WORKING

CAPITAL
MANAMENT
PARVESH AGHI
Profile

Parvesh Aghi
B. Com , FCA

PROFILE
Qualification:
 Chartered Accountant, 1985
 B Com ( Hons) from Delhi University, 1983

Worked in Industry for 23 years in following

Companies:

 Idea Cellular Ltd (GM finance)

 Grasim Industries Ltd (Sr Manager)
 Reliance Communication Ltd (Vice President)
 SRF Ltd (Chief Manager)
 Hero Group Company (CFO)
 Ballarpur Industries Ltd (Manager)
Teaching Experience

Working as Visiting faculty with Fore school of management ,Shiv Nadar university , Adjunct Faculty with O.P Jindal Global University & Law
school , Haryana , Bennett University ,Greater Noida , Munjal University ( HERO GROUP) , Gurgaon and also conducting management
development workshops for various corporate on subjects like GST and business laws etc.

Visiting professor for many Institutes & associated with various recognized business schools in New Delhi /NCR mentioned below:

Also giving online lectures for ICAI & other universities
I.Institute of Chartered Accountant of India – My video recordings on finance subjects are available on cloud campus of ICAI for CA students
II.Association of Certified Chartered Accountants of England (ACCA)
III.
Apeejay School of Management, Dawarka
IV.
BM Munjal University
V.Fortune International Institute of Business
VI.Grant Thornton
VII.
UNVERSITY 18 Gurgaon
One day workshop at INDIAN OIL CORPORATION “ Impact of GST on
hydrocarbon industry”

4
GST WORKSHOP FOR CORPORATES

5
Working Capital Management
it is a business strategy designed
to ensure that a company
operates efficiently by
monitoring and using its current
assets and liabilities to the best
effect.
Efficient Working Capital
Management

Efficient working capital

management helps maintain
smooth operations and can also
help to improve the company's
earnings and profitability
Efficient Working Capital
Management

Management of working
capital includes
inventory management and manage
ment of accounts receivables and
accounts payables.
What is a Working Capital Cycle?

Businesses typically try to

The Working Capital Cycle
manage this cycle by
for a business is the length of
selling inventory quickly,
time it takes to convert the
collecting revenue from
total net working capital
customers quickly, and paying
(current assets less current
bills slowly to optimize cash
liabilities) into cash. 
flow.
Working capital cycle

Working capital cycle =

inventory days + receivable
days – payable days
Working capital cycle sample
calculation

Inventory days = 85 Receivable days =20 Payable days = 90

This means the

company is only out of
Working capital
pocket cash for 15
cycle= 85+20-90= 15
days before receiving
receiving full payment
 SRF LTD – CASE STUDY

SRF Limited is a multi- Engaged in the manufacturing

business chemicals of industrial and specialty
conglomerate intermediates.

The company’s business

portfolio covers
Fluorochemicals, Specialty
Chemicals, Packaging Films,
Technical Textiles, Coated and
Laminated Fabrics

Fluorochemicals are used for refrigerants, aluminum production and blowing agent.
SRF LTD

12 manufacturing plants
Exports its products to
in India, 2 in Thailand
more than 75 countries
and one in South Africa.

Nylon Tyre Cord Fabric

Plant at Manali Chennai
Incorporated on 9th
& Malanpur , Gwalior ,
January 1970
Gummidipoondi in
Chennai 
SRF LTD FINANCIALS
Current share
Market Cap*
price Rs ROE 22.2%
38,050 crores
6,450

PE Ratio
EPS Rs 173
38.2
Large cap top 100 companies
SRF LTD

Book value Industry PE Current Ratio

Rs 921 15.5 .95

Interest
Sales 7,650 Debt equity ratio
coverage
crores .41 (.71 LY)
ratio 9.5
Share price graph 1 year
Share price graph 5 years
SRF LTD’ CURRENT ASSETS
SRF LTD’ CURRENT LIABILITIES
LIQUIDITIY RATIOS

Inventory Days 64 65 66 68.5 58

Investment

ESOP 10,000
Shares @ Rs 9 = Current value =
CAGR = 25%
Rs 90,000 in the Rs 6,45,00,000
Year 1997
SRF LTD TCF CUSTOMERS

MRF Tyres Apollo CEAT

Michelin JK Tyres Bridgestone

Falken
Goodyear
Tyres
 Nylon Tyre Cord Fabrics 

Nylon Tyre Cord Fabrics (NTCF) are

used as reinforcements in tyres to give
them strength and durability.

They provide shape to the tyres and

support the weight of the vehicle.

They are designed to keep tyres running

longer and have significant effect on the
performance of the tyres.
It is a loosely woven fabrics comprised of warp cords in
the longitudinal direction and weft yarns oriented in the
lateral direction …..weft yarn melts in tyre manufacturing
CAPROLACTUM

Caprolactam is the basic raw

material of Nylon-6 and almost all
the Caprolactam produced in India
is used for manufacture of Nylon.

 Caprolactam is consumed in the

production of nylon fibers
Spin finish oil
Spin finish oil for polyester
staple fiber, this product is
made via presently advanced
processing techniques, which is
capable of being applied for
pre-spining and post-spining of
terribleness, short-fibre,
boasting highly satisfying
neatening effect, especailly in
that it makes.
Tyre Cord Yarn

Tyre Cord Bobbins Tyre Cord Yarn

TYRE CORD FABRIC LOOMS
MANUFACURING STAGES

CAPROLACTU
M CHIPS
YARN
FABRIC
Polymerization of caprolactam to Melt chips to manufacture Weaving on fabrics is
manufacture nylon chips. nylon tyre yarn done on looms
Manufacturing process
Polymerization of Melt spinning of
caprolactam to Extraction and chips to
manufacture nylon drying of chips. manufacture nylon
chips. tyre yarn.

Preparation of
cordfrom tyre Recycling of
yarn by twisting nylon-6 waste.
and plying.
SIX SIGMA COMPANY
Six Sigma (6σ) is a set of techniques
and tools for process improvement. It
was introduced by American
engineer Bill Smith while working at
Motorola in 1986.

A six sigma process is one in which

99.99966% of all opportunities to
produce some feature of a part are
statistically expected to be free of
defects.
100%%-99.99966%= 0.000034
0.000034 X 10,00,000 =3.4
SIX SIGMA COMPANY
Six Sigma is a disciplined,
data-driven approach and
methodology for eliminating
defects (driving
toward six standard deviations
between the mean and the
nearest specification limit) in
any process – from
manufacturing to transactional
and from product to service.
 Six sigma
“Six Sigma is a quality program that,
when all is said and done, improves
your customer’s experience, lowers
your costs, inventory and builds
better leaders. — Jack Welch

Six Sigma at many organizations simply means a measure

of quality that strives for near perfection. It can be called
“Six Sigma,” or it may have a generic or customized name
for the organization like “Operational Excellence,” “Zero
Defects,” or “Customer Perfection.” It helps to reduce costs , levels of inventory , quality of goods and
customers pays in time ……..efficient working capital management
The statistical representation of Six Sigma describes quantitatively how a process is
performing. To achieve Six Sigma — statistically — a process must not produce more than
3.4 defects per million opportunities. A Six Sigma defect is defined as anything outside of
customer specifications. A Six Sigma opportunity is then the total quantity of chances for
a defect. Process sigma can easily be calculated using a Six Sigma calculator.

The fundamental objective of the Six Sigma methodology is the implementation of a

measurement-based strategy that focuses on process improvement and variation
reduction through the application of Six Sigma improvement projects. This is
accomplished through the use of two Six Sigma sub-methodologies: DMAIC and
DMADV.
SRF won the Deming Prize in 2004

Recognizing businesses worldwide for

excellence in applying the principles of
Total Quality Management

SRF is the first tyre-cord company in

the world to win the
prestigious Deming Application Prize.
JUSE is spearheading the TQM
initiative in Japan.
Chips are stored in large silos 

Storage capacity of silos = 400 MT

Inventory Management
Inventory management is a
systematic approach to sourcing,
storing, and selling inventory—both
raw materials (components) and
finished goods (products).

In business terms, inventory

management means the right stock,
at the right levels, in the right place,
at the right time, and at the right cost
as well as price.
Inventory Management
For any manufacturing, managing
inventory smartly is critical to the
company's success. You need to know what
you have in stock, where it is, where it's
going, and how much it's worth.

And in today's connected world, you also

want to be able to track your inventory as it
moves between suppliers, customers,
production and distribution to ensure that
your data is always accurate and up to
date. 
 Oracle Cloud Inventory Management

Gain full visibility and

control of the flow of
goods across an
organization’s global
supply network enabling
them to optimize inventory,
service levels and working
capital while decreasing
costs and increasing
customer satisfaction.
you can optimize the flow of goods throughout your organization and efficiently manage
your global inventory. Whether you are a small company or a global company
organization
Oracle Cloud Inventory Managemen
Intelligent inventory management is crucial to the
success of a company

.Effectively managing inventory balances, movement,

and turnover affects your bottom line, and save you
time and money.

Oracle Inventory Management Cloud is a complete,

modern materials management solution that can help
you effectively manage the flow of goods across your
business organizations.

This true cloud solution offers accurate and real-time

inventory balance visibility, efficient warehouse
organization, rapid material movement, improved
productivity, optimized transportation plans, and
ultimately—satisfied and returning customers.
Oracle Cloud Inventory Management

Complete, modern Manages inventory

Saves time and money and
materials management balances , movement &
improves bottom line
solution turnover

efficient warehouse
organization, rapid
effectively manage the accurate and real-time
material movement,
flow of goods across the inventory balance
improved productivity,
organization visibility,
optimized transportation
plans,
Oracle Cloud Inventory Management
Key Features
Improve operational efficiency with
standard processes

Enable full visibility and stay connected

with third party providers

Empower employees with self-service

requisitions to purchase or transfer
material

Reduce inventory and costs

Inventory Management Techniques

Just-in-time (JIT) Safety Stock

ABC Analysis
Method Inventory

Material
Requirement Order Quantity
Dropshipping
Planning (MRP) (EOQ) Model 
Technique
ABC Analysis

ABC analysis is a technique of

sorting of inventories into 3
categories.

The categorization of the inventory

under the ABC analysis is done
according to how well the inventory
can sell and how much it will cost to
hold. 
Just-in-time (JIT) Method
Just-in-time is a Japanese technique of
inventory management, in this technique
the company maintains only such quantity
of inventory as it requires during the
manufacturing/production process.

It implies no excess inventory in hand and

saves the cost of warehousing, shipping,
insurance and another allied cost.
Safety Stock Inventory
Safety stock is an extra
quantity of a product
which is stored in the
warehouse to prevent an
out-of-stock situation. It
serves as insurance
against fluctuations in
demand
Material Requirements Planning
Planning and decision-making
tool used in the production
process which analyses current
inventory levels vs production
capacity and the need to
manufacture goods, based on
forecasts. MRP schedules
production as per bills
of materials while minimizing
inventory.
Dropshipping

Dropshipping is a business
model, it allows to sell and
ship commodities without
owning and stocking them.
This technique of inventory
management eliminates the
cost of inventory holding all
together.
EOQ Model

EOQ Model : a company focuses on the

decision regarding how much quantity of
inventory should be ordered and when the
order should be placed.

In this technique, the stock of inventory is

re-ordered when it reaches the minimum
ordering level. This inventory management
technique saves the carrying and ordering
cost incurred while placing the order.
Zero Working Capital Approach
Excess investment in
All times the current current assets is avoided
As current ratio is 1 and
assets shall equal the and firm meets its current
the quick ratio below 1,
current liabilities. liabilities out of the
matching current assets.

Interest costs are saved.

Zero Working Capital Approach

The firm saves opportunity cost on excess investments in current

assets and as bank cash credit limits are linked to the inventory
levels, interest costs are also saved.

Zero working capital also ensure a smooth and uninterrupted

working capital cycle, and it would pressure the Finance Managers to
improve the quality of the current assets at all times, to keep them
100% realizable.
 Net Working Capital: SRF LTD
TCF Business
INVENTORY Days Qty MT Price/MT per kg Value
CAPROLACTUM : RAW
MATERIAL 30 2700 1,29,000 129 34,83,00,000
CHIPS 4 362 1,52,250 152 5,50,60,274

SEMI FINISHED YARN 2 180 2,40,000 240 4,32,00,000

FINISHED YARN 7 186 2,40,000 240 4,46,46,575
FABRIC : FINISHED GOODS 21 1341 3,37,500 338 45,24,34,932
64 94,36,41,781
ACCOUNTS RECEIVABLE 30 1915 3,37,500 64,63,35,616

CURRENT ASSETS 1,58,99,77,397

ACCOUNTS PAYABLE 21 1890 1,29,000 24,38,10,000

NET WORKING CAPITAL 1,34,61,67,397

CURRENT RATIO 6.52

Net working capital
INVENTORY Days Qty Price kg Value
CAPROLACTUM 15 1350 1,29,000 129 17,41,50,000
CHIPS 2 181 1,52,250 152 2,75,30,137
SEMI FINISHED YARN 1 90 2,40,000 240 2,16,00,000
FINISHED YARN 5 133 2,40,000 240 3,18,90,411
FABRIC 7 447 3,37,500 338 15,08,11,644
30 40,59,82,192
ACCOUNTS RECEIVABLE 15 958 3,37,500 32,31,67,808

CURRENT ASSETS 72,91,50,000

ACCOUNTS PAYABLE 40 3600 1,29,000 46,44,00,000

NET WORKING CAPITAL 26,47,50,000

CURRENT RATIO 1.57

Cash Management System by Banks
It ensure effective
management of
collections and payments Effective control over
Cash Concentration:
resulting in improved cash funds
flow and effective
liquidity management

This is a quick and cost-effective method of moving funds from

different accounts spread across the country to a single
monitored and managed account. This allows businesses to
maximize the use of available cash, and to optimize returns on
consolidated balances
Cash Management System by Banks

Indian Corporates having

geographical presence can
Efficient access to cash
pool everything at their Head
Reducing interest cost through Centralized Fund
Office to offset the debits with
availability
the surplus monies collected
from various locations
Cash Management System by Banks

This is a quick and cost-effective

method of moving fundsfrom different
It ensure effective management of
accounts spread across the country to a
collections and payments resulting in
Effective control over funds Cash Concentration: single monitored and managed account.
improved cash flow and effective
This allows businesses to maximize the
liquidity management
use of available cash, and to optimize
returns on consolidated balances

Indian Corporates having geographical

Reducing interest cost
presence can pool everything at their
Efficient access to cash through
Head Office to offset the debits with
Centralized Fund availability
the surplus monies collected from
various locations
RECEIVABLE MANAGEMENT

e-
e-Invoicing
payments
RECEIVABLE MANAGEMENT
A sale is realized as and when the
invoice is generated but usually, a
time period is provided to the
customers for the payment of the
amount due.

This practice of conducting business

on credit terms give rise to Accounts
Receivable (AR) in the financial
statements.
RECEIVABLE MANAGEMENT
This credit facility is laid
down to ensure a smooth flow
of the working capital into the
businesses. There are
complexities involved with the
accounts receivable i.e its
management, the process of
recording in financial
statements, credit period etc. 
What is factoring?

Factoring is a financial option for the

management of receivables.

It is a tool to obtain quick access to short-

term financing and mitigate risks related to
payment delays and defaults by buyers.

In the process of factoring, the seller sells its

receivables to a financial institution
(“Factor”) at a discount.
What is factoring?
After the sale, there is an immediate transfer
of ownership of the receivables to the factor.

In the due course of time, either the factor or

the company, depending upon the type of
factoring, collects payments from the debtors.

Factoring helps the company to improve the

cash flows and cover the credit risk of the
company
QUIZ
1
Working capital management is a business strategy designed to ensure that a company
operates efficiently by monitoring and using its ……………….to the best effect.

A. current assets and liabilities

B. Day to day expense

C. Non current assets & non current liabilities

D. None of the above

2
Working capital is a financial metric which represents operating liquidity available to a
business entity along with fixed assets such as plant and equipment, working capital is
considered a part of ……

A. operating capital

B. finance capital

C. working capital

D. net current asset management

3
Efficient management of working capital in an important prerequisite for the 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 assures …………….. of organization.

A. Solvency

B. Improved Liquidity

C. Increased profits

D. Operational efficiency

E. All the above

4
Which of the following is studied with the help of operating leverage ?

A. Analysis of business risk

B. Analysis of financial risk

C. Analysis of production risk

D. Analysis of credit risk

5
•What is the difference between the current ratio and the quick ratio?
A.  The current ratio includes inventories and the quick ratio does not.
B.  The current ratio does not include inventories and the quick ratio does.
C. The current ratio includes physical capital and the quick ratio does not.
D.  The current ratio does not include physical capital and the quick ratio does.
Nylon Tyre Cord Fabrics (NTCF) are used as
reinforcements in tyres to give them strength and
durability. They provide shape to the tyres and
support the weight of the vehicle. They are
designed to keep tyres running longer and have
significant effect on the performance of the tyres.
 INVENTORY MAINTAINED AT
MALANPUR PLANT 75 DAYS
Days Qty Price Value

CAPROLACTUM 30 2700 1,29,000 34,83,00,000

CHIPS 7 633 1,52,250 9,63,55,479

SEMI FINISHED YARN 2 180 2,40,000 4,32,00,000

FINISHED YARN 15 399 2,40,000 9,56,71,233

FABRIC 21 1,341 3,37,500 45,24,34,932

75 1,03,59,61,644
 INVENTORY WAS REDUCED TO
50 DAYS Days Qty Price Value

CAPROLACTUM 21 1890 1,29,000 24,38,10,000

CHIPS 5 452 1,52,250 6,88,25,342

SEMI FINISHED YARN 2 180 2,40,000 4,32,00,000

FINISHED YARN 7 186 2,40,000 4,46,46,575

FABRIC 15 958 3,37,500 32,31,67,808

50 72,36,49,726

REDUCTION INTEREST ON WORKING CAPITAL LOAN WAS RS 3.75 CRORES

Used 140 MTPD Nylon 6 Polymer Chip Plant built
in 1999. Designed to make polymer in cylindrical
chip form by reacting caprolactam in VK tube
reactors. Caprolactam is polymerized under
elevated temperature and moderate pressure, under
the strict exclusion of oxygen and in presence of
water to a high viscous melt. The plant includes
two (2) production lines with capacity of 100
MTPD and 40 MTPD, respectively. Each line
includes 6 major process sections: lactam / additive
preparation and dosing, continuous polymerization,
chip production, continuous extraction, continuous
drying and extract water evaporation.
Polymerisation:

Nylon is made by polymerisation of caprolactam with certain additives like

amino acids and dicarboxylic acid salts and certain heat stabiliser such as

copper based organic compounds. The polymerisation process involves ring

opening polycondensation and polyaddition reactions. All the three polymerisation

reaction steps are equilibrium reactions.

A typical process of polymerisation of nylon can be either a batch or a

continuous process. The continuous process, developed after the batch process

was commercialised, offers simplicity of design, ease of operation and control

and high capacity.

An optimal polymerisation process would involve two stages, wherein, the first

stage involves pressure at high initial water concentration. In the second stage

a rapid transition from high water content to a low water content is achieved

by release of pressure and subsequent application of vacuum.

Industrial grade nylon-6 with relative viscosity 3.2 to 3.5 has higher degree of

polymerisation compared to textile grade nylon-6 with relative viscosity 2.2 to

2.6.
Extrusion and Drying of Chips:

The nylon chips are washed to remove water soluble impurities and then dried.

The process maybe batch or continuous.

Melt Spinning:

The polymer chips are melt in extruder. The molten polymer is then spun

through a spinnerette. The molten filaments are quenched or cooled by a

laminar flow of air.

The spin finish is applied on filament and then wound on spin bobbins and

drawn to make tyre yarns.

In the conventional process, the spinning and drawing was done in two steps.

In the spin-draw process, a step is reduced compared to 2-step conventional

process. As a consequence, some sources of process disturbances are eliminated

which results in improved yarn uniformity.

Preparation of Cord:

Nylon tyre yarns are then twisted in S or Z direction and plied having 2 or 3 plies

to form a tyre cord.

Recovery of Nylon-6 Waste:

Depending on the quality of waste, any of the following method may be used

for recycling of nylon waste.

Direct use of fibre waste

Regrannulation- i) without melting

ii) with melting.

Polymer Powder- i) deploymerisationandfilteration

ii) precipitation from solutions

Recovery of caprolactam by deploymerisatio

Raw Materials, (Catalysts, Additives, Spin Finish Etc.):

For nylon-6, the only major raw material required is caprolactam. Water is

required as an initiator for ring opening during polymerisation. Nitrogen gas

is required for blanketing, drying and conveying of polymer.