross concept takes into consideration the fact that every

increase in the funds of the enterprise would increase its

working capital.
4. The gross concept of working capital is more useful in

determining the rate of return on investments in working

capital.

The net working capital concept, however, is also important for the following
reasons:
 1. It is qualitative concept which indicates the firm’s ability to

meet its operating expenses and short-term liabilities.

2. It indicates the margin of protection available to the short-

term creditors, i.e., the excess of current assets over current

liabilities.
3. It is an indicator of the financial soundness of an enterprise.
4. It suggests the need for financing a part of the working capital

requirements out of permanent sources of funds.

Both gross and net, concepts of working capital are important aspects of
the working capital management. The net concepts of working capital may be
suitable only for proprietary form of organization such as sole-trader or
partnership firms. But the gross concept is very suitable to the company form
of organization where there is a divorce between ownership, management
and control.

However, it may be made clear that as per the general practice, net working
capital is referred to simply as working capital.

In the words of Hoagland, “Working capital is descriptive of that capital which

is not fixed. But the more common use of the working capital is to consider it
as the difference between the book value of the current assets and current
liabilities.”

FACTORS DETERMINING THE WORKING CAPITAL

REQUIREMENTS
Factors determining working capital requirements:

1. Nature or character of business

2. Size of business/scale of operations

3. Production policy

4. Manufacturing process/length of production cycle

5. Seasonal variation

6. Working capital cycle

7. Rate of stock turnover

8. Credit policy

9. Business cycles

10. Rate of growth of business

11. Earning capacity and dividend policy

12. Price level changes

13. Other factors

The working capital requirements of a concern depend upon a large number

of factors such as nature and size of business, the character of their
operations, the length of production cycles, the rate of stock turnover and the
state of economic situation. It is not possible to rank them because all such
factors are of different importance and the influence of individuals factors
changes for a firm over time. However, the following are important factors
generally influencing the working capital requirements.

1. Nature or Character of Business:

The working capital requirements of a firm basically depend upon the nature
of its business. Public utility undertakings like Electricity, Water supply and
Railways need very limited working capital because they offer cash sales only
and supply services, not products, and as such no funds are tied up in
inventories and receivable. The manufacturing undertakings also require
sizable working capital alongwith fixed investments. Generally speaking it may
be said that public utility undertaking require small amount of working capital,
trading and financial firms require relatively very large amount, whereas
manufacturing undertaking require sizable working capital between these two
extremes.

2. Size of Business/Scale of Operation:

The working capital requirements of a concern are directly influenced by the

size of its business which may be measured in terms of scale of operations.
Greater the size of a business unit, generally larger will be the requirement of
working capital. However, in some cases even a smaller concern may need
more working capital due to high overhead charges, inefficient use of available
resources and other economic disadvantages of small size.
3. Production charges:

In certain industries the demand is subject to wide fluctuations due to

seasonal variations. The requirements of working capital, in

Such cases depend upon the production policy. The production could be kept
either steady by accumulating inventories during slack periods with a view to
meet high demand during the peak season or the production could be
curtailed during the slack season and increased during the peak season. If the
policy is to keep production steady by accumulating inventories it will require
higher working capital.

4. Manufacturing Process/Length of Production Cycle:

In manufacturing business, the requirements of working

capital increase in direct proportion to length of manufacturing process. The
longer the manufacturing time, the raw materials and other supplies have to
be carried for a longer period in the process with progressive increment of
labour and services costs before the finished product is finally obtained.
Therefore, if there are alternative processes of production, the process with
the shortest production period should be chosen

5. Seasonal Variation:

In certain industries raw materials is not available throughout the year. They
have to buy raw materials in bulk during the season to ensure an
uninterrupted flow and process them during the entire year. A huge amount
is, thus, blocked in the form of material inventories during such season, which
gives rise to more working capital requirements.

6. Working capital:

In manufacturing concern, the working capital cycle starts with the purchase
of raw materials and ends with the realization of cash from the sale of finished
products. This cycle involves purchase of raw materials and stores, its
conversion into stocks of finished goods through work-inprogress with
progressive increment of labour and service costs, conversion of finished
stocks into sales, debtors and receivables and ultimately realization of cash
and this cycle continues again from cash to purchase of raw material and so
on.
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The speed with which the working capital completes one cycle determines
the requirements of working capital-

Longer the period of the cycle larger is the requirement of working capital.

7. Rate of Stock Turnover:

There is a high degree of inverse co-relationship between the

quantum of working capital and the velocity or speed with which the sales are
affected. A firm having a high rate of stock turnover will need lower amount
working capital as compared to a firm having a low rate of turnover.
8. Credit Policy:

The credit policy of a concern in its dealings with debtors and

creditors influence considerably the requirements of working capital. A
concern which purchases its requirements on credit and sells its
products/services on cash requires lesser amount of working capital.

9. Business Cycles:

Business cycle refers to alternate expansion and contraction in

general business activity. In the period of boom i.e., when the business is
prosperous, there is a need for larger amount of working capital due to
increase in sales, rise in prices, optimistic expansion of business, etc. on the
contrary in the times of depression i.e., when there is a down swing of cycle,
the business contracts, sales decline, difficulties are faced in collections from
debtors and firms may have a large amount of working capital lying idle.

10. Rate of Growth of Business:

The working capital requirements of a concern increase

with the growth and expansion of its business activities. Although, it is difficult
to determine the relationship between the growth in the volume of business
and the growth in the working capital of a business, yet it may be concluded
for normal rate of expansion in the volume of business, we may have retained
profits to provide for more working capital but in fast growing concern, we
shall require large amount of working capital.
11. Earning Capacity and Dividend Policy:

Some firms have more earning capacity than others due to

quality of their products, monopoly, conditions, etc. such firms with high
earning capacity may generate cash profits from operations and contribute to
their working capital. The dividend policy of a concern also influences the
requirements of its working capital. A firm that maintains a steady high rate of
cash dividend irrespective of its generation of profits needs more working
capital than the firm that retains larger part of its profits and does not pay so
high rate of cash dividend.

12. Price Level Changes:

Changes in the price level also affect the working capital

requirements. Generally, the rising prices will require the firm to maintain
larger amount of working as more funds will be required to maintain the same
current assets. The effect of rising prices may be different for different firms.
Some firms may be affected much while some others may not affected at all
by the rise in prices.

13. Other Factors:

Certain other factors such as operating efficiency,

management ability, irregularities of supply, import policy, assets structure,
importance of labour, banking facilities, etc. also influence the requirements
of working capital.

Data analysis helps to know about the current status of the company. It
completely reveals about the financial figures of the company, so that the
investors may come to know about the position of the company. Given below
is the balance sheet of TATA MOTARS LTD.
(In crores)
Year Mar 11 Mar 10 Mar 09 Mar 08 Mar 07
SOURCES OF
FUNDS :

Share Capital 637.71 570.60 514.05 385.54 385.41

Reserves Total 19,375.59 14,394.87 11,716.10 7,453.96 6,484.34
Total 20,013.30 14,965.47 12,230.15 7,839.50 6,869.75
Shareholders
Funds
Secured Loans 7,766.04 7,742.60 5,251.65 2,461.99 2,022.04
Unsecured 8,132.70 8,883.31 7,913.91 3,818.53 1,987.10
Loans
Total Debt 15,898.75 16,625.91 13,165.56 6,280.52 4,009.14
Total Liabilities 35,912.05 31,591.38 25,395.71 14,120.02 10,878.89
APPLICATION
OF FUNDS :

Gross Block 21,883.32 18,416.81 13,905.17 10,830.83 8,775.80

Less : 8,466.25 7,212.92 6,259.90 5,443.52 4,894.54
Accumulated
Depn
Net Block 13,417 11,203.89 7,645.27 5,387.31 3,881.26
Lease 0 0 0 0 0
Adjustment
Capital Work in 4,058.56 5,232.15 6,954.04 5,064.96 2,513.32
Progress
Investments 17,475.63 16,436.04 14,599.31 4,910.27 2,477.00
Data Analysis:

Inventories 3,891.39 2,935.59 2,229.81 2,421.83 2,500.95

Sundry Debtors 2,602.88 2,391.92 1,555.20 1,130.73 782.18
Cash and Bank 2,428.92 1,753.26 1,141.82 2,397.31 826.76
Loans and 5,167.34 4,457.10 4,764.75 4,433.91 6,402.16
Advances
Total Current 14,090.61 11,537.48 9,691.69 10,383.78 10,512.05
Assets

1.YEARS 2007 2008 2009 2010 2011

2.CURRENT 10,512.05 10,383.78 9,691.69 11,537.48 14,090.61

ASSETS

3.CURRENT 6,363.68 8,667.20 8,958.25 14,609.16 13,032.53

LIABLITIES

4.WORKING Rs.4,148.37 Rs.1,716.58 Rs.733.44 Rs.(3071.68) Rs.1,05

CAPITAL 8.08
(2-3)
WORKING CAPITAL:

X-axis:Years
Y-axis:Rs in crores
5,000.00

4,000.00

3,000.00

2,000.00

1,000.00

0.00
2007 2008 2009 2010 2011
-1,000.00

-2,000.00

-3,000.00

-4,000.00

From the above study, it is been observed that in 2007 company had the
working capital of Rs. 4, 148.37 crs.
In 2008 the working capital of company decreased from
Rs.4,148.37 crs to Rs.1, 716.58 crs since the current liabilities of the company
increased to a large extent as compared to that of previous year.
In 2009 there was a slight increase in the current liabilities and a
high amount of downfall in the current assets of the company. This effect took
place due to the recession in the world market.
In 2010 there was a increase in the current assets of the
company but there was a huge amount of increase in the current liabilities, and
the current liabilities of the company exceeded the current assets of the
company, so the working capital of company was found to be negative.
In 2011 the current assets of company increased and the
company decreased its current liabilities, so there was increase in working
capital which was found to be Rs.1, 058.08 crs.
 FINDINGD
&
CONCLUSION
SOURCES OF FUNDS 2010-11 2009-10 2008-09 2007-08 2006-07
1.Funds generated from operations
A. Profit after tax 1811.82 2240.08 1001.26 2028.92 1913.46
B. depriciation 1356.26 1029.36 870.05 647.82 582.51
C. provision 34.00 61.05 (1.96) (62.93) 1.09
D. net deffered tax charge 376.30 589.46 (2.50) 401.54 177.22
E. adjustment in general reserve (27.12)
F. credit for dividend distribution tax 15.29
of subsidiary company

G. Exchange gain on long term 161.69 (325.81) 106.23

foreign currency
H. Marked to market exchange loss 132.57 (132.57)
on forward contracts
I. 3740.07 3726.71 1855.80 3015.35 2647.16
2.Proceeds from right issue of ordinary 4139.33
shares
3. proceeds from issue of GDS 1794.19
4. proceeds from QIP issue 3351.01
5.proceeds from convertible 1493.32 1555.76 8.52 6.90 96.38
debaentures
6.(a)Decrease in working capital 2145.94 1348.30
(b)decrease in finance receivable 366.41 1393.58 406.22 2227.41
7.Increase in borrowings 3460.35 6885.04 2271.38 1072.30
8.decrease in short term deposits with 1081.85 508.72
banks
8950.81 14076.53 14376.76 8869.34 4324.56
 APPLICATION OF FUNDS
9.Capital expenditure 2396.29 2873.33 5118.13 4705.95 2456.30
10.Investments made 321.31 9429.82 8055.90 2370.34 462.94
11.Payments of redemption premium 71.96
on NCD
12.Increase in short term deposits with 804.66 490.67 1122.40
bank

13.(a)Increase in working capital 3000.57 830.47 728.26

(b)increase in finance receivables 4.61
14.Dividends 1467.03 991.94 345.70 659.68 676.39
15.Miscellaneous expenditure 193.20 290.77 26.56 10.97 (3.94)
8950.81 14076.53 14376.76 8869.34 4324.56

CONCLUSION:

On the basis of the working capital calculation it has been observed

that the requirement of working capital has been decreased from
2006-07 to 2009-10(4148.37 crs. to -3071.68crs) and then in the
year 2010-11 there is increase in the working capital requirement
that is 1058.08 crs.
This has been beneficial to the interest of the
company since a decrease in working capital shows good sign for
working capital cycle. There is a huge amount of decrease in the
working capital requirement in 2009-10 due to the recession in the
world market. And the another reason for the decrease of the
working capital is the continous increase in the current liabilities of
the company.

The current ratio for the company as calculated above continues to

be unsatisfactory. This is a clear indication as to the liquidity position
of the company and also signifies that the company is incapable to
meeting its current obligation through the use of current assets.
 However the company should striveto optimize the working capital
position so as to avoid blocked of excess of funds in the business.
This is required as blocked of fund shall call for additional cost of
capital burden for company which shall hit the overall profitability.
The net profit ratio has decreased in 2008-09
due to recession the world market, again it increased in 2009-10 but
due to large competition in the market it again decreased in 2010-
11.
The company has tried to decrease its debt
equity ratio in 2010-11 by relying on its internal sources rather than
its external sources.
The return on the net worth ratio has decreased
in 2008-09 due to the recession in the world market, it again showed
a slight increase in the year 2009-10 but again decreased in 2010-11
due to stiff competition in the market. Overall the company is
matured one and it has contributed tremendously in the nation’s
growth and development.

WEBSITES:

• www.capitaline.com

• www.tatamotors.com

• Society of Indian Automobile Manufacturers report and Company

Analysis

• http://deadpresident.blogspot.com/2011/11/tata-motors-2010-2011-
annualreport. Html

BOOKS REFFERED:
• Chandra Prasanna, ‘Financial Management (Theory & Practice)’, Tata
McGraw-Hill Publishing Co. Ltd., New Delhi, Fifth Edition.

• Khan M. Y. & Jain P. K., ‘Financial Management (Text & Problems)’,

Tata McGraw-Hill Publishing Co. Ltd., New Delhi, Third Edition.

• Mithkary P.H., ‘Financial management’, Caps Pvt. Ltd., Nagpur,

Revised Edition

• Pandey I. M., ‘Financial Management’, Vikas Publishing House Pvt.

Ltd., New Delhi, Eighth Edition.

• Rustagi R. P., ‘Financial Management (Theory, Concepts and

Problems)’, Galgotia Publishing Co., New Delhi, Second Revised
Edition.