EXECUTIVE SUMMARY

We "Sky Enterprises" established in the year 1991, are one of the renowned organizations
engaged in manufacturing, trading and supplying an extensive assortment of Children
Playground Equipment, Amusement Park, Indoor & Green Gym Equipment, Rubberised
Flooring and Engineering Fabrication.

My Project is ‘A study of working capital management of ‘Sky ENTERPRISES

PVT.LTD’
The study was conducted at the head office 07, Sarang Residency, Opp. Nirmala Convent
School, Gangapur Road, Nashik, Maharashtra - 422 013.
During the project I interviewed the executives & staff to collect the data, & also made use of
company records & annual reports. The data collected were then compiled, tabulated and
analysed.
Working Capital Management is a very important facet of financial
management due to:

 Investments in current assets represent a substantial portion of

total investment.
 Investment in current assets & the level of current liabilities have to
be geared quickly to change sales.

Some the points to be studied under this topic are:

How much cash should a firm hold?
What should be the firms credit policy?
How to & when to pay the creditors of the firm?
How much to invest in inventories?
By studying about the company’s different areas I came to know
certain things like:
 Acid test ratio is more than one but it does not mean that
company has excessive liquidity.
 Standard current ratio is 2:1 and for industry it is 1.33:1.
 Debtors of the company were high; they were increasing year by
year, so more funds were blocked in debtors. But now recovery
is becoming faster.
 Working capital turnover ratio is continuously increasing that
shows increasing needs of working capital.
 INDEX

CHAPTERS CHAPTERS PAGE

NO. NO.
3
1 INTRODUCTION TO STUDY
9
2 COMPANY PROFILE
13
3 OBJECTIVES OF STUDY

19
4 REVIEW OF LITERATURE

25
5 RESEARCH METHODOLOGY

26
6 DATA ANALYSIS AND INTERPRETATIONS
OBSERVATION

31
7 FINDINGS CONCLUSIONS AND SUGGESTIONS

33
8 BLBLIOGRAPHY

2
 CHAPTER NO. 1

INTRODUCTION TO STUDY

In a perfect world, there would be no necessity for current assets and liabilities because there
would be no uncertainty, no transaction costs, information search costs, scheduling costs or
production and technology constraints. The unit cost of production would not vary with the
quantity produced. Borrowing and lending rates shall be the same. Capital,labour,and product
market shall be perfectly competitive and would reflect all available information, thus in such
environment, there would be no advantage for investing in short term assets.
However the world we live is not perfect. It is characterized by considerable amount of
uncertainty regarding the demand, market price, quality and availability of own products and
those of suppliers. There are transaction costs for purchasing or selling goods or securities.
Information is costly to obtain and is not equally distributed. Similarly each organisation is
faced with its own limits on the production capacity and technology.
The real world circumstances introduce problems which require the necessity of maintaining
working capital. For example, an organisation may be faced with an uncertainty regarding
availability of sufficient quantity of crucial inputs in future at reasonable price. This may
necessitate the holding of inventory and other current assets. Similarly an organisation may
be faced with an uncertainty regarding the level of its future cash flows and insufficient
amount of cash may incur substantial costs. This may necessitate the holding of reserve of
short term marketable securities, again a short term capital asset. In corporate financial
management, the term working capital management (net) represents the excess of current
assets over current liabilities.
Working capital management shows the relationship between a firms current assets and
current liabilities. The goal of working capital management is to ensure that a firm is able to
continue its operations and it has the ability to meet short term debts. Management of
working capital involves managing inventories, account recievables,account payables and
cash. A good way to judge a company’s cash flow 2 prospects is to look at it’s working
capital management. The company must have adequate working capital. It should neither be
excessive nor inadequate. Excessive working capital will result in idle fund laying without
earning any profit in the business, where inadequate working capital shows the company
doesn’t have sufficient funds for financing its daily needs. This project entitled ‘A Study on
Working Capital Management of Apollo Tyres Ltd’ is mainly focusing on the effectiveness
of working capital management of the company.

➢ CONCEPT OF WORKING CAPITAL MANAGEMENT

Financial management can be divided into two broad areas of responsibility as the
management
of long-term capital and the management of short-term funds or working capital. Working
capital means the funds available and used for day-to-day operations of an enterprise. It
consists broadly of that portion of assets of a business which are used in or related to its
current operations. Efficient management of working capital is an essential pre–requisite for
the successful operation
3
of a business enterprise and improving its rate of return on the capital invested in short-term
assets.

The components of Working Capital Management are as follows:

• Cash Management
• Inventory Management
• Receivables Management
• Payables Management

➢ TYPES OF WORKING CAPITAL

According to the needs of business, the working capital may be classified as follows:

A. ON THE BASIS OF PERIODICITY: On the basis of periodicity working capital can be

divided under two categories as under:

1) Permanent working capital: This refers to that minimum amount of investment in all
current
assets which is required at all times to carry out minimum level of business activities.
The Tandon Committee has referred to this type of working capital as ―Core current assets
Fixed working capital can further be divided into two categories as under:

i) Regular Working capital: Minimum amount of working capital required to keep the
primary circulation. Some amount of cash is necessary for the payment of wages, salaries etc.

ii) Reserve Margin Working capital: Additional working capital may also be required for
contingencies that may arise any time. The reserve working capital is the excess of capital
over the needs of the regular working capital is kept aside as reserve for contingencies, such
as strike,business depression etc.

2) Variable or Temporary Working Capital: The amount of such working capital keeps on
fluctuating from time to time on the basis of business activities. In other words, it represents
additional current assets required at different times during the operating year. For example,
extra inventory has to be maintained to support sales during peak sales period. The variable
working capital may also be subdivided into following two sub-groups:

i) Seasonal Variable Working capital: Seasonal working capital is the additional amount
which is required during the active business seasons of the year. Raw materials like raw-
cotton or jute or sugarcane are purchased in particular season. The industry has to borrow
funds for short period. It is particularly suited to a business of a seasonal nature. In short,
seasonal working capital is required to meet the seasonal liquidity of the business.

ii) Special variable working capital: Additional working capital may also be needed to
provide additional current assets to meet the unexpected events or special operations such as
extensive marketing campaigns or carrying of special job etc.

4
B. ON THE BASIS OF CONCEPT:

On the basis of concept working capital is divided into two categories as under:
1) Gross Working Capital: Gross working capital refers to total investment in current assets.
The current assets employed in business give the idea about the utilization of working capital
and idea about the economic position of the company. Gross working capital concept is
popular and acceptable concept in the field of finance.

2) Net Working Capital: Net working capital means current assets minus current liabilities.
The difference between current assets and current liabilities is called the net working capital.
If the net working capital is positive, business is able to meet its current liabilities. Net
working capital concept provides the measurement for determining the creditworthiness of
company.

➢ FACTORS DETERMINING WORKING CAPITAL

The following factors determine the requirement of working capital :

1. Nature of Companies: Needs for working capital are determined by the nature of an
enterprise. Small companies have smaller proportions of cash, receivables and inventory than
large corporation. This difference becomes more marked in large corporations. A public
utility, for example, mostly employs fixed assets in its operations, while a merchandising
department depends generally on inventory and receivable.

2. Nature and Size of Business: The working capital requirements of a firm are basically
influenced by the nature of its business. Trading and financial firms have a very less
investment in fixed assets, but require a large sum of money to be invested in working
capital. Retail stores, for example, must carry large stocks of a variety of goods to satisfy the
varied and continues demand of their customers.

3. Time: The level of working capital depends upon the time required to manufacturing
goods. If the time is longer, the size of working capital is great. Moreover, the amount of
working capital depends upon inventory turnover and the unit cost of the goods that are sold.

4. Volume of Sales: This is the most important factor affecting the size and components of
working capital. The volume of sales and the size of the working capital are directly related
to each other. As the volume of sales increase, there is an increase in the investment of

working capital-in the cost of operations, in inventories and receivables.

5. Terms of Purchases and Sales: If the credit terms of purchases are more favourable and
those of sales liberal, less cash will be invested in inventory. With more favourable credit
terms, working capital requirements can be reduced.

5
6. Business Cycle: Business expands during periods of prosperity and declines during the
period of depression. Consequently, more working capital required during periods of
prosperity and less during the periods of depression.

7. Liquidity and Profitability: If it is interested in improving its liquidity, it can increase the
level of its working capital. However, this policy is likely to result in a reduction of the sales
volume, and therefore, profitability. A firm should choose between liquidity and profitability
and decide about its working capital requirements accordingly.

➢ COMPONENTS OF WORKING CAPITAL MANAGEMENT

1. CASH MANAGEMENT

Cash management is one of the most important areas in the day-to-day management of the
firm‘s deals with the management of working capital, which is defined as all the short term
assets used in daily operations. This consists primarily of cash, marketable securities,
accounts receivable and inventory. The balances in these accounts can be highly volatile as
they respond very quickly to changes in the firm‘s operating environment. Healthy
circulation of cash in the entire business operation is the basis of business solvency.
Ultimately every transaction in a business results either in an inflow or an outflow of cash.
There should be sufficient cash with a firm all the time to meet the needs of the business. If
the cash balance with a firm at any time is surplus or deficit, it is obvious that the finances are
mismanaged. Cash Management needs strategies to deal with various facets of cash.

2. INVENTORY MANAGEMENT

Inventory constitutes an important item in the working capital of many business concerns.
Inventory is a major item of current assets. The term inventory refers to the stocks of the
product of a firm is offering for sale and the components that make up the product Inventory
is stores of goods and stocks. This includes raw materials, work-in-process and finished
goods. Raw materials consist of those units or input which are used to manufactured goods
that require further processing to become finished goods. Finished goods are products ready
for sale. The classification of inventories and the levels of the components vary from
organisaion to organisation depending upon the nature of business.

3. RECEIVABLES MANAGEMENT

Management of Receivables refers to planning and controlling of debt owed to the firm from
customer on account of credit sales.
When large amounts of money is tied up in receivables, there are chances of bad debts. On
the contrary, if the investment in receivables is low, the sales may be low since competitors
offer liberal terms. Therefore, management of receivables require proper policies and their
implementation.
There are basically three aspects of receivables management:
1. Credit Policy
2. Credit Analysis
3. Control of Receivables
6
4. PAYABLES MANAGEMENT

A considerable segment of procurement of products and services in a company are on credit

conditions to a certain extent. Account Payables Management refers to the set of policies,
procedures, and practices employed by a company with respect to managing its trade credit
purchases. They consist of seeking trade credit lines, acquiring favourable terms of purchase,
and
managing the flow and timing of purchases so as to efficiently control the company’s
working capital.

➢ WORKING CAPITAL CYCLE

Every business organisation needs adequate working capital because the conversion of cash
into finished goods to debtors and back to cash is not instantaneous. The continuing flow
from cash to suppliers, to inventory, to accounts receivable and back into cash is called the
working capital cycle or operating cycle. In other words, the term operating cycle refers to
the length of time which begins with the acquisition of raw materials of a firm and ends with
the final realisation of cash from debtors. The amount of working capital depends upon the
length of working capital cycle. Longer the working cycle, higher is the need of working
capital to be maintained. This is because the fund will then remain tied-up in various items of
current assets for a longer period. The length of operating cycle varies from industry to
industry and from business to business.

7
8
 CHAPTER NO. 2

COMPANY PROFILE

SKY ENTERPRISES PVT.LTD’

Office Address :

07, Sarang Residency, Opp. Nirmala Convent School, Gangapur Road, Nashik, Maharashtra -
422 013.

Factory Address :

B-41/42/43, NICE Area, MIDC Satpur, Tiptop Cement Product Premises, Nashik,
Maharashtra - 422 007.

Mobile No. :

+91-9423173408, 9545991001

Tel. No. :

9
+91-253-2318302, 2357408

Email :

sunilkhalkar2557@gmail.com, skyenterprisesnashik@gmail.com

Sky Enterprises was founded in 1991 with a focus and desire to service the global
marketplace with highly innovative products and services. It has since evolved into a full
range of Garden Equipment, School Playground Equipment, Gym Equipment & Sports Good.
Products manufactured by us are designed to withstand tough stress and strain condition so as
to ensure better and continuous efficiency..

We are capable of manufacturing large volumes of equipments to satisfy the customer each
and every demand and specifications. Our customers include the Government, Private
Sectors, Schools, Resorts, Hotels, Municipalities, Corporates, etc.

COMPANY PRODUCTS

Multi Activity Play System

Sky Enterprises is the leading manufacturer of Multi Activity Play System. Our product range
includes a wide range of Sky Play Multi Activity Play Station, Kidz Play Multi Activity Play
Station, School Play Multi Activity Play Station, Kids Playground Multi Activity Play
Station, Toddler Play Multi Activity Play Station and School Garden Multi Activity Play
Station.

10
Playground Swings

We are offering to our customers this range of highly reliable, sturdy and robust Garden
Swing. These are widely in demand at places such as kindergarten, play schools, community
parks and other places. In this range of swings, we have Swings With Rainbow Plates 2
Seater, Log Swings Different Color Dolphin Fish and 1 Seater Swings with Fish/Horse Swan.
Customers are availed this range in the most comprehensive and economical prices. We are
Garden Swing Supplier and Garden Swing Manufacturer in Nashik, Maharashtra.

11
Playground Slides

Sky Enterprises manufacture and offer an exclusive range of Playground Slides. These are
superb to look at and are specially designed for your children. Our collection includes Fiber
Slide, FRP Playground Slide, Wave Slide, Crescent Slide, Spiral Slide, Roller Slide and
Giraffe Slide. Suitable for outdoor playing, gardens, parks, playgrounds, schools and day care
centres.

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Merry Go Round

Designed in complete compliance with the safety standards, the offered range of Merry Go
Round is widely demanded. We avail this range in various specifications as per the demand
of the customers. In this range we have Merry Go Round With Multicolour Horse4 Seater,
Electrical With Multi Colour Horse - 8 Seater, 6 Seater and 4 Seater. Developed and designed
as per the standards defined for kids safety, these are also coloured in various vibrant colours.

13
Garden Gym Equipment’s

We offer specially designed outdoor gym equipment for those fitness enthusiasts who like to
stay close to nature. An outdoor gym allows people to work out in the open with ample fresh
air as compared to indoor gyms. In this range of slides, we have various kinds of items such
as Step Trainer, Air Walker, Tai Chi Single, Leg Press Cum Twister, Twister Three In One,
Abs Trainer, Pendulam Double, Shoulder Cum Chest Press, Bicycle, Chest Press, Leg
Extension, and many more gym equipments. We are leading Manufacturer of Outdoor Gym
Equipments, Garden Gym Equipment in Nashik, Pune, Mumbai and Maharashtra.

14
SERVICES

PLAY EQUIPMENT FOR EVERY SECTOR

At Sky Enterprises, we understand the unique importance ans significance of the environment
in which the play equipment are installed. The space, setting and the overall ambience
determine the most suited equipment for a particular environment. Which is why, we
consistently innovate and create a range of designs to meet the specific needs. We Offer the
Play Equipments in following Sector:

 Residential
 Schools
 Resorts & Hotels
 Public Park
 Malls & Shopping Complex
 Healthcare Facility

RUBBERISED FLOORING

Engaged in the manufacturing and supplying of a wide range of best quality Rubber Flooring
equipments/items, in our product range, we are offering a wide range of Rubber Flooring

15
Equipments.
The range is a collection of assorted Rubber Flooring Equipment. These have been designed
as per standards.

We avail this range in the most comprehensive and industry leading prices. We are Rubber
Flooring Manufacturer and Rubber Flooring Supplier in Nashik, Pune, Mumbai and
Maharashtra.

ENGINEERING FABRICATION

From bending, welding, and forming to final precision polishing, custom metal fabricators
provide the engineering Fabrication services and components that keep industries thriving
around the world. We’re committed to quality in everything we do.
With a long history of production excellence and surpassing strict or complex customer
requirements, we’re proud to offer custom fabrication work with a full range of services,
including:

 Prototyping
 Custom Spun Metal Services
 CNC Turning and Milling
 Custom Welding

VISION, MISSION AND QUALITY

VISION

Being a Internationally Renowned Manufacturer whose Quality & Safety parameters are
Globally Acknowledged in the Admired, Playground Equipment Industry and who is a
destined to "Re-creating Kids' smiles.

MISSION

To be the pioneer and the top indian brand with unmathed quality and technology leadership
offering total environmental solution and playground equipments requirements for specific
customer needs under one roof.

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QUALITY

Since establishment, we follow set quality policies and ensure to maintain the same in all our
endeavors. We offer quality range of Playground & Amusement Park Equipment and
Dustbins, which is manufactured using high-grade raw material. Further, we have developed
a quality checking department at our premises, which is controlled by quality controllers.
These professionals closely monitor the production process; starting right from the
procurement of raw material till dispatch of the finished product. Furthermore, these
professionals check the quality of each product on different parameters that are mentioned
below:

 Durability
 Design accuracy
 Resistance against corrosion, rust and adverse temperature
 Strength
 Weight

BOARD OF DIRECTORS

Mr. Sanjay Kirloskar Chairman & Managing Director

Mr. Rajeev Kher Independent Director

Mr. Pradyumna Vyas Independent Director

Mr. Pratap Shirke Non Executive & Non Independent Director

Ms. Shailaja Kher Independent Director

Mr. Alok Kirloskar Non Executive & Non Independent Director

Mr. M.S Unnikrishnan Independent Director

Dr. Rakesh Mohan Independent Director

Ms. Rama Kirloskar Non Executive & Non Independent Director

Mr. Shobhinder Duggal Additional Director

Mr. Shrinivas Dempo Additional Director

Ms. Ramni Nirula Additional Director

Mr. Sandeep Phadnis Company Secretary

Mr. Chittaranjan Mate Chief Financial Officer

17
 CHAPTER NO. 3

OBJECTIVES OF STUDY

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
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.
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.

18
 CHAPTER NO. 4
RIVIEW OF LITERATURE

Working capital management is the key area of financial management and plays an important
role in any industry. A number of researchers have conducted research on the subject and its
various components. This Chapter is an overview of the research
that has been carried out on the subject. Some of the most relevant articles have been
reviewed here as a part of my research work.

Working Capital Management

It deals with all the aspects of working capital of which in depth study has been carried out as
discussed below.

1. Bhatt V. V. (1972) widely touches upon a method of appraising working capital finance
applications of large manufacturing concerns. It states that similar methods need to be
devised for other sectors such as agriculture, trade etc. The author is of the view that banks
while providing short-term finance, concentrate their attention on adequacy of security and
repayment capacity. On being
satisfied with these two criteria they do not generally carry out any detail appraisal of the
working of the concerns.

2. Smith Keith V. (1973) believes that Research which concerns shorter range or working
capital decision making would appear to have been less productive. The inability of financial
managers to plan and control properly the current assets and current liabilities of their
respective firms has been the probable cause of business failure in recent years. Current
assets collectively represent the
single largest investment for many firms, while current liabilities account for a major part of
total financing in many instances. This paper covers eight distinct approaches to working
capital management. The first three – aggregate guidelines, constraints set and cost balancing
are partial models; two other
approaches - probability models and portfolio theory, emphasize future 94 uncertainty and
interdepencies while the remaining three approaches - mathematical programming, multiple
goals and financial simulation have a wider systematic focus.

3. Chakraborthy S. K. (1974) tries to distinguish cash working capital v/s balance sheet
working capital. The analysis is based on the following dimensions:
a) Working capital in common parlance b) Operating cycle concept
b) Computation of operating cycle period in all the four cases. The purpose of the analysis is
to demonstrate operating cycle concepts based on published annual reports of the firms.

4. Natarajan Sundar (1980) is of the opinion that working capital is important at both, the
national and the corporate level. Control on working capital at the national level is exercised
primarily through credit controls. TheTandon Study Group has provided a comprehensive
operational framework for the same. In
operational terms, efficient working capital consists of determining the optimum level of
working capital, financing it imaginatively and exercising control over it. He concludes that
at the corporate level investment in working capital is as important as investment in fixed
assets. And especially for a company which is not growing, survival will be possible only so
19
long as it can match increase in operational cost with improved operational efficiency, one of
the most important
aspects of which is management of working capital.

5. Kaveri V. S. (1985) has based his writing on the RBI‟s studies on finances of large public
limited companies. This review of working capital finance refers to two points of time i.e.,
the accounting years ending in 1979 and 1983 and is based on the data as given in the
Reserve Bank of India on studies of these companies for the respective dates. He observes
that the Indian industry has by
and large failed to change its pattern of working capital financing in keeping with the norms
suggested by the Chore Committee. While the position of
working capital management showed some investment between 1975-79 and 1979-83,
industries have not succeeded in widening the base of long-term funds to the desired extent.
The author concludes with the observation that despite giving sufficient time to the industries
to readjust the capital structure so as to
shift from the first method to the second method, progress achieved towards this end fell
short of what was desired under the second method of working capital finance.

6. Bhattacharyya Hrishikes (1987) tries to develop a comprehensive theory and tool of

working capital management from the system‟s point of view. According to this study,
capital is often used to refer to capital goods consisting of a great variety of things, namely,
machines of various kinds, plants, houses, tools, raw materials and goods-in-process. A
finance manager of a firm looks for these
things on the assets side of the balance sheet. For capital he turns his attention to the other
side of the balance sheet and never commits a mistake. His purpose is to balance the two
sides in such a way that net worth of the firm increases without increasing the riskiness of the
business. This balancing is financing, i.e.,
financing the assets of the firm by generating streams of liabilities continuously to match with
the dynamism of the former. The study is an improvement of the concept of Park and
Gladson who were not able to capture the entire technofinancial operating structure of a firm.

7. Rao K.V. and Rao Chinta (1991) observe the strong and weak points of conventional
techniques of working capital analysis. The result has been obviously mixed while some of
the conventional techniques which could comprehend the working capital behavior well;
others failed in doing the job
properly. The authors have attempted to evaluate the efficiency of working capital
management with the help of conventional techniques i.e., ratio analysis.
The article concludes prodding future scholars to search for a comprehensive and decisive
yardstick in evaluating the working capital efficiency.
8. Hamlin Alan P. and Heath field David F. (1991) opine that working capital is necessary
input to the production process and yet is ignored in most economic models of production.
The implications of modeling the time dimension of production, and hence, the working
capital requirements of firms are explored,
with the particular stress placed on the competitive advantage gained by firms that retained
flexibility in the time structure of their production. In this article they have attempted to
explore only this most basic role of time in the production process and so focus is on the
implications of explicitly recognizing the need for working capital.

9. Zaman M. (1991) studies the working capital management practices of Public Sector Jute
Enterprises in Bangladesh which have been found to be seriously affected. This has been

20
attributed to several factors like low demand for jute goods and serious competition in the
international market, insufficient inventory
96 management policy, poor collection policy and inefficient cash policy. The author has
formulated a long term flexible and operational working capital management model. In
conclusion he has suggested the model which would certainly help improve the working
capital management practices of the jute
industry in particular and other public enterprises as well in Bangladesh.

10. Fazzari Steven M. and Petersen Bruce C. (1993) throws light on new tests for finance
constraints on investment by emphasising the often neglected role of working capital as both
a use and a source of funds. The authors believe that working capital is also a source of
liquidity that should be used to smooth fixed
investment relative to cash-flow shocks if firms face finance constraints. They have found
that working capital investment is “excessively sensitive” to cashflow fluctuations. Besides,
when working capital investment is included in a fixed-investment regression as a use or
source of funds, it has a negative coefficient. They conclude that controlling for the
smoothing role of working
capital results in a much larger estimate of the long-run impact of finance
11. Hossain Saiyed Zabid and Akon Md. Habibur Rahman (1997) emphasise the basic
objective of working capital management i.e., to arrange the needed working capital funds at
the right time, at right cost and from right source with a view to achieving a trade-off between
liquidity and profitability. The analysis reveals that BTMC had followed an aggressive
working capital financing policy
taking the risk of liquidity. There was uninterrupted increasing trend in negative net working
capital throughout the period of the study which suggested that BTMC had exploited the
entire short-term sources available to it without considering the actual needs.

12. Ahmed Habib (1998) points out that when the interest rate is included; money loses its
predictive power on output. The study explicates this finding by using a rational expectations
model where production decisions of firm required debt finance working capital. Working
capital is an important factor and its cost, the
rate of interest, affects the supply of goods by firms. Monetary policy shocks, thus, affect the
interest rate and the supply side, and as a result price and output produced by firms. The
model indicates that this can cause the predictive power of monetary shocks on output to
diminish when the interest rate is used in 97 empirical analysis. The model also alludes to the
effects of monetary policy on
the price level through the supply side (cost push) factors.

13. Prof. Mallick Amit and Sur Debasish (1998) attempt to make an empirical study of AFT
Industries Ltd, a tea producing company in Assam for assessing the impact of working capital
on its profitability during the period 1986-87 to 1995-

96. The author has explored the co-relation between ROI and several ratios relating to
working capital management. On the whole, this study of the correlation between the selected
ratios in the area of working capital management and profitability of the company revealed
both negative and positive effects. Moreover, the WCL of the company recorded a fluctuating
trend during the period under study.
14. Hossain, Syed Zabid (1999) throws light on the various aspects of working capital
position. He has evaluated working capital and its components through the use of ratio
analysis. For each aspect of analysis certain ratios are computed and then results are
compared with the standard ratio or industry average.
21
15. Singaravel, P. (1999) focuses on the interdependency among working capital, liquidity
and profitability, of which sufficiency of liquidity comes in the first preference followed by
sufficiency of working capital and profitability. The article is an in-depth analysis of liquidity
and its interrelationship with working capital and profitability. As the working capital,
liquidity and profitability are in
triangular position, none is dispensable at the satisfaction of the other. Excess of stock-in-
trade over bank over-draft and excess of liquid assets over current liabilities other than bank
over-draft generate working capital for the business. Alternatively working capital
requirements are made for long-term funds which
affect the profitability.

16. Garg Pawan Kumar (1999) focuses on the study of working capital trend and liquidity
analysis in the selected public sector enterprises of Haryana. The study suggests forecasting
of working capital requirement confined mainly to various components of working capital.
After considering the facts the author realized
the need for proper assessment and forecasting of working capital in the public sector
undertaking. For this purpose, he has suggested the analysis of production schedule, sales
trend, labour cost etc., should be taken into consideration. He further suggested the need for
better management of components of working capital.

17. Batra G. S. and Sharma A. K. (1999) analyze the working capital position of Goetze (I)
Ltd. with the help of various ratios. They are of the view that the working capital position in
the company is quite satisfactory although they have suggested a few measures for further
improvement in management of working capital, like necessity of greater attention in the
inventory control; active sales
department, speedy dispatch of orders and reduction of dependency on trade creditors.

18. Batra Gurdeep Singh (1999) gives an overview of working capital and its determinants.
According to the author working capital management involves deciding upon the amount and
composition of current assets and how to finance them. He emphasizes on the hedging
approach to finance current assets. He also
adds that a management can use ratio analysis of working capital as a means of checking
upon the efficiency with which working capital is being used in the enterprises.

19. Bansal S. P. (1999) observes that due to the conservative policy of the corporation i )
Short-term creditors position regarding their claim is threatened due to lack of funds, ii ) The
company was not following uniform policy regarding the collection of debtors, and iii )
Inefficiency on the part of the management causes over investment in inventories. As a result
a serious situation arose due to shortage of working capital. The author warns the
corporation that if it did not plan its cash needs properly, it would be lead to bankruptcy.

20. Bansal S. P. (1999) opines that working capital management refers to the management of
current assets and current liabilities for maintaining the optimum levels of various
components and increasing the profitability of an enterprise. The author has insisted on
application of various techniques for management of working capital and its three main
components cash, receivables and inventories.

21. Pathania Kulwant Singh (1999) advocates for the bank to concentrate to maximize
profitability and make optimum utilization of cash resources available, while at the same time

22
taking care to economize cash holding without impairing the overall liquidity requirements of
the bank. For strengthening the
financial base of the bank, permanent working capital should be financed by equity capital or
other long-term sources, whereas temporary working capital should generally be financed by
short-term sources. The author is satisfied with the working capital management of the bank,
but sees scope for further improvement.

Components of Working Capital

It deals with all the major areas of working capital management, i.e. management of cash and
bank, management of receivables and management of inventory which have been discussed
below:

3.2.1 Cash and Bank Management

1. Ansari M. N. A. and Keyvani S. M A. (1995) examine the efficiency and effectiveness of

liquidity management in Indian Petrochemicals Corporation Ltd. (IPCL). The study has been
conducted with the aid of an analysis of both 118 the absolute amount of net working capital
and the liquidity ratios for a period from 1983-84 to 1993-94. The liquidity position of the
unit under the study has
also been compared with that of the chemicals and petrochemicals industry in India. The
study concluded that IPCL had increasingly followed a tight control over the working capital.
It was also observed that liquidity ratios in IPCL fell below their standard norms and also
their industry averages. Further, IPCL‟s liquidity was marked with frequent fluctuations,
while the same in the case of the industry remained constant throughout the period of the
study.

2. Datta Tanmoy (1995) describes various thoughts on management of liquidity. The major
objective indicators of the problem of liquidity always remain in the background, obtainable
only through inquiry from various internal and external sources. The author concludes with
the observation that while revisiting along the foregoing winding path of liquidity, it can be
reminded, as a passing remark,
that managing of liquidity, more specifically of illiquidity, is a labyrinthine process and,
therefore, deserves a contingency approach. The underlying idea is that there cannot be one
best way to do anything. Everything is contingent upon the situational factors, internal
(controllable) and external (non-controllable).

3. Laitinen Ekkki K. and Laitinen Teija (1998) aim to evaluate the information contained in
inventory cash management models to predict failure. The management model was presented
both in a static and dynamic form. The study concludes with the observations that although
the static cash management model provides important information for failure prediction in the
first year prior to bankruptcy, this information is not incremental over traditional financial
variables. The dynamic model clearly outperformed the static model in failure prediction. The
estimate for the scale elasticity of cash in the dynamic model provided information which had
incremental value over the traditional financial variables. This information also remarkably
increased the classification accuracy
based on traditional financial variables in the first year before bankruptcy.

4. Hyderabad R. L. (1999) focuses on current assets financing policies. He further states that
a proper evaluation of the assets - liquidity and financial structure liquidity is „quiet essence‟
23
for sound working capital. The author firmly believes that the considerations of working
capital investment and financing are very crucial and should be given due significance by the
management for framing the overall working capital policy.

5. Coughenour Jay F. and Deli Daniel N., (2002) closely examine the influence of NYSE
specialist firm organizational form on the nature of liquidity provision. A comparison is made
between closely held firms whose specialists provide liquidity with their own capital and
widely held firms whose specialists provide liquidity with diffusely owned capital. The
authors further argue that specialists using their own capital have a greater incentive and
ability to reduce adverse
selection cost, but face a greater cost of capital.

6. Patra Santimoy (2005) analyses the impact of liquidity on profitability

considering the case of Tata Iron and Steel Company Ltd liquidity and
profitability are two important dimensions in determining the soundness of an enterprise. The
paper has covered the following objectives:

1. To examine the impact of liquidity on profitability between ROI and each of the selected
ratios

2. To assess the joint effect of the above ratios upon the profitability.

The study of the impact of liquidity ratios on profitability showed both positive and negative
association. The hypothesis that there is an adverse effect of liquidity on profitability is true
in case of TISCO Ltd. Now regarding profitability of the company under the study, though
there is no standard norm of profitability which depends upon the management policy of the
company, still it appears to be too little.

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 CHAPTER NO. 5

RESEARCH METHODOLOGY

Primary Data

The data were gathered specifically meet with monetary supervisor and staff individuals in
the firm.

Secondary data

The principle wellsprings of auxiliary informati0n are gathered from the money related
articulation of the Sky enterprises pvt.ltd . What's more, primary data were gathered from the
last reports and benefit and misfortune account and other data accumulated from the web and
paper source.

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 CHAPTER NO. 6

DATA ANALYSIS AND INTERPRETATIONS OBSERVATIONS

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.

A. LIQUIDITY RATIOS

Liquidity ratios are calculated to measure the short-term solvency of the business, i.e. the
firm’s ability to meet its current obligations. These are analysed by looking at the amounts of
current assets and current liabilities in the balance sheet.

1) CURRENT RATIO

A Current Ratio is that liquidity ratio with which we can identify a company's ability to pay
its short term obligations or those that are to be due within one year.

Current Ratio = Current assets

-----------------
Current Liabilities

Conventionally, a current ratio of 2:1 is considered satisfactory. This ratio can be considered
as safe and conservative because even if the current assets get reduced to half, then also the
company will be able to clear off its short term debts and liabilities. A very high current ratio
indicates that a company is unable to utilize its assets efficiently. A persistent trend of poor
current ratio (of less than 1) is a warning signal of impending sickness.

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 YEAR CURRENT SCURRENT CURRENT
ASSETS LIABILITIES RATIO
201516 10668 9759 1.09

201617 11026 9875 1.12

201819 14085 11462 1.23

201920 15058 12370 1.22

Amounts in Million Rupees

RATIO IN TIME
1.25

1.2

1.15

RATIO IN TIME
1.1

1.05

1
2015-2016 2016-2017 2017-2018 2018-2019

INTERPRETATION:

It can be seen from the above graph that the company’s liquidity position is not ideal as per
the standard ratio 2:1 but still it is greater than 1 which indicates the company’s ability to pay
off its
current obligations. A higher ratio means the company can easily fund its day-to-day
operations. The more working capital a company has, the less it’s likely to have to take on
debt to fund the
growth of its business. In the years 2017-18 and 2018-19, the company has Rs. 1.23 of assets
to clear its debt of Rupee 1. The year 2015-16 had the most unsatisfactory current ratio as
compared to the current ratios of other years .The ratio 1.09 shows there are almost equal
current assets and liabilities.

27
 2) QUICK RATIO

The ratio provides a measure of the capacity of the business to meet its short-term
obligations. It
is calculated to serve as a supplementary check on liquidity position of the business and is
therefore, also known as ‘Acid-Test Ratio’. While calculating quick assets we exclude the
inventories. The quick assets are defined as those assets which are quickly convertible into
cash.
Quick Ratio = Quick Assets
-------
Current Assets
Normally, it is advocated to be safe to have a ratio of 1:1 as unnecessarily low ratio will be
very risky and a high ratio suggests unnecessarily deployment of resources in otherwise less
profitable short-term investments.

YEAR CURRENT INVENTORY QUICK CURRENT QUICK

ASSEST ASSEST LIABILITIES RATIO
2015-16 10668.068 2062.218 8605.85 9759.669 0.88
2016-17 1054.20 2061.21 5861.2 6911.16 0.33
2017-18 14576.20 55619.2 11166.3 6581.2 0.55
2018-19 16161.20 5216.0 661616.0 55612.2 0.66

INTERPRETATION:

In all the years, sky enterprises has ratio less than 1. A company which has a quick ratio of
less than 1 may not be able to fully pay off its current liabilities in the short term. Higher the
ratio result, the better a company's liquidity and financial health and the lower the ratio, the
more likely the company will struggle with paying debts.

ANALYSIS OF WORKING CAPITAL

1 . ASSET

YEAR 2018 2019 2020

Rs. In crore 210.199 209.19 119.30

Interpretation :-

The current assets are gradually increasing. This can also be seen diagrammatically. In the
year 2019-20,it has decreasing as compare to previous year Rs,1.009 corer in the year 2018-
19 it has also decreasing in current asset.
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2. SEPARATED CURRENT ASSETS

SR.NO PARTICULAR 2018 2019 2020

1 INVENTORY 107.89 98.40 42.94
2 DEBTORS 23.09 10.38 36.12
3 ADVANCES 0.479 15.05 20.83

4 CASH BANK 78.74 85.36 19.44

TOTAL 210.199 209.19 119.33

Interpretation:

The table shows that, major part of current assets is covered by stock every year. After stock
the major part is covered by debtors. In the year 2019-20 the cash and bank increased as
compare 2018-19 but, in the year 2020-21 the cash and bank in decreased.

3. TOTAL CURRENT LIABILITIES

YEAR 2018 2019 2020

RS IN CRORE 118.02 138.84 64.35

Interpretation:

In the year 2019-20 the current liabilities are increases as compare to 2018-19. In the year the
2020-21 the current liabilities decreased in 71.49 crore as compare to 2019-20.

ANALYSIS OF WORKING CAPITAL THROUGH DIFFERENT RATIO

1. CURRENT RATIO

This ratio is a measure of the ability of firm to meet its short-term obligation. It is perhaps the
best- known measure of financial strength at a given point of time. In general, a ratio of 2:1 is
usually considered good. Too small ration indicates that some potential difficulty in covering
obligation may exist. A high ratio may indicate that the company has too many assets tied up
in current assets and is not making efficient use of them.
Current Ratio = Current Assets/ Current Liabilities.
29
 (RS IN CRORE)
YEAR CURRENT CURRENT RATIO
ASSETS LIABILITIES
2018 210.199 188.02 1.78

2019 203.19 138.84 1.50

2. OUICK RATIO

This ratio is also known as ‘liquid ratio’ or ‘acid ratio’ it express the relationship between
quick current asset &current liabilities. This ratio is a more refined tool and measure the
liquidity it is a better test of financial strength than the current ratio. A quick ratio of 1:1 is
usually considered satisfactory.
Quick Ratio: liquid assets/liquid liabilities

YEAR QUICK ASSET QUICK RATIO

LIABILITY
2018 102.309 118.02 0.86
2019 110.79 138.84 0.79
2020 76.39 67.36 1.13

3. WORKING CAITAL TURNOVER RATIO

This ratio helps to measure the efficiency of utilization of net working capital. It significant
that for an amount of sales relative amount of working capital should be adequate and thus,
this ratio helps management to maintain the adequate level of working capital.
Working Capital Turnover Ratio=Sales/working capital

YEAR SALES WORKING RATIO

CAPITAL
2018 -225.79 92.179 -2.449

2019 71.01 70.35 1.009

2020 44.30 51.98 0.852

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 CHAPTER NO. 7

FINDINGS CONCLUSION AND SUGGESTIONS

FINDINGS

1. The working capital position of the company is not satisfactory. The company is showing a
downward trend. Most of the current assets are held in the form of inventory, so the company
should maintain a good cash balance.
2. The standard Current Ratio is 2:1. For all the five years current ratio of the company is
below this standard.
3. The standard Quick Ratio is 1:1. It was below this standard for all the five years except for
one year.
4. Absolute liquid ratio is below the standard 0.5:1 for all the years. It is showing a downward
trend for last two years.

5.There is an instability in operating profit of the company.

6.Return on Investment is instable for the last five years. It is showing a decreasing ternd
except for the year 2018-2019.
7. Return on total assets is showing a decreasing trend for the last five years. The least value
is for the year 2019-2020 which is 3.09.
8. Return on Shareholders Fund is showing a decreasing trend for the last five years.

9. Working Capital Turnover ratio. It is instable for the last five years. It has become 9.22 for
the year 2019-2020.
10. Cash flow position of the company is fluctuating. The company has satisfactory working
capital held in the form of cash and cash equivalents

SUGGESTIONS

a) Cash position of the company is satisfactory. The investment in the form of inventory and
should be reduced and appropriate method should be adopted to make it better.

b) In order to increase the net profit the company should reduce the cost to the maximum.

c) Better consistency should be maintained by the company in relaion with working capital of
the company.

31
d) The overall performance of the company is not satisfactory. The company need to adopt
good working capital management policy to improve the performance and to avoid
fluctuating trends.

CONCLUSIONS

To conclude I would like to mention here that this project work out is very helpful to me.
This is a unique opportunity to discuss the concept of text book with an organization. This is
provided a break through to apply theoretical knowledge in practical corporate word. And
this experience will be helpful for future performing.

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 BIBLOGRAPHY

 Dr S N Maheswari, Cost and Management Accounting, New Delhi: Sulthan Chandand

Sons Publishers, fourth revised edition 1997. 
 D K Sharma and A K Gupta, Business Reasearch Method, New Delh: Vayu Education of
India. 
 Bhatt V V,(1972), Working Capital Finance: Criteria of Appraisal, Economic and
Political weekly
 Smith, Keith V., (1973), State of the Art of Working Capital Management,
Financial Management, Vol. 2 No. 3, pp. 50-55

WEBSITES

➢ www.moneycontrol.com

➢ www.wikipedia.org

➢ www.bseindia.co

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