PROJECT REPORT ON WORKING CAPITAL MANGEMENT

INTRODUCTION OF WORKING CAPITAL MANAGEMENT:

Definitions of Working Capital : According to P.V. Kulkarni Working Capital is defined as the excess of current assets over current liabilities and provisions. It is not current assets or not working capital. According to Board of American Institute of Certified Accountants, Working Capital some times called net working capital, is represented by the excess of current assets over current liabilities and identified as the relatively liquid position of the total enterprise capital which constitutes a margin or buffer for maturing obligations with in the ordinary operation cycle of the business." According to Corine T. Morgand, Working Capital is defined as the difference between companys current assets and current liabilities the accounts, which belong to this group are usually the most active in the company. Unlike fixed assets they reflect the companys daily activities." According to Estern and Bringham, Working capital refers to a firms investment in short term assets such as cash, short term securities accounts receivable and inventory. Working capital is defined as current assets minus current liabilities. If the term working capital is used without further qualification, it generally refers to gross working capital." Working capital is essentially circulating working capital. Working capital moves from one process to another, from cash to inventories and back to cash. The term circulating working capital is used to designate those assets that are changed with relative rapidity from one from to another i.e. from cash to inventories to receivable to cash. In the case of manufacturing concern, working capital is required to cater the following needs of business in order. Raw material are to be purchased for cash. Production process convert raw material into work in progress.

 Work in progress convert into finished goods during course of time through production process. Finished goods are converted into accounts receivable through sale. Accounts receivable are realized in cash in due course of time. The above operating cycles is repeated again and again over the period depending upon the nature of the business and type of product etc. The summarize it may be emphasized that gross and net concept of working capital are two important facts of the working capital management. There are no precise way to determine the exact amount of gross and net working capital for every firm. The data and problems of each company should be analyzed to determine the account of working capital. There is no specific way realizable in practice to finance current assets by short sources only. Keeping in view the constraints of individual company, a judicious mix of long term and short term finance should be invested in current assets. 1. Gross Working Capital : This concepts refers to the total of current assets. Current assets are those assets which are convertible into cash with in the ordinary course of business. It is also known as Circulating capital and current capital. Current assets includes :

Cash in Hand. Cash at Bank Sundry Debtors Short term loan and advances Inventory of stock as : Raw material, work in progress, Finished goods. Temporary investment of surplus funds. Prepaid expenses.

Net Working Capital : This concepts defined the most common definition of net working capital. In this concepts working capital is the difference between current assets and current liabilities, which are expected to be paid in the ordinary course of business with in a year. Current Liabilities includes :

Bills payable Sundry creditors

Outstanding Expenses Dividend Payable Bank Overdraft Provision for Taxation.

Net Working Capital may be positive or negative. Net working capital will be positive when current assets are more than the current liabilities. If current liabilities are more than current assets then net working capital will be negative. Working Capital Management - Circulating system : The funds in the business are obtained from the issue of shares, issue of debentures. Other long term arrangement and from operations of business. A high part of generated funds is used to acquire fixed assets viz. plant and machinery, land and building and some other fixed assets, while the remaining part of the generate funds is used for day to day operations for the business i.e. to pay wages, creditors for raw material purchases and overhead expenses, for the raw material processed. This makes possible the stocking of finished goods by whose sales either account receivable are created or cash is received. In this process profit are generated. A part of profit is used to pay tax. Interest and dividends while the remaining part is ploughed back in the business. This cycle goes on constantly throughout the life of business. Classification of Working Capital The working capital can be classified as follows : 1. Gross working capital : Gross working capital is the total amount of funds invested in the various components of current assets such as cash, inventory, marketable securities and account receivable. 2. Net Working Capital : Net working capital is the difference between current assets and current liabilities. This type of working capital enables a firm to determine how much amount is left for operational requirement. 3. Permanent Working Capital : Permanent or fixed working capital is the minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always a minimum level of current assets which is continuously required by the enterprise to carry out its normal business operations. For example, every firm has to maintain a minimum level of current assets is called permanent or fixed working capital as

this part of capital is permanently blocked in current assets. As the business grows the requirements of permanent working capital also increase due to the increase in current assets. 4. Fluctuating or Variable Working Capital : TTemporary or variable working capital is the amount of working capital which is require to meet the seasonal demands and some special exigencies. Variable working capital can be further classified as seasonal working capital and special working capital. Most of the enterprises have to provide additional working capital to meet the seasonal and special needs. The capital required to meet the seasonal needs of the enterprise is called seasonal working capital. Special working is that part of working capital which is required to meet special exigencies such as launching of extensive marketing companies for conducting research etc. Temporary working capital differs from permanent working capital in the sense that it is required for short periods and cannot be permanently employed gainfully in the business. Figures given below illustrate the difference between permanent and temporary working capital. Permanent working capital is stable or fixed over time while the temporary or variable working capital fluctuates. Permanent working capital is also increasing with the passage of time due to expansion of business but even then it does not fluctuate as variable working capital which sometimes increases and sometime decreases. 5. Cash working capital : Cash working capital is calculated from the items appearing in the profit and loss account of a business. It shows the real flow of money at a particular time. It is the basis of the operation cycle concepts which is assumed a great importance in financial management in recent years. The reason is that the cash working capital indicates the adequacy of working capital. 6. Balance sheet working capital : TThe working capital, which is calculated from the balance sheet items is known as balance sheet working capital, gross working capital and net working capital are the example of the balance sheet working capital. 7. Negative working capital : Negative working capital is the excess of current liabilities over current assets such a situation is called negative working capital when current liabilities are more then current assets. 1) OBJECTIVES OF WORKING CAPITAL MANAGENT:

Maintenance of working capital at appropriate level, and Availability of ample funds as and when they are needed. Optimize investments in current assets. To see that the company meets its current liabilities and obligations. Manage current assets to see that the return on current asset is more than cost of capital. Proper balance between current assets and current liabilities.

2) OBJECTIVES OF WORKING CAPITAL MANAGEMENT: Primary objective: To find how the working capital is used effectively and efficiently towards the day to day operation of the Britannia Industries Limited. Secondary objective: 1. To view fluctuation in working capital. 2. To analyze the operating cycle of the company. 3. To find the future sales and profit of the organization. 4. To find the efficiency, liquidity, structure, health of the organization. 5. To examine the factors affecting the working capital of the company. 6. To analyze the overall performance of the company. 7. By optimizing the investment in current assets and by reducing the level of current liabilities, the company can reduce the locking up of funds in working capital. Thereby it can improve the return on capital employed in business. 8. The company should always be in the position to meet its obligation, which should properly be supported by the current assets available with the firm. 9. The firm should manage its current assets in such a way that the marginal return on investment in these assets is not less than the cost of capital employed to finance the current assets. 10. The firm should maintain proper balance between current assets and current liabilities to enable the firm to, meet its day to day financial obligation

3) Two objectives of finance manager:

1Estimating the amount of working capital requirement. 2The different sources through which the funds have to be raised. 4) REASEARCH METHODOLOGY: Definition: Research is the process which the researcher wishes to find out the solution for the given problem. Thus the solution helps in the future course of action. It has been defined as a careful investigation or inquiry especially through search for new facts in any branch of knowledge. Aim of the study: The aim of the study is to examine the factors affecting the working capital of Britannia industries ltd and to compare the working capital of the previous year working capital with that of the past 5 years to predict the future need of the working capital Purpose of the study: The excess of current assets of an enterprise over its current liabilities is called working capital. The working capital is often used in evaluating companys ability to meet the maturing debts. The main purpose is to study the working capital of Britannia industries limited for the past five years.

Research design: There are various types of research which are helpful to conduct the research. They are: a. Exploratory research design: Exploratory research design studies are also termed asformulative research studies. The main purpose of such studies is that of formulating a problem for more precise investigation or of developing the working hypothesis from an operational point of view. Descriptive Research Design: Descriptive research design is concerned with the researchstudies with a focus on the characteristics of a particular individual or agroup. Based upon the nature of the study the researcher has selected the Exploratory and analytical Research

5) DATA COLLECTION METHOD: The study is dependent on both primary and secondary data collected from various source.

A) Primary data: First hand information that is collected for the purpose of the study is called primary data. b) Secondary data: Secondary data means data that are already available in the organization. The researcher has to look into various sources for the data from where he can obtain data. Published data will be available in: Magazine Technical Journals This study involves use of secondary data the balance sheet and profit & loss a/c statement are the data for the study. The study is an analytical study. 6) LIMITATIONS OF WORKING CAPITAL MANAGEMENT: 1) The primary data collected is restricted only to Britannia industries 2) The major concern of the research was the project duration which was 45days 3) This was insufficient to cover the various areas in the stipulated time. 4) The major limitation of the study is that the datas are mostly secondary in nature. 5) As it was taken from financial statement, annual report etc. 6) Data only for 5 years has been analyze 7) The branch of Britannia was scattered and so it is difficult to collect data 7) TOOLS AND INTERPRETATION OF WORKING CAPITAL MANAGEMENT: WORKING CAPITAL MANAGEMENT OFSathe Synthetics PROJECT REPORT Submitted in partial fulfillment of the requirement for the award of Two year full time, Masters in Business Administration. By Karan veer Singh DEPARTMENT OF MANAGEMENTLOVELY PROFESSIONAL UNIVERSITYPHAGWARA(2009-2011)

ACKNOWLEDGEMENT Whatever we do and whatever we achieve during the course of our limited life is just not done only by our own efforts, but by efforts contributed by other people associated with us indirectly or directly. I thank all those people who contributed to this from the very beginning until its successful end. I sincerely thank Mr. Subodh kr. Teotia (Personnel manager, Sathe Synthetics, Ghaziabad), person of amiable personality, for assigning such a challenging project work which has enriched my work experience and getting me acclimatized in a fit and final working ambience in the premises of Sathe Synthetics . I acknowledge my gratitude to Mr. Nitin Dhir (Lovely Professional University),for his extended guidance, encouragement, support and reviews without whom this project would not have been a success. Last but not the least I would like to extend my thanks to all the employees atSathe Synthetics, Ghaziabad (prop. Rakesh fuel pvt. Ltd.) And my friends for their cooperation, valuable information and feedback during my project. KARAN VEER SINGH