ABSTRACT

Working Capital is the life blood and nerve centre of a business. A circulation of blood is
essential in the human body maintaining life. Working Capital is very essential to maintain
the smooth running of a business. Working Capital is the important tool for managing
finances for the business. In present scenario wants are plenty while resources are limited
resources at its disposal. Therefore, the organization seeks to adopt the concept of working
capital management to meet the expenses of everyday activities. Inadequate financial
resources can undermine the effective workings of the manufacturing products in A Bond
Strands Private Limited. The main purpose of the study is to find the impact of Working
Capital in the financial performance of A Bond Strands Private Limited. This study helps to
find the working capital performance and to identify the liquidity position of the company
and also it helps to find the relationship between working capital and financial performance
of A Bond Strands Private Limited. The study considers the past period of study for 5 years
from 2014 to 2015. The data used for the study is secondary data. The research design used in
the study is descriptive research design and the type of research is analytical research. The
above objective are analysed with the help of statistical and financial tools such as
correlation, ratio analysis and trend analysis.
INTRODUCTION OF THE STUDY

MEANING

A company’s working capital essentially consists of current assets and current

liabilities. Current assets refer to those assets that can be converted into cash within one year,
like debtors, and stock and prepaid expenses- expenses that have already been paid for.
Current liabilities are the day-to-day debts incurred by a business in its operation. These
could be credit purchases made from vendors (creditors) and outstanding expenses (expenses
that are yet to be paid).

DEFINITION

Working Capital Management refers to all the strategies adopted by the company to
manage the relationship between its short term assets and short term liabilities with the
objective to ensure that it continues with its operations and meet its debt obligations when
they fall due. In other words, it refers to all aspects of administration of current assets and
current liabilities. Efficient management of working capital is a fundamental part of the
overall corporate strategy. The WC policies of different companies have an impact on the
profitability, liquidity and structural health of the organization. Although investing in good
long-term capital projects receives more emphasis than the day-to-day work associated with
managing working capital, companies that do not handle this financial aspect (working
capital) well will not attract the capital necessary to fund those highly visible ventures.

ELEMENTS OF WORKING CAPITAL MANAGEMENT

The working capital ratio, calculated as current assets divided by current liabilities, is
considered a key indicator of a company's fundamental financial health since it indicates the
company's ability to successfully meet all of its short-term financial obligations. Although
numbers vary by industry, a working capital ratio below 1.0 is generally indicative of a
company having trouble meeting its short-term obligations. Working capital ratios of 1.2 to
2.0 are considered desirable, but a ratio higher than 2.0 may indicate a company is not
effectively using its assets to increase revenues.

The collection ratio, also known as the average collection period ratio, is a principal
measure of how efficiently a company manages its accounts receivables. The collection ratio
is calculated as the product of the number of days in an accounting period multiplied by the
average amount of outstanding accounts receivables divided by the total amount of net credit
sales during the accounting period. The collection ratio calculation provides the average
number of days it takes a company to receive payment. The lower a company's collection
ratio, the more efficient its cash flow.

The final element of working capital management is inventory management. To

operate with maximum efficiency and maintain a comfortably high level of working capital, a
company must carefully balance sufficient inventory on hand to meet customers' needs while
avoiding unnecessary inventory that ties up working capital for a long period before it is
converted into cash. Companies typically measure how efficiently that balance is maintained
by monitoring the inventory turnover ratio. The inventory turnover ratio, calculated as
revenues divided by inventory cost, reveals how rapidly a company's inventory is being sold
and replenished. A relatively low ratio compared to industry peers indicates inventory levels
are excessively high, while a relatively high ratio indicates the efficiency of inventory
ordering can be improved.

DETERMINANTS OF WORKING CAPITAL

NATURE OF BUSINESS:

A company’s working capital requirements are basically related to the kinds of business it
conducts. Generally speaking, trading and financial firms require relatively large amounts of
working capital, public utilities comparatively small amounts, whereas manufacturing
concerns stand between these two extremes, their needs depending upon the character of
industry of which they are a part.

PRODUCTION POLICIES:

Depending upon the kind of items manufactured, a company is able to offset the effect off-
seasonal fluctuations upon working capital by adjusting its production schedules. The choice
rests between varying output in order to adjust inventories to seasonal requirements and
maintaining a steady rate of production and permitting stocks of inventories to build up
during off-season periods. It will thus be obvious that a level production plan would involve a
higher investment in working capital.
MANUFACTURING PROCESS:

If the manufacturing process in an industry entails a longer period because of its complex
character, more working capital is required to finance that process. The longer it takes to
make an approach and the greater its cost, the larger the Inventory tied up In Its manufacture
and, therefore, higher the amount of working capital.

TURNOVER OF CIRCULATING CAPITAL:

The speed with which the circulating capital completes its round I.e., conversion of cash into
inventory of raw material Into Inventory of finished goods. Inventory of finished goods into
book debts or accounts receivables and book debt into cash account, plays an Important and
decisive role in judging the adequacy of working capital.

GROWTH AND EXPANSION OF BUSINESS:

As a company grows, it is logical to expect that larger amount of working capital will be
required though It Is difficult to draw up firm rules for the relationship between the growth in
the volume of a company’s business and the growth of its working capital.

BUSINESS CYCLE FLUCTUATIONS:

Requirements of working capital of a company vary with the business variation. At a time
when the price level comes up and boom condition prevail, the psychology of the
management is to pile up a big stock of raw material and other goods likely to be used in the
business operations as there is an expectation to take advantage of lower prices. The
expansion of business units caused by the inflationary conditions creates demand for more
and more capital.

TERMS OF PURCHASE AND SALES:

A business unit, making purchases on credit basis and selling its finished products on cash
basis, will require lower amount of working capital, on the contrary, a concern having no
credit facilities and at the same time forced to grant credit to its customers may find itself in a
tight position.
DIVIDEND POLICY:

A desire to maintain an established dividend policy may affect working capital, often changes
in working capital bring about an adjustment of dividend policy. The relationship between
dividend policy and working capital is well established and very few companies declare a
dividend without giving due consideration to its effects on cash and their needs for cash.

A shortage of working capital often acts as a powerful reason for reducing or skipping a cash
dividend. On the other hand, a strong position may justify continuing dividend payment.
INDUSTRY PROFILE

MANUFACTURING INDUSTRY

HISTORY

Indian industries made rapid strides during the First World War (1914-18) due to rise
in demand for industrial goods by the Armed Forces. However, the real spurt was provided
by the Indian Fiscal Commission set up in 1921-22. This gave the much needed protection to
industries like iron and steel, textiles, cement, sugar, paper and metals.

One of the most prominent features of Indian industrial scene during this period was
the dispersal of cotton textile industry away from Mumbai. In 1875-76, 61.7 per cent of
cotton textile mills were located in Mumbai and by 1938-39 only 17.5% per cent of the mills
remained in Mumbai.

In fact the industry gained a lot as a result of war. On the eve of the war, India had
emerged as the fourth largest cotton manufacturing country next to the USA, the U.K. and
Japan in that order. Jute industry on the other hand, continued to concentrate in the Hugli
basin only. However, the number of jute mills rose from 64 in 1913-14 to 107 in 1938-39.

Post-1980 the key strategy for developing the manufacturing sector in India was to
develop large and heavy industries through central planning. The strategy also included
import substitution, price controls and restrictions on private sector through severe licensing.
Also the controls on the foreign investment limited the growth of the manufacturing sector in
India. Rigid controls led to widespread incompetence in resource utilization, as reflected in
the poor growth rate of the manufacturing sector. The despondent state of the manufacturing
sector was further accentuated by the Gulf oil crisis and agriculture supply shocks in the late
1970s’ together with political uncertainty which plagued the Indian economy throughout its
development process.

After 1991, however, the licensing of industries was abolished and movement of
international capital was liberalized. Previously only 40 percent FDI was allowed in selective
large and heavy industries.
INTRODUCTION

Industrial manufacturing is a major growth sector for the Indian economy with diverse
companies including those engaged in manufacturing of machinery and equipment, electrical
and metal products, cement, building and construction material, rubber and plastic products
and automation technology products.

KEY SECTOR FOCUS AREAS

 Industrial leaders in India are looking at digitalizing their vertical and horizontal value
chains from product development and purchasing to manufacturing, logistics and
services.
 Apart from investing in new product development, manufacturers are moving to
product + service offering from earlier product only.
 Efforts are on in forming multi-national partnerships, alliances and joint ventures in
order to secure FDI, benefit from advanced technologies, and improve productivity
through factory automation.
 While focus continues on penetrating in domestic market, Indian manufacturers are
also looking to gain a foothold in the global market by increasing sales in existing
markets and by identifying new geographies.

CONTRIBUTION TO THE ECONOMY

The contribution of the manufacturing sector to GDP just after India gained
independence was not substantial. During 1950-51, the manufacturing sector in India
contributed only 8.98% to the GDP. However, by 1965-66, it had increased to 14.23%, at the
start of 1980 this figure further increased to 16.18% but it remained constant in that decade
until 1990-91. This slight dip stems from the growth of the service sector and its increased
contribution to the GDP of the country. During the fiscal year 2014 -15 the manufacturing
sector contributed about 16% to the GDP.
COMPANY PROFILE

A BOND STRANDS PRIVATE LIMITED

A Bond Strands Private Limited was established in 1987, it is in the field of manufacture of
various Switchgear and Insulation products for more than three decades. Our facility is
complemented with high precision machines to fabricate and manufacture various products
and with full-fledged laboratories to perform routine tests of products. M/s. A.Bond Strands
Private Limited is engaged in the design, manufacture and sale of products in the electrical,
mining, chemical, textile and other core industries. The company has also developed products
exclusively for National Defense

A.BOND~ STRANDS PVT LTD is Authorized “System House” of SIEMENS India to

integrate Siemens make switching device compartment (Ivac) along with Vacuum Circuit
breaker for their range of Medium Voltage Switchgear up to 36kV and 40kA Air Insulated
Switchboard.

BUSINESS VERTICALS

 Switch Gear Division

 Insulation Division

PRODUCTS

 On Load Tap Changers (OLTC)

 Load Break Switches and Switch Panels.
 Isolators and Isolator Panels
 Ring main Units
 Ring Main Gears.
 Switch Fuse Units
 Vacuum Circuit Breakers-indoor
 Vacuum Circuit Breaker-outdoor
 Epoxy-resin cast Insulators and Bushings.
 Epoxy-glass cylinders.
 FRP cylinders and Supports.
 Reactor Core Packets
  Plug and Sockets
 Couplers and Adaptors Assembly
 Brush Holders, Slip Rings/Electrical Turning Joints
 Earth Switches

CLIENTS

 Birla Technical Services

 Davy Power Gas
 DESEIN
 Development Consultants Ltd.
 Engineering Projects(India) Ltd.
 Engineers India Ltd.
 Entech Consultancy Bureau
 Ircon
 Holtec
 Howe(India) Ltd.
 Humphreys & Glasgow
 Indian Registrar of Shipping
 Beureau Veritas
 ICB Ltd
 IDEA
 Mecon
 M.N.Dastur & Co
 Muse Consultants
 P.D.I.L
 RITES
 Tata Consultancy Engineers
 Technicaliya Consultants
 UDHE India Ltd
OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVES

 To study the impact of working capital in the financial performance of A Bond

Strands Private Limited.

SECONDARY OBJECTIVES

 To study the working capital performance.

 To find out the relationship between working capital and financial performance of the
company.
 To predict the working capital for the future.
SCOPE OF THE STUDY

 It gives the idea about the financial analysis and working capital of the firm. It
analysis and deals the interpretation of the data collected through the sources of
primary and secondary data for a particular period of time.
 It helps in identifying the various sources available for financing of working capital
and to understand the company’s liquidity position.
NEED OF THE STUDY

 Managing working capital means managing inventories, cash, accounts payable and
accounts receivable. This helps to investigate the relationship between working
capital and financial performance of the company.
 When a company does not have enough working capital to cover its obligations,
financial insolvency can result and lead to legal troubles, liquidation of assets and
potential bankruptcy. This project determines the challenges faced by the
management affecting the working capital.
LIMITATION OF THE STUDY
 The study has taken in to account only five years for the analysis.
 Many facts and data are such that they are not be disclosed because of the
confidential nature of the same.

 Limited interaction with the concerned heads due to their busy schedule.
REVIEW OF LITERATURE

Harsh Pratap Singh (2014) detailed content analysis reveals that most of the research work
is empirical and focuses mainly on two aspects, impact of working capital on profitability of
firm and working capital practices. Major research work has concluded that working capital
management is essential for corporate profitability. The major issues with prior literature are
lack of survey-based approach and lack of systematic theory development study, which opens
all new areas for future research. The future research directions proposed in this paper may
help develop a greater understanding of determinants and practices of working capital
management.

Saswata Chatterjee (2010) focused on the importance of the fixed and current assets in the
successful running of any organization. It poses direct impacts on the profitability and
liquidity. There have been a phenomenon observed in the business that most of the
companies increase the margin for the profits and losses because this act shrinks the size of
working capital relative to sales. But if the companies want to increase or improve its
liquidity, then it has to increase its working capital. In the response of this policy the
organization has to lower down its sales and hence the profitability will be affected due to
this action. For this purpose 30 United Kingdom based companies were selected which were
listed in the London Stock Exchange. The data were taken of three years 2006-2008. It
analysed the impact of the working capital on the profitability. The dimensions of working
capital management included in this research which is quick ratios, current ratios, cash
conversion cycle , average days of payment , Inventory turnover and A.C.P (average
collection period) on the net operating profitability of the UK companies.

Mohamad And Saad (2010) used Bloomberg’s database of 172 listed companies randomly
selected from Bursa Malaysia main board for five year period from 2003 to 2007. Applying
correlations and multiple regression analysis, they found that current assets to total asset ratio
shows positive significant relationship with ROA and ROI, Cash conversion cycle, current
assets to current liabilities ratio and current liabilities to total asset ratio illustrate negative
significant relations with Tobin Q, ROA and ROIC.

Pradeep Singh (2008) empirically analysed that a firm’s working capital consists of
investment in current assets, which includes short term assets, cash and bank balance,
inventories, receivable and marketable securities. Therefore, the working capital management
refers to the management of the levels of all these individual current assets. On the other hand
inventory which is one of the important elements of current assets, reflect the investment of
the firms fund.

Singh And Pandey (2008) said that working capital management is the management of
current assets and current liabilities. Maintaining high inventory level reduce the cost of
possible interruption in the production process or of loss of business due to scarcity of
product, reduce supply cost and protects against price fluctuations. Granting trade credit
favours the firm’s sales in various ways. Trade credit can act as an effective price cut and
incentives to customers to acquire merchandise at time of low demands.

Chowdhury And Amin (2007) investigated working capital management practices in

Pharmaceutical firms listed in DSE and reported that among all the problems of financial
management, the problems of working capital management had probably been recognized as
the most crucial one.

Bergami Robert (2007) analysis that international trade transactions carry inherently more
risk than domestic trade transactions, because of differences in culture, business processes,
laws and regulation. It is therefore important for trade to ensure that payment is received for
good dispatched and that the goods received and paid for comply with the contact for sale.
One effective way of managing these risks has been for traders to rely on the letter of credit
as a payment method. However for exporters in particular, the letter of credit has presented
difficulties in meeting the compliance requirements the current rules that govern letter of
credit transactions (UCP 500) have been review for the past three years and an updated set of
rules (UCP 600) is expected to be introduced on 1st July 2007. This paper focuses on the
changes mooted for 2007 and compares these main issues with the existing rules and other
associated guidelines and regulations governing this method of payment. This paper
considers the implication to changes of letter of credit transactions and the sharing of risk.
Firstly the paper provides some background to letters of credit, then comments on existing
literature and models, and subsequently an analysis of the most important changes to the
existing rules, before reaching a conclusion. The conclusion is that the UCP 600 have not
paid enough consideration to traders and service providers and are likely to engender an
environment of uncertainty for exporters in particular
Eljelly (2004) elucidated that efficient liquidity management involves planning and
controlling current assets and current liabilities in such a manner that eliminates the risk of
inability to meet due short-term the relation between profitability and liquidity was examined,
as measured by current ratio and cash gap (cash conversion cycle) on a sample of joint stock
companies in Saudi Arabia using correlation and regression analysis. The study found that the
cash conversion cycle was of more importance as a measure of liquidity than the current ratio
that affects profitability. The size variable was found to have significant effect on profitability
at the industry level. The results were stable and had important implications for liquidity
management in various Saudi companies. First, it was clear that there was a negative
relationship between profitability and liquidity indicator such as current ratio and cash gap in
Saudi sample examined. Second, the study also revealed that there was great variation among
industries with respect to the significant measure of liquidity

De Loof (2003) discussed that most firms had large amount of cash invested in working
capital. It can therefore be expected that the way in which working capital is managed will
have a significant impact on profitability of those firms. Using correlation and regression
tests he found a significant negative relationship between gross income and the number of
days, accounts receivable, inventories and accounts payable of Belgian firms.
RESEARCH METHODOLOGY

RESEARCH DESIGN

Research design is a plan of action that guides the entire project. The formidable problem that
shows the task of defining the research problem is the research project, popularly known as
the “research design”.

DESCRIPTIVE DESIGN

Descriptive research is aimed at casting light on current issues or problems through a process
of data collection that enables them to describe the situation more completely that was
possible without employing this method.
ANALYTICAL RESEARCH
In this type of research has to use facts or information already available and analyze these to
make a critical evaluation of the material. The researcher depends on existing data for his
research work. The analysis revolves round the material collected / or available.
DATA PROCESSING
SECONDARY DATA
Secondary data is the data, which is collected from published source. I have collected data
from company annual reports of the company, different document prepared by the company
and from various reference books also.
TOOLS USED FOR ANALYSIS
STATISTICAL TOOLS
 Correlation
FINANCIAL TOOLS
 Ratio analysis
 Trend analysis