Summer Internship Project Report

On

Working capital management

At

AKUMS DRUGS & PHARMACEUTICAL LTD

HARIDWAR

(Submitted For the Partial Fulfillment of the Requirement for the Degree of
Master in Business Administration)

Project Guide: Submitted By:

MR. K.D SHARMA ANKITA NEGI

FINANCE MANAGER &HR MANAGER 09720641

AKUMS, Hardwar

UTTRAKHAND TECHNICAL UNIVERSITY,DEHRADUN

SESSION 2009-2011
DECLARATION

I hereby declare that the study entitled “WORKING CAPITAL

MANGEMENT in the context of AKUMS DRUGS & PHARMACEUTICAL
LTD SIDCUL, HARDWAR” being submitted by me in the partial fulfilment of the
degree of “MASTERS IN BUSINESS ADMINISTRATION” is a record of my
own work being a student of COER school of management affiliated to
Uttarakhand technical university. The study was conducted at FINANCE
Department, AKUMS DRUGS & PHARMACEUTICAL

The matter embodied in this project report has not been submitted anywhere else
for any other degree/diploma. .

Place: Haridwar ANKITA NEGI

Date: 10-08-10 Roll No: 09720641

ACKNOWLEDGEMENT

I wish to express my sincere gratitude to Mr. K.D SHARMA, (Finance Manager

AKUMS DRUGS & PHARMACEUTICAL Hardwar) for giving me the
opportunity to do my summer training in his highly esteemed Organization.

I am grateful to Ms. LALIT ARORA (SENIOR ACCOUNT OFFICER), for his

Valuable guidance, advice, suggestion and constant encouragement rendered to me
at every stage.

I am extremely thankful to my Faculty Guide Mrs. JYOTSNA at College of

Engineering Roorkee for her invaluable Guidance and Suggestions during my
Training.

I am also thankful to all others who helped me directly or indirectly towards the
completion of my works.

Ankita Negi

MBA

COER-SM
INDEX:-

 COMPANY PROFILE

 THEORITICAL BACKGROUND OF TOPIC

 METHODOLOGY

 FINDINGS

 CONCLUSION

 RECOMMENDATION

 ANNEXURE
OBJECTIVES:

 To analysis the working capital turnover ratio.

 To analysis the current assets turnover ratio

 To analysis the current liability turnover ratio

COMPANY PROFILE
INTRODUCTION:

Akums drugs & pharmaceutical ltd is situated in a excise free zone & well
developed INDUSTRIAL AREA OF HARIDWAR (U.A), in INDIA was
established & formed in the year 2004 by good efforts of MR. D.C. JAIN, MR.
SANDEEP JAIN

Akums drugs is endeavoring to make a name in pharmaceutical industry.

Akums drugs has become the icon of INDIAN HEALTHCARE & A QUALITY
PHARMA MANUFACTURER of the country, global vision AKUMS has been
accredited with WHO-GMP,ISO 9001:2000 & ISO 14001:2004 CERTIFICATE.

Quality assurance:
Quality assurance is deals with all methods that individually & collectively
influence the quality of products.

Hence q. a department looks after implementation of GMP, in all aspects of

products manufacture & control .The Q.A. serve as countercheck for different
departments like stores , production, engineering, personnel & administration,
quality control etc. to ensure that all activities are performed as per respective
SOP’S & records are maintained.
Besides the above mentioned, Q.A. performs additional tasks as under:-

Selection of approval of vendors.

Proving the details of storage conditions & monitoring of R.M & P.M

Checking of the active materials issued from the store department.

Independently monitoring & recording in process checks during manufacturing &

packing.

Inspection of entire batches manufacturing & packing records for giving final
approval for transfer to finished goods store.

Validation of testing methods particularly non- pharmacopoeia methods.

Microbiological monitoring of purified WATER in manufacturing & filling areas

etc.

Real time & accelerates stability testing as per WHO/ICH GUIDELINES.

Calibration of all laboratory equipments & instruments.

Monitoring residual quantity of medicaments after product charges are over.

Conduction quality monitoring tasks like manufacturing, cleaning validation,

process validation, complaint. Product recall, training, self-inspection, quality
audit, etc.

Approving SOP’S of all functional department & product master formula card.
DOCUMENTS & DATA CONTROL :

AKUMS quality gyrates around customer satisfaction. It is towards this end that
the company has the following:

ISO 9001 WHO-GMP

ISO 14001 FOLLOW UKMHRA &

SAFETY,HEALTH &
ENVIRONMENT +(SHE) NORMS
Quarantine , sampling & Best manufacturing practices
dispensing
Regular training Standard operation procedures(SOP)

In-house controls of process Well defined sampling procedure

Effective controls of Well defined sampling procedure

procedure
Proper documentation Process controls
Documents reports & records Reference literature
GMP audit Clean atmosphere @ air handling

Hygienic conditions Proper uniforms

Quality standards Own R&D
MANUFACTURING RANGE INCLUDES

ANTI-MALARIAL ANTIBIOTICS VITAMINS

Analgesics Anti-ulcerates Corticosteroids

Anti-diabetics Tranquilizers Sedatives

Gastri-intestinal Anti-bacterial Anti-ulcerates

Anti-allergic Anti-amoebic Antipyretics

Cough & cold Anti-diarrhea Food preparation

preparation
Ointments

(eye / ear/skin)
FINANCE DEPARTMENT OF AKUMS & PHARMACEUTICALS LTD.

SECTION UNDER - AKUMS DRUGS & PHARMACEUTICALS LTD.

 PURCHASE SECTION.

 EMPLOYEE WELFARE SECTION.

 PAY ROLL SECTION.

 BANKS & MISCELLANEOUS.

1. PURCHASE DEPARTMENT:

IT INCLUDE THE FOLLOWING FUNCTION:

a) Deposists & advance payments to suppliers

b) Passing of bills for suppliers received

c) Pricing of goods receipt notes

d) Accounting of cash purchase made by materials department

e) Arrangement of cash purchase made by the material department

f) Arrangement for insurance of transit risk

g) Maintenance of books of accounts

2. EMPLOYEE WELFARE SECTION

The section is responsible to give the information to payroll section for payment
and deduction of below mentioned benefits and incentives.

Other welfare schemes:-

 Indian oil employees welfare co-operative society

 LIC’s group saving linked insurance scheme

 HBA mortgage redemption scheme

 IOCL Employee group gratuity scheme

 IOCL Superannuation benefit fund scheme

 Personal claims and other payments

 Leave travel concession

 Reimbursement of medical expenses

 Self leased accommodation

 Travelling Allowance

 Travelling allowance

 Daily allowance

 Local conveyance charges

 TA for joining duty on first appointment

 Transfeer benefits & settling time

 Settling allowance

 Displacement allowance

 Transit allowance

 Salary advance

 Transportation of personal effects

 Loading and unloading charges

 Insurance charges

 Excess baggage charges

 Octroi charges

 Packing charges

 Travel expenses – for preparatory trip

 Reimbursement of expenses for admission of school going children

 Allowances on local transfer

 Joining time

 Facilities

 Canteen services

 Medical facilities

 Housing facilities

 Education facilities

 Recreation clubs and centers

  Social security

 Provident fund

 Group insurance scheme

 Indian oil employees welfare co-operative scheme

 Scheme for self insurance

 Gratuity & compassionate gratuity

 Other benefits

 Membership of professional bodies

 Children education assistance scheme

 Incentive for acquiring higher qualification

 Long service award

 Issue of briefcase

 Issue of calculators

 Ex- gratia payment

 Performances linked

 Productivity linked incentive

3. PAY ROLL SECTION

Function of the section dealing with establishment can be broadly classified as

follows:
  Scrutiny and concurrence of proposal from personal department

 Payment of salaries and allowances

 Advances to employees

 Deduction from pay bills

 Statutory and statistical requirements.

Scrutiny and concurrence of proposal from personal department

Proposals requiring finance concurrence shall be received in the section and

serutinized with reference to the rules applicable. Cases not covered by specific
rules shall be referred to the appropriate authority for decision.

Payment of salaries and allowances

Pay and allowance shall be drawn by the finaces department on the basis of
attendance particular which shall be send by the time office to finance giving
details such as name of the employee.employee number, number of regular days,
over time etc. under the mechanized system of pay roll accounting, the time cards
are after filling in summary particulars through finance department to the data
processing section. The data processing section shall prepare a statement, which is
checked and confirmed by the time office subsequently. Pay and allowances are as
mentioned below:

 Scale of pay

 Dearness allowance

 City compensatory allowance

 House rent allowance

 Shift allowance
  Washing allowance

 Tea reimbursement

 Special allowance

 Patrolling allowance

 Cash handling allowance

 Tanker allowance

 Conveyance allowance to blind

 Reimbursement towards transport exptenses

 Compensatory hill cum winter allowance

 Non practicing allowance

 Heavy equipment allowance

 North Eastern Allowance

 Special compensatory allowance

 Professional updating expenses

 Rationalization adjustment allowance

 ADVANCE TO EMPLOYEE

Rules for various types of advances are prescribed in the personal manual on the
basis of sanction and release order received from competent authority. The section
dealing with advance shall prepare payment voucher debiting appropriate advance
account and the same shall be passed on to cash section for payment. Recovery of
advance shall be made in accordance with the installments given in the sanction
order. Where the period of recovery is prescribed in the rule given in the relevant
manuals. The same shall be done accordingly. All recoveries in respect of
particular advance account shall be credited to the advance account. Loans and
advances are mentioned below:

 House building advance

 Conveyance advance

 Conveyance repair advance

 Emergency advance

 Funeral expenses

 Festival advance

4. BANKS AND MISCELLANEOUS SECTION:-

This section shall be responsible for:

 Receipts of cheques and bank drafts

 Petty cash imprested by cheques and bank drafts

 Payments

 Safe custody of valuables and documents

 Maintenance of special current accounts

 Maintenance of bank cashbooks.

 Reconciliation of bank account

THEORITICALBACKGROUND
MEANING OF WORKING CAPITAL

Working Capital is commonly defined as the difference between current assets and
current liabilities. Efficient working capital management requires that firms should
operate with some amount of working capital, the exact amount varying from firm
to firm and depending, among other things on the nature of industry.

Capital required for a business can be classified in two main categories viz.

1) Fixed capital, and

2) Working capital.

Every business needs funds for two purposes-for establishments and to carry out its
day-to-day operations. Long-term funds are required to create production facilities.

Through purchase of fixed assets such as plants and machinery, land, building,
furniture, etc. An investment in these assets represents that part of firm’s capital
which is blocked on permanent or fixed basis and is called fixed capital. Funds are
also needed for short-term purpose for the purchase of raw material, payment of
wages and other day-to-day expenses, etc. These funds are known working Capital.
In simple words, working capital refers to that part of the firm’s capital, which is
required for financing short-term or current assets such as cash, marketable
securities, debtors and inventories. Funds thus invested in current assets keep
revolving fast and are being constantly converted into cash and these cash flows
out again in exchange for other current assets. Hence, it is also known as revolving
or circulating capital or short-term capital.
CLASSIFICATION OF WORKING CAPITAL

Working Capital may be classified on two basis: -

a) On the basis of Concept: -

On the basis of concept, working capital can be classified as,

• Gross Working Capital

• Net Working Capital

b) On the basis of Time: -

• On the basis of time, working capital can be classified as,

• Permanent or Fixed Working Capital

• Temporary or Variable Working Capital

 Gross Working Capital: -

The Gross Working Capital is the Capital invested in the total current assets of
the enterprises. Current assets are those assets, which can be converted into cash
within a short period, normally an accounting year.

Gross Working Capital = Total Current Assets

  Net Working Capital: -

The term Net Working Capital refers to the excess of current assets over current
liabilities, or say,

Net Working Capital = Current Assets – Current Liabilities

Net Working Capital can be positive or negative. When the current assets exceed
the current liabilities the working capital is positive and the negative working
capital results when the current liabilities are more than the current assets. Current
liabilities are those liabilities, which are intended to be paid in the ordinary course
of business within a short period of normally one accounting year out of the
current assets of the income of the business. The gross working capital concept is
financial or going concern concept whereas net working capital is an accounting
concept of working capital. Both the concepts have their own merits.
The gross concept is sometime preferred to the concept of working capital for the
following reasons: -

 It enables the enterprise to provide correct amount of working capital at

correct time.

 Every management is more interested in total current assets with which it

has to operate then the sources from where it is made available.

 It takes into consideration of the fact every increase in the funds of the
enterprise would increase its working capital.

 The concept is also 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:-

 It is a qualitative concept, which indicates the firm’s ability to meet its

operating expenses the short-term liabilities.

 It indicates the margin of protection available to short term creditors.

 It is an indicator of financial soundness of enterprise.

 It suggests the need of financing a part of working capital requirement out of

the permanent sources of funds.
  Permanent or Fixed Working Capital: -

Permanent or fixed capital is the minimum amount, which is required to ensure

effective utilization of fixed facilities and for maintaining the circulation of current
assets. Every firm has to maintain a minimum level of current assets is called
permanent or fixed working capital as this part of working capital is permanently
blocked in current assets. As the business, grow the requirement of working capital
also increases due to increase in current assets.

 Temporary or Variable Working Capital: -

Temporary or variable working capital is the amount of working capital, which is

required to meet the seasonal demands and some special exigencies. Variable
working capital can further be classified as seasonal working capital and special
working capital. The capital required to meet the seasonal need of the enterprise is
called the seasonal working capital. Special working capital is that part of working
capital which is required to meet special exigencies such as launching of extensive
marketing campaign for conducting research etc.

Temporary working capital differ from permanent working capital in the sense that
it is required for short periods and cannot be permanently employed gainfully in
business
  CALCULATE CURRENT ASSETS TO FIXED ASSET RATIO

A firm needs current and fixed assets to support a particular level of output.
However, to support the same level of output the firm can have different levels of
current assets. As the firm’s output and sales increases, the need for current asset
increases. Generally the current assets do not increase in direct proportion to
output; current assets may increase at a decreasing rate with input. This
relationship is based upon the notion that it takes a greater proportional investment
in current assets when only a few units of output are produced than it does later on
when the firm can use its current assets more efficiently.

The level of the current assets can be measured by relating current assets to fixed
assets.

There are three policies:-

 CONSERVATIVE current assets policy:

CA/FA is higher. It implies greater liquidity and lower risk.

 AGGRESSIVE current assets policy:

CA/FA is lower. It implies higher risk and poor liquidity.

 MODERATE current assets policy:

CA/FA ratio falls in the middle of conservative and aggressive policies.

NEEDS AND OBJECTIVES FOR WORKING CAPITAL

Every business needs some amount of working capital. The needs for working
capital, arises due to time gap between production and realization of cash from
sales. There is an operating cycle involved in sales and realization of cash. There
are time gaps in purchase of raw material and production, production and sales,
and realization of cash.

Thus, working capital is needed for the following purposes: -

 For the purchase of raw material, component and spares.

 To pay wages and salaries.

 To incur day- to- day expenses and overhead costs such as fuel, power and
office expenses etc.

 To meet the selling costs such as packing, advertising etc.

 To provide credit facilities to the customers.

 To maintain the inventories of raw material, work in progress, store, spares,

and finished stock

For studying the need of working capital in a business, one has to study the
business under varying circumstances such as new concern, as a growing and one,
which has attained maturity. A new concern requires a lot of funds to meets its
initial requirement such as promotion and formation etc. These expenses are called
preliminary expenses and are capitalized. The amount needed for working capital
depends upon the size of the company and the ambition of its promoters. Greater
the size of the business unit, generally will be the requirement of the

working capital. The requirement of the working capital goes on increasing with
the growth and expansion of the business until its gains
maturity. At maturity, the amount of working capital required is called normal
working capital.

IMPORTANCE OF WORKING CAPITAL

1. Time devoted to working capital management:-

The largest portion of financial manager’s time is devoted to day to day internal
operation the firm. This may be appropriately sum up under the heading
"WORKING CAPITAL MANAGEMENT".

2. Investment in current assets: -

current assets represent more than half of the total assets of a business firm.
Because they represent largest investment and because this investment tends to
relatively volatile, current assets are worthy for the financial manager's careful
attention.

3. Importance for small firm:-

current assets are similarly important for the financial manager's of small firm.
Further small firm are relatively limited access to the long term markets, it must
necessarily rely on the trade credit and short term bank loan , both of net effect on
net working capital by increased current liabilities.
WORKING CAPITAL CYCLE: -

The speed with which the working cycle completes one cycle determines the
requirements of working capital. Longer the cycle larger is the requirement of
working capital.

DEBTORS

CASH FINISHED
GOODS

WORK IN
RAW MATERIAL
PROGRESS

Each component of working capital (namely inventory, receivables and payables)

has two dimensions ... TIME ......... and MONEY. When it comes to managing
working capital - TIME IS MONEY. If you can get money to move faster around
the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount
of money tied up (e.g. reduce inventory levels relative to sales), the business will
generate more cash or it will need to borrow less money to fund working capital.
As a consequence, you could reduce the cost of bank interest or you'll have
additional free money available to support additional sales growth or investment.
METHODOLOGY
THE FOLLOWING DATA WHICH I TAKE HERE IS AN SECONDARY DATA
BECAUSE IT IS FROM THE BALANCE SHEET & P&L ACCOUNT OF THE
COMPANY. From The Website.
FINDINGS & ANALYSIS
TABLE IN CRORE

PARTICULARS Mar’06 Mar’07 Mar’08 MAR’09 MAR’10

CURRENT 2292.28 2834.68 3743.98 4419.57 5483.42

ASSEST
CURRENT 1006.15 1053.91 1396.86 1568.71 2524.77
LIABLITIES
NET 1286.10 1780.77 2347.12 2850.86 2958.65
WORKING
CAPITAL

TURNOVER 2981.35 3561.99 4203.29 5234.29 5605.69

GRAPHICAL REPRESENTATION OF WORKING CAPITAL:-

3000

2500

2000

1500
WORKING CA
1000

500

0
MAR'06 MAR'07 MAR'08 MAR'09 MAR'10

Interpretation: -

If we see from the above table, it can be clearly seen that net working capital has
continuously rise up from MAR’06 TO MAR’10. It is good for the company
because its turnover is also increased

WORKING CAPITAL TURNOVER RATIO:-

This ratio helps to measure the efficiency of the utilization of the working capital.
It signifies that for an amount of sales, a relative amount of working capital is
needed. This ratio shows the direct relationship between the sales and working
capital.

W.C. turnover ratio = sales /working capital

YEAR CALCULATION RATIO

MAR’06 2981.35/1286.13 2.318
MAR’07 3561.99/1780.77 2.002
MAR’08 4203.29/2347.12 1.791
MAR,09 5234.29/2850.86 1.836
MAR’10 5605.69/2958.65 1.895

GRAPH

2.5

1.5
WORKING CAPITAL TURNOVER
1 RATION

0.5

0
MAR'06 MAR'07 MAR'08 MAR'09 MAR'10
INTERPRETATION:
By observing the above ratio we find that the organization was using its working
capital in the best possible manner in mar’06, this ratio is 2.318 but in the year
2007-09 this ratio has rapidly come down from 2.002 to 1.836 & in the year 2010
this ratio is increase to 1.895 . This increase was because
the sales do increase in the same ratio so it shows that working capital management
is in a proper manner and in accordance to sales.
CURRENT ASSETS TURNOVER RATIO:-

This ratio indicates the efficiency with which current assets turn into sales. A
higher current assets turn over rate or a lower current assets turnover period is
better. It indicates the efficient use of the funds and the reverse case indicates
reduced lock-up of funds in current assets.

C.A.turnover ratio = sales / current assets

YEAR CALCULATION RATIO
MAR’06 2981.35/1286.13 2.3180
MAR’07 3561.99/1780.77 2.002
MAR’08 4203.29/2347.12 1.791
MAR’09 5234.29/2850.86 1.836
MAR’10 5605.69/2958.65 1.895

GRAPH

2.5

1.5
CURRENT ASSETS
1 TURNOVER RATIO

0.5

0
MAR'06 MAR'07 MAR'08 MAR'09 MAR'10

Interpretation:- By observing the above ratio we find that current assets turnover
rate increased in MAR’06. Then after there was a decline from MAR’07-09 but
very soon the company improved its current assets position from 1.836 to 1.895 in
MAr’10. This increment shows that the current asset management is improving.
CURRENT LIABLITIES TURN OVER RATIO:-

CURRENT LIABLITIES TURN OVER RATIO=SALES/LIABLITIES

YEAR CALCULATION RATIO

MAR’06 2981.35/1006.15 2.963
MAR’07 3561.99/1053.91 3.380
MAR’08 4203.29/1396.86 3.009
MAR’09 5234.29/1568.71 3.337
MAR’10 5605.69/2524.77 2.339

GRAPH:-

3.5
3
2.5
2
CURRENT LIABLITIES
1.5 TURNOVER RATIO
1
0.5
0
MAR'06 MAR'07 MAR'08 MAR'09 MAR'10

INTERPRETATION: From the graph we can see the fluctuation in the

current liabilities. In the mar’09 it is 3.337 which was going down in mar’10 by
2.339.
SUMMARY OF FINDINGS

 The company is able to reduce its working capital from in a span of FIVE
years without affecting the sales of the company which means that company
is sincerely utilizing its funds and has reduced the locking of funds.

 The latest working capital ratio indicates the efficiency of utilization of net
working capital is increased

 The current assets turnover ratio has increased which indicates that current
assets is efficiently turning into sales.

 The current liabilities shows fluctuation ,in mar’10 the C.L reduces which
means company maintained its working capital in well manner.
CONCLUSION & RECOMMENDATION
 CONCLUSION

 By observing the ratio come under working capital management we can say
that the company doing good & also improving their sale year by year.

 The company also doing well by reducing current liability,& improving their
current assets & working capital . So we can say that the company manage
w.c management in good way.

RECOMMENDATION

 The current assets turnover has decreased from mar’07-09 by 2 to 1.836 , so

the company should try to improve this ratio through increase in sales or
reduce the un-necessary lock up of funds in current assets.

 There is a increase in current liabilities which is not good for the credit of
company so the organization should try to reduce the current liabilities
through speedy payment to creditors and reduce the un-necessary provisions.

 There is a big fluctuation in working capital turnover ratio This was because
the sales did not increase in the same ratio as working capital increased. So
the company should manage the working capital and should properly
estimate for an amount of sales how much working is needed so that the un-
necessary lock up of funds in working capital may not occur.
ANNEXURE
BIBLOGRAPHY

FINANCIAL MANAGEMENT - I.M. PANDAY

WORKING CAPITAL MANAGEMENT- J.D. AGGARWAL

FINANCIAL MANAGEMENT- SASHI K. GUPTA

AKUMS DRUGS & PHARMACEUTICAL PVT. LTD- BALANCE SHEET&

P&L ACCOUNT