A Project Report On Analysis Of Working Capital Management 6z4x6s

ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES PVT. LTD.

Exam No.: MBA08004034

Roll No: 34

KARNATAKA

UNIVERSITY DHARWAD

Shri. B.V.V.Sangha’s INSTITUTE OF MANAGEMENT STUDIE’S, BAGALKOT

2008-2009 PROJECT TITLE

“ANALYSIS OF WORKING CAPITAL MANAGEMENT AT DIVGI INDUSTRIES PVT. LTD.” SIRSI

Internal Guide: Prof. Keshav .M. Kulkarni

External Guide: Mr. Deepak Pavaskar

SUBMITTED BY Prateek .L. Siddapur Babasabpatilfreepptmba.com

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DECLARATION I hereby declare that the Report on In-plant Training undergone at M/S DIVGI INDUSTRY PVT. LTD SIRSI, has been prepared by me under the supervision and guidance of Prof. Keshav. M. Kulkarni. lecture of Basaveshwara Institute of Management Studies Bagalkot and now being submitted to KARANNATAK UNIVERSITY DHARWAD in partial fulfillment of the university regulations for the award of the degree of MBA. I further declare that this report is based on the inplant training Undergone by me and has not formed a basis for the award of any degree of KARANNATAK UNIVERSITY DHARWAD or any other university.

Place: Bagalkot

Signature: Name: Prateek L.S

Date: Reg No: MBA08004034

Babasabpatilfreepptmba.com

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ACKNOWLEDGEMENT My self Prateek .L. Siddapur II semester of MBA course in Shri B.V.V sangh’s institute of management studies Bagalkot, wish to express my deep sence of gratitude to all the individuals who have guided me, to successfully complete this report. I express my sincere and genuine thanks to Mr. Deepak Pavaskar (FINANCE Deparment) and Mr. Raghevendra Nayak (Production Deparment), DIVGI INDUSTRY PVT. LTD SIRSI, for imparting relevant information and extending full at all stages of Inplant Training. I am very much thankful to our beloved Director Dr.Y.B Pattanshetty sir. And I express my profound and sincere thanks to my internal guide, Prof. Keshav .M. Kulkarni. lecture of Shri B.V.V sangh’s Institute of Management Studies Bagalkot. Whose guidance, induced concentration; timely suggestion and encouragement helped me to complete this Inplant training successfully. Finally, I thanks all My Faculty , Teaching and Nonteaching staff of

B.V.V Sangha’s Institute of Management Studies

Bagalkot . and My Parents for helping and encouraging me during the period of my project work. Place: Bagalkot Date: Babasabpatilfreepptmba.com

(Prateek.L.S) (MBA08004034) 3


CONTENTS SL.NO

TITLE

PAGE NO

01

EXICUTIVE SUMMARY

05-10

02

INDUSTRY PROFILE

11-12

03

COMPANY PROFILE

13-15

04

PRODUCT PROFILE

16-20

05

WORK FLOW MODEL

21-22

06

MCKINSEY’S 7S FRAMEWORK

23-48

07

SWOT ANALYSIS

49-52

08

ANALYSIS AND INTERPRETATION

53-69

09

RATIO ANALYSIS

70-79

10

FINDINGS

80

11

SUGGESTIONANDRECOMMENDATION

81

12

CONCLUSION

82

13

BIBLOGRAPH

83


4


Executive Summary Introduction: One of the important areas in the day-to-day management of the affairs of a firm is the management of Working Capital. Working Capital is used for financing day-to-day business operations. An organization whether it is manufacturing or trading, requires adequate funds for acquiring the stock of materials, marketable securities, stores materials etc., apart from land, building, machinery furniture etc. The funds invested in current assets such as, stock of materials work in process, investments, bills receivables, debtors, bank balance etc., is known as Working Capital. Success or otherwise of any enterprise depends upon efficient management of working capital and hence, working capital is often described as “life-blood of business” In simple , all current assets used in daily operations represent working capital. Current assets are cash or near cash resources. Working Capital is also known as Circulating or revolving capital, because the current assets are of nature of circulation. They keep on moving from one form to another. For example, cash is used for purchasing merchandise which then takes the form of stock-in-trade or inventories, when the inventories are sold out cash or debtors are created, when debtors are collected cash is accumulated and this process continues. Thus, its flow is circular in nature. In, ing Working Capital is taken to mean the difference between current assets and current liabilities.


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Objectives of the Study: 1.

To know the financial position of the company access.

2.

To assess the financial strengths and weakness of the company

to give valuable suggestions to attain operational excellence. 3.

To study the importance of Working Capital Management in a

manufacturing concern. 4.

To study and evaluate the present Cash Management system of

the company.

Methodology of Data Collection Research methodology is a systematic way for solving any research problem. It’s a science of analyzing how research is done scientifically. It studies the various steps that are generally adopted by a researcher in studying the research problem.

Sources of Data: There are 2 types of data: 1.

Primary Data

2.

Secondary Data


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Primary Data The primary data are those which are collected fresh for the first time and thus happen to be original in character. The primary data collection involves the collecting of information for the first time by observation, experimentation, questionnaire and through interview schedule in the original form by the researcher himself or his nominees. Plan of action: The primary data was collected through discussion with the finance manager using the interview schedule. This data was obtained to study the latest procedures relating to working capital management and cash management system followed by the company.

Secondary Data The secondary data are those which have been collected by some other and which have been processed. Generally speaking secondary data are information, which have been previously collected by some organization to satisfy its own need. But the department under reference for an entirely different reason is using it. There are two main sources for Secondary Data: 

Published Data: Data that is already available in books, magazines,

trade journals, newspapers, reports, prepared by research scholar etc. 

Unpublished Data: This is not published; it can be found in unpublished

biographies, autobiographies, some governmental

aspects

and private

individual organizations etc. Babasabpatilfreepptmba.com

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The Secondary data used in the study are: o

Annual Report of the company.

o

Published financial reports of the company.

o

Financial records and stores manual of the company.

o

Directors reports, auditors report and other schedules.

Limitations of the Study: 

The span of study is confined to only 5 years. The comparison of various

ratios may not have the same conditions, which may result in unrelated comparisons. 

DIPL depends completely on Divgi Warner Pvt. Ltd (Pune) for

procurement of raw materials & supply of finished goods. Hence the Working Capital Inventory management techniques have to be adjusted on a timely basis, based on DWPL’s needs. 

In this project report the Working Capital Management & Cash

Management system followed during the time of doing the project is recorded and analyzed.

Need and Importance of Working Capital: To fulfill its endeavor to maximize the shareholder’s wealth, firm has to earn sufficient return from its operations, which needs a successful sales activity. The firm has to invest sufficient funds in current asset to succeed in sales, as the sales do not convert into cash instantaneously because of time gap between the sale of goods and actual receipt in cash. Babasabpatilfreepptmba.com

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Hence there is a need for Working Capital in the form of current assets to sustain sales activity during that period.

Findings: 1.

View of financial position: The Company was incorporated in the year

2000, its actual commercial work started in the year 2003 April 1st.The Company had not started any business, so there is no question of profit from the year 2000 to 2003. But however as a first step towards the commencement of commercial activity the company has taken over the business of timing gear blanker on April 2003. 2.

In 2003-04 the Company started commercial activity by acquiring the

building, plant & machinery from Divgi Metal Ware Pvt. Ltd., on an annual lease of Rs.9,00,000/- plus taxes of Rs.51,750/-. Using these leased assets the company carried out job work for Divgi Warner Pvt. Ltd. After expenses the company made a modest profit of Rs.3,745/- before depreciation. 3.

The debtors component in the composition of current assets is the

highest. It was 87.77% in the year 2003-04, 79.38% in 2004-05, 73.63% in 2005-06, 70.87% in 2006-07 and 69.43% for the year 2007-08. It may be noted that debtors components in current assets is decreasing over the years. 4.

The cash and bank component for the year 2003-04 was 2.19%.it was

1.71% in 2004-05, 7.11% in 2005-06, 1.16% in 2006-07, 0.27% in 2007-08. The loans and advances component was 10.04% in the year 2003-04, 18.91% in 2004-05, 19.26%

2005-06, 27.97% in 2006-07, 30.30% in 2007-08. The

debtors component in the composition of current assets decrease the loans and advance component is on an increase. 5.

In the years 2003-04 and 2004-05, the company had a negative working

capital of Rs.1,35,169.09 and Rs.1,95,076.75 respectively which is not a favorable position to the company. Then in the year 2005-06, 2006-07 and Babasabpatilfreepptmba.com

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2007-08 the Net Working Capital has improved drastically to Rs.9,78,370.64 ,.Rs9,86,858.40, and Rs 35,02,104.84 respectively.

Suggestions and Recommendations: 1.

The Debtors component is the highest among the five years and it

amounted to nearly 76% of the total current assets. But the percentage has decreased over the year which is a good sign of improvement. The second highest element is the loans and advances component which has increased over the years because of the expansion programmes undertaken by the company. In the initial years the company had not maintained a considerable amount of cash and bank balances, but over the years the company is maintaining adequate cash so as to meet its immediate cash requirements. 2.

The working capital of the company should be always positive. It should

not be negative. In the years 2003-04 and 2004-05, the company had a negative working capital which is not a favorable position to the company. Then again in the year 2005-06, 2006-07, and 2007-08 DIPL’s net working capital has increased to Rs.9, 78,370.64, RS9,86,858.40, and Rs 35,02,104.84 which is a very positive sign of prosperity and it will help the company to sustain its expansion programmes. It also shows that the liquidity position of the company has improved. Hence there is much capital available with the company to pay off the current liabilities. 3.

In order to ensure liquidity and quick cash collection the company can go

for factoring technique, through which the company can get immediate cash for its s receivables and employ it in business and there by improve its profitability. Babasabpatilfreepptmba.com

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INDUSTRY PROFILE Indian Auto Components Industry: The Indian auto ancillary industry has come a long way since it had its small beginnings in the 1940s. If the evolution of the industry is traced in India, it can be classified into three distinct phases namely: Period prior to the entry of Maruti Udhyog Ltd, period after the entry of Maruti Udhyog Ltd and Period post Liberalization. The period prior to the entry of Maruti Udhyog Ltd was characterized by small number of auto majors like Hindustan Motors, Premier Automobiles, Telco, Bajaj, Mahindra & Mahindra, low technology and assured business for most of the auto component manufacturers. The entry of Maruti in the 1980’s marked the beginning of the second phase of the industry. The auto ancillary industry in the country really showed a spurt in growth during this period. This period witnessed the emergence of a new generation of auto ancillary manufacturers who were required to meet the stringent quality standard of Maruti’s Korean collaborator Suzuki of Japan. The good performance of Maruti resulted in an upswing for the domestic auto ancillary industry. It was during this period that auto components from India began to be exported. The entry of foreign automobile manufactures ranging from Mercedes Benz, Ford and General Motors to Daewoo following the government liberalizing the foreign investment limits saw the beginning of the third phase of the evolution of the industry. The auto ancillary industry witnessed huge capacity expansions and modernization initiatives in the post liberalization period. Technological collaborations and equity partnerships with world leaders in auto components became a common affair. However, the global Babasabpatilfreepptmba.com

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automobile majors soon realized the folly of their estimations in India. The market did not seem to be as big as it appeared to be. Hence, sales targets went away. The tough competitive scenario saw a lot of consolidation in the industry and it still continues unabated.

Global Scenario; Prior to 2000, it had been almost ten years since TTS (torq transfer systems) had been awarded any new transfer case business for the European market (Land Rover). Then concerted efforts were made to re-enter that market & attain new business with improved technologies such as high output transfer cases & Torsen Torque Differential technology which broadens the industries offering in the transfer case market place. In the global Scenario of transfer case industry there are significant differences between the American & European Markets. While the American car-buyer is primarily interested in traction & larger, more powerful vehicles, the European driver is more interested in vehicle handling, stability & safety. Therefore for their home markets, European auto makers are producing smaller, front wheel drive vehicles. But as the American car buyers are more interested in powerful engines the automakers are offering a wide range of SUV’s for which the Torq transfer System ( TTS) is particularly well suited making the 2 wheel drive into 4 wheel drive ( 4 x 4 ). The vehicles tend to be technically more sophisticated creating new market potential for TTS. Borg Warner & TTS (Torq Transfer Systems) The Company engineers work closely with the Drivetrain group in engineering strategy & provide many opportunities for collaboration & learning of TTS. TTS engineers frequently make customer presentations along with colleagues from TS. This collaboration allows the Company to talk about the company’s all-wheel drive products while TS engineers present other Drive train technologies that Borg Warner has to offer, including the very successful Dual Clutch Technology, which is generating much attention in Global Babasabpatilfreepptmba.com

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markets.Other Borg Warner business groups have helped to establish a great reputation for Borg Warner at the Global level. The company’s commitment to new technologies & new products for the automakers will help TTS become a future Product Leader in Auto industry.

Company Profile

Divgi Industries Private Limited (DIPL) is situated at Banavasi Road, Sirsi in North Kanara District of Karnataka State. It is a medium scale engineering industry of prestigious city SIRSI. DIPL was incorporated in the year 2000.Its actual commercial activities started in April 2003. Its ed office is in Sirsi (Karnataka). It is certified with ISO/TS 16949 quality system in 2005. Babasabpatilfreepptmba.com

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There is another industry in the campus of DIPL known as Divgi Warner Pvt. Ltd. (DWPL) which is a sister concern. Divgi Warner Private Limited was established in the year 1995 as a t venture company between Borg Warner Torq Transfer Systems USA, a global leader in automotive power technology with history going back over a hundred years & Divgi Metal Wares Limited, India. DIPL does the job work for DWPL. Actually buildings and machineries are taken on Lease basis from Divgi Metal Wares Pvt. Ltd. Raw materials come from DWPL (Pune) to DWPL (Sirsi). Again these raw materials supplied to DIPL from DWPL (Sirsi). After the job work is completed & the raw materials are converted into semi-finished products, it is again supplied to DWPL (Sirsi) & after some value addition works these products are sent to DWPL (Pune) for exporting it to Borg Warner (U.S.A.). It has following alliances for the product range. Alliance for -

4 WD technology & products.

•

Manual transmission technology & products.

•

Synchronizer technology & products They design & manufacture the auxiliary transfer cases (required for 4x4 vehicles) & components required for automotive torque transfer applications. The transfer case & the parts fit on the 4x4 vehicles & their products, end customer base covers-



Tata Motors



Mahindra & Mahindra The product range of DIPL includes turned Flange families, turned, hobbed, rolled, ground shafts and gear families used in auto transmission systems. The usage of their products on vehicle:



Transfer Case



ALH (automatic locking hub)



Companion Flange Families


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There are 120 employees working in DIPL. The workers have shift basis work with specified target. The company provides them with good salary, better facilities and motivational programs.

Vision: To be catalytic and innovative organization in the society that supplies goods and services that are of superior value to those who use them, create jobs that provide meaning for those who do them and offer our talents & wealth to help & reward all who invest in us their time money & trust.

Goals: To become India’s prominent & perfect technology & in crate based solution provide in automotive transmission & power train application for on & off highway usage to achieve world class standard in spheres of our business activities.

Mission: Our Mission is to assist our customer seek new frontiers of value for the continuously evolving needs of a globalizing market place in so doing, we seek to bring unique distinctive & superior value to those who use our products and services. We seek to provide our customers a continuous source of innovation by anticipating change & shaping it to our purpose.

Annual turnover of the company – For the year Babasabpatilfreepptmba.com

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2004-2005

90,88,000

2005-2006

1, 22, 60, 000

2006-2007

1, 33, 80,000

2007-2008

1, 70, 54,584

2008-2009

3, 00, 00,000

Board of Directors 

SHRI JITENDRA DIVGI.



SHRI HIRENDRA. DIVGI



SHRI BHARATH DIVGI.

Product Profile Divgi Industry Private Limited manufactures the spare components required transfer case. The raw materials are procured from Bhosari (Pune) and component parts are manufactured at DWPL (Sirsi) and they are assembled at DWPL (Pune).

Transfer Case: transfer case are used in 4*4 vehicles. It includes several items made up of steel. They include: Front Adapter: It is an item made up of aluminum. Babasabpatilfreepptmba.com

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Shafts: 1. Upper output Shafts. 2. Lower output Shafts.

Upper output shaft

lower output shaft

Yokes : The yokes are classified as single chorden and double chorden that are supplied to Mahindra & Mahindra and Tata motors. These are also exported to Borg Warner Torq Transfer Systems.


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Gear: These items include: 

Ring Gear



Sprocket drive



Sprocket driven



Hub Sleeve



Hub lock up



Collar lockup


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

Hub reduction



Clutch Gear



Planet penion Gear

Companion Flange:

Quality Objectives: 

To continually enhance customer satisfaction by monitoring the customer

satisfaction index. 

To improve productivity, achieve higher process capabilities with a focus

to achieve ZERO detect in all out business activities. 

To achieve OPTIMUM INVENTORY LEVELS through ON TIME

PROCUREMENT (JIT) of quality material at competitive prices. 

To improve the overall inventory effectiveness



To develop a motivated, committed and effective team by providing the

necessary resources, good training programs and a congenial atmosphere for overall growth of the employees. . . Types of Transfer Case: 

Mechanical Shift Transfer Case


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

Electrical Shift TC Features and Benefits of Mechanical Shift Transfer Case and Electric Shift Transfer Case: Part-time System: - Allows driver to select two or four wheel operation. Light Weight Construction: - Reduces total vehicle weight to enhance fuel use efficiency. Upper Disconnect to Chain: - Stops unnecessary parasitic losses in two wheel drive. Positive Displacement to Oil Pump and Filter: - Assures full liberation when driving or towing. Reduces maintenance needs. Helical Gearing: - Delivers quiet, low range operation. Four-wheel Drive Indicator Light Switch: - Indicates four wheel drive mode for driver convenience.

Single lever Shift Control: - Simplifies selection of transfer case operating modes. Electromagnetic shift on the fly (optional): - Provides smooth engagement of four wheel drive at highway speeds.

Functions of Transfer Case:



To convert 2 x 2 drive into 4 x 4 drive



To amplify Torque

AREA OF OPERATION Babasabpatilfreepptmba.com

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The area of operation of DIPL is done in DIVGI WARNER PRIVATE LTD, which caters to domestic, and global customer base includes: Auto Alliance (thailand) Ford (usa) Hyudai (japan) Great wall (china) General motors (usa). Domestic customers Mahindra & Mahindra Tata motors Telco.

OWNERSHIP PATTERN DIVGI Industries is a VENDOR company which is owned by share holders of the same company with a number of shares rupees 49, 53,000 (equity shares rupee 100 each)

COMPETITORS INFORMATION There are no competitors to DIPL as it does only job work for DWPL as it does not undertake a trading or marketing activity.

ACHIEVEMENT/AWARD DIPL is awarded with ISO/TS-16949-Quality certificate in the year 2002.For every 3 year it should be recertified. Recently it is recertified in the year 2009. Babasabpatilfreepptmba.com

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Work Flow Model

CAD Order specification

DWPL DW

Order

Material

DIPL MDT

DESIGN PRODN DEPT

WASTE TO SCARP

Material Design

FINAL INSPECTIO N

Business Process Approach: The various business processes, their interaction & sequences are identified on the basis of nature of our business. Following business processes are performed in the organization, classified into various functions:Top Management: The MD of the company is CEO for the quality Management System. He is overall overseeing the overall growth of the company whereas day – to – day operations are looked upon by Plant Head.

Sales & Customer : This business process communicates with customer to identify customer requirements & assures customers in increasing Babasabpatilfreepptmba.com

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customer satisfaction by interacting with other business processes in the company. They give inputs to Engineering about customer needs of new / modified product / system requirements. This business process also s customer for line & warranty related issues. This activity is carried by Marketing Department. Product Design & Development: Engineering department is responsible for deg the product / part as per the customer requirement. The customer requirements are translated into the product realization plan through APQP (Advanced Product Quality Planning) steps. Product leader convinces multi disciplinary actions consisting of various business processes who act as a board of decisions for design activity planning. This business process ensures that company confirms to all the agreed customer requirements. .

McKinsey’s 7S Framework The 7S model is better known as McKinsey’s 7-S. This is because two persons who developed this model, Tom Peters & Robert Waterman, have been consultants to McKinsey & Co, at that time they published their 7-S model in their article “Structure in not organization “( 1980 ) & in their book “The Art of Japanese Management “(1981) “In search of Excellence “ ( 1982). The model starts on the precise that an organization is not just structure, but consist of 7 elements: Strategy, Structure, System, Style, Staff, Skill and Shared values. Babasabpatilfreepptmba.com

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Strategy :

Actions company plans in response to or anticipation of

changes in its external environment. Structure :

Basis for specialization & coordination influenced primarily by

strategy & by organization size and diversity. Systems :

Formal and informal procedures that the strategy and

Structure. Style :

The culture of the organization consists of 2 components:-


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Organization Culture: The dominant values and norms which develop

o

over time & become relatively

enduring features of

life.Management Style More a matter of what

organization

manager do than what they

say; how do a companies managers spend time? What are they focusing attention on?

Symbolism:

o

The

creation

and

maintenance

(or

sometimes

deconstruction) of meaning is a fundamental responsibility of mangers. Staff

:

The people / human resource management processes use to

develop mangers socialization processes, ways of shaping basic values of management cadre, ways of introducing young recruits to the Co., ways of helping to manage the career of employees. Skills

:

The distinctive competencies – what the company does best, ways

of expanding or shifting competencies.

Shared values : Guiding concepts, fundamental ideas around which a business is built – must be simple , usually stated at abstract level, have great meaning inside the organization even though outsiders may not see to understand them. The 7-S model is a valuable tool to initiate change processes & to give them direction. A helpful application is to determine the current state of each element and to compare this with the ideal state. Based on this it’s possible to develop action plan to achieve the intended state. Babasabpatilfreepptmba.com

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Application of McKinsey’s 7S:

STRUCTURE Organizations are economic & social entities in which a number of persons perform multifarious tasks in order to attain common goals. L. A. Allen defines an organization as “the process of identifying & grouping the work to be performed, defining & delegating responsibility & authority & establishing relationship for the purpose of enabling to people to work most effectively together in accomplishing objectives”. Organization

structure

can

be

designed

on

the

basis

of

departmentalization and relationships. Departmentalization is the process of dividing work of an organization into various units or departments. Relationship is the process of organization brings relationship among employees at different levels, materials, money & machines.


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FUNCTIONAL AREAS AT DIPL The various business processes, their interaction and sequences are identified on the nature of business. Following business processes are performed in the organization, classified into various function:1.Production, Planning and Control 2. Stores and Materials 3. Human Resource (HRD) Babasabpatilfreepptmba.com

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4. Quality System 5. Maintenance 6. Manufacturing 7. Quality Assurance 8. Finance and s

1. Production, Planning and Control Department This business process receives customer schedule details from marketing considering inventories at raw material, work-in-progress and finished goods, they prepare production plan is a base for manufacturing process. This business process also controls outsourcing of products/ processes. This process strives for 100% on time delivery performance of company. Responsibilities and Authorities of Production, Planning and control: 

Prepare dispatch plans / schedules based on scheduled requirements.



To-coporate with Bhosari ( Pune ) for the following:

o

Raw materials

o

Tooling / insert s

o

Mobilizing empty trays for material handling

o

Preparing dispatch schedule



Other requirements like consumables To organize inputs to Sirsi plant

such as: o

Trays or guards on machines

o

Displaying information at info center

o

Providing racks for storing various materials


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

Organizing dispatch co-ordination with individual engineer for component

for final inspection and further dispatch. 

To take the work-in progress statement for production material within the

plant. 

To negotiate and finalize rates for scrap (steel/aluminum) and take

approval from VP (operations). 

Development of new tools/ inserts and conduct trails for productivity

improvement with reducing the cost per component. Key Performance Indicators (KPI’s) Analysis: Manufacturing effectiveness: 

Work out standard man- hours



Work out available man-hours On Time delivery Work out dispatches against planned quantity split into three halves ( 1st to 10th , 11th to 20th , 21st to 31st .

2. Stores and Materials Department This business process procures raw material / products / consumables as per procurement plan based on production requirement schedule. They also procure indirect parts / products / consumables or services Babasabpatilfreepptmba.com 29


needed for all other processes. This business process receives and preserves the raw material till it is consumed during manufacturing. The two types of items under the stores department are: a.

Billable items

b.

Non- billable items

a.

Billable items Billable items are those, which are procured from outside sources. They include machine spares, gear parts, tool – holders, cutting tools, grinding mills and consumables.

b.

Non- billable items Non- billable items are the items, which are procured Bhosari (Pune). They include forging (shaft, flange), gear blanks, sun gear, ring gear, hub reduction, sprocket drive, sprocket driven, hub sleeve etc. The Key performance indicator of stores departments is Material Yield of month. Receipt of material and preparation of GRR (Goods received cum inspection report) Receive the material: The material from vendors/ suppliers / sub-contractors are received Check for correctness of received material Identification of received material Preparation of goods received cum inspection report. Storage and handling:



Arranging to store the semi-finished components in the respected

allocated areas.


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

Arrange to stores the consumables in allocated respective bins in the

racks 

Forgings issued to sub contractor for roughing operations are to be

unloaded. 

Ion forgings areas allocated in respective containers Preservation:



Check periodically once in three months i.e., quarterly for deterioration of

materials. 

Check for expiry date items etc, and prepare list of expiry date items

Dispatch of finish components: 

Collect details of components to be dispatched from daily standing

meeting with production, planning and control (PPC) department. 

Arrange for transit insurance; collect material return to stores (MRS) from

manufacturing department. 

Prepare non returnable delivery challan, while preparing the above

challan check for serial number, P.O. number, quantity, rate, amount and tempo details in which components are being loaded. 

Dispatch of components are made in dedicated trays and transported to

Pune in LCV (Light commercial vehicle). 

Arrange for loading in the vehicle such that no space is left between

trays to avoid transit damages.

The material yield of month is calculated as follows: Babasabpatilfreepptmba.com

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Total dispatches – Line rejection note + closing stock

x 100

Opening balance + receipts = Percentage of material yield for month Responsibilities and Authorities of Stores Department: •

To ensure packing / packing of finished products, being dispatched to

customers •

To maintain stocks of material while working towards minimizing the

inventory levels and maintaining “First in – First out” movements of materials. •

Ensure strict compliance of rules of government authorities, in excise,

octroi procedures. •

Maintain s of material

•

Ensure return of rejected material time to time and preparation of RGN

(rejected goods note). •

Preparation of GRR (Goods received cum inspection report) of receipt

material.

Procedure for Budget: In order to control the annual budget, the management has budget the expenses for each department. The Managing Director approves annual budget and it is responsibility to manage within the budget by the concerned head of the department. All head of the departments are empowered to manage their department budget. Implementation of annual budget procedure is as under:


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Every year in 1st week of January, each department is given headcount wise annual budget to s Department. HR department budgets, the expenses under the following heads: 1.

Training

2.

Housekeeping

3.

Vehicle maintenance

4.

Vehicle fuel

5.

Staff welfare

6.

Telecommunication

7.

Other expenses. Finance department puts up all department’s annual budget to managing director for review and final approval. After approval of Managing Director, Finance department informs the allocation of budget to each department head. The Finance department organizes a monthly review meeting, named as Budget Review Meeting.

3.Human Resource (HRD) This business process maintains the details of Human Resource. They help other business to acquire new personnel and improve competence of employees. This is done by way of effective training activity as per the needs specified by other business processes. Induction Training Programme At Divgi Warner Private Limited four days induction training programme is conducted for all new employees. All new employees must undergo an induction training programme. The purpose of induction training programme is to ensure that the new employee gets familiar with the company’s day -to-day operations.


33


Cleanliness of Premises: HOD (HR) ensures that premises are neat & clean. Any material available is neatly placed & duly identified. Any repairs to building & infrastructure required to fulfill product & manufacturing process needs are timely carried out. Any material is promptly removed. Every month, any deterioration in material is brought to notice of CEO for further actions Employee Training: I.

Basic Job Training

II.

General Training

III.

Further Training Basic Job Training: All employees will be trained in the operation of machinery & equipment specific to their function. Before using such machines or equipments, employees are to be informed of the hazards that are likely to occur. General Training: All employees will be briefed & receive training in the following: Accident prevention in the operation of machinery & equipment. Accident reporting Good Housekeeping Company safety, health & environment policy. Responsibilities under the current safety, health & environment legislation. Further Training: •

On – site emergency plan

•

Emergency Skills

•

Safety, health & environment audit


34


Performance Appraisal Once the employee is confirmed he shall be considered for an annual appraisal every year effective 1st of January. Appraisal will be based on his overall performance including attendance; sincerity to meet his pre agreed key performance areas & objectives. At the time of appraisal employee is required to give certain KPA’s (Key performance areas) for next year with specific targets. It is expected the employee shall monitor his KPA’s. Depending on performance of KPA’s employee will be considered for annual increments. Leave Policy: In order to control the absenteeism in day – to – day working and avoid unplanned leave, management has made certain rules and regulations as under Entitlement of Leave: Every employee other than managers and above will be granted, in each calendar year, the following leave. o

Earned Leave( E.L.) – 15 days

o

Casual leaves ( C.L.) – 10 days

o

Sick leave ( S.L.) – 5 days Leave for managers and, above will be as per the of appointment letters issued to individual employees.


35


Functions of HR Department: 

To organize necessary training programs



Assist HOD for human resource acquisition



Maintain all statutory requirements on time, as given out in Gazette

notification and government orders from time to time. This also involves compliance and renewal of various licenses under Factories Act, Minimum wages Act, Payment of wages Act, Workmen’s Compensation Act, Gratuity Act etc. 

Maintain records of employees including attendance, leave record and

training record. 

To collect training needs through skill matrix from various functions and

prepare training plan. 

Upkeep of factory premises.



Arranging and up keeping of company vehicles



Providing and maintaining a conducive atmosphere for work and

enhances performance of employees. 

Plan and arrange sports as a part of employee motivation.

Health and Safety Policy : It is the policy of Divgi Warner Limited to ensure as is reasonably practicable, the health, safety and welfare of all its employees, contractors and other persons who may be affected by its operations. The policy is applied equally, fairly and without exception. The company’s policy aims to achieve this by providing and maintaining places of work and equipment which are safe, by the


36


operation of system of work, which are free from risks to health and also provide suitable arrangements for the safety and protection of employees.

SkillS I - Informed – Training. L – Learned – Training Evaluation. U – Understand – Minor s from others. O – Operating – Independent. M – Master – Train to others. ISO 9001 certified and in May 2002, DIPL got TS (Technical Specification) – 16949 certification. Under Writers Laboratories Inc. has issued TS – 16949 certification to DIPL after assessing the firm’s quality system & finding it in compliance with ISO / TS 16949 : 2002.

4. Quality System It consists of four Quality Management Systems: a)

ISO-9001

b)

ISO-9002

c)

ISO-9003

d)

ISO-9004

ISO-9001 is given to those companies that will do deg as well as manufacturing, marketing and service. ISO-9002 is given to those companies that will do only manufacturing, marketing and service. ISO-9003 is given to those companies for servicing, calibration and testing. Babasabpatilfreepptmba.com

37


ISO-9004 is given only for service. It is vocabulary (guidelines for above systems).

After 1994 a new system was incorporated QS-9000. It consists of two sections. Section I includes basic segments of ISO series and Section II is customer specific requirements QS- 9000 is basically formed the big 3’s viz., General Motors, Chrysler, Ford and other manufactures. Later in 2000 they formed TS-16949 and the latest updation is of version TS16949, 2002 the fundamentals for this system is ISO- 9001, 2000 and ISO9004, 2000. Why go for TS-16949? TS-16949 is a license for doing business with the customers and implementation of TS-16949 develops a common understating of quality related expectations, methods

and practices with the customers. The

common understanding and assurance it brings leads to: 

Simplifying many different detailed decisions and work methods in

managing and continually improving quality 

Motivating and empowering people to take

action

to improve

effectiveness and efficiency of their work processes in disciplined way. 

Co-coordinating the actions of different people in an efficient way to give

customers a defect and hassle free experience.

TS-16949 standard belief:


38


TS-16949 is a quality management system that helps us continually improve the effectiveness and efficiency of our processes for products and services to our customers by emphasizing. •

Defect prevention

•

Reduction in variation and waste in our supply chain.

Functions of Quality System: 

To co-ordinate the (APQP) advanced production quality planning

meeting. 

To maintain the distribution control of quality system documents



Execute IQA’s ( Internal quality audits) as per plan



Maintain IQA ( Internal Quality audit ) reports and analyze the findings

and monitor the target dates of action 

Arrange for plant level operation review meeting



Maintain relevant quality system records.

5. Maintenance Department The Maintenance Department is concerned with the Maintenance of machines utilities like air compressor, diesel generator set, and IT equipments like computer fax machines, scanner and printers. There are three type of Maintenance : a.

Breakdown Maintenance

b.

Preventive Maintenance

c.

Predictive Maintenance


39


a). Breakdown Maintenance: In the case of breakdown maintenance the machines are attended only when the process has stopped or after the breakdown.

b). Preventive Maintenance In the case of preventive maintenance machines are maintained in such a way to prevent occurrence by regular inspection, cleaning, greasing etc, as the case may be. c). Predictive Maintenance Predictive Maintenance is where the life of each spare part is determined and at the end of the period spare part is replaced with new one whether it is damaged or not. Maintenance schedule are prepared on monthly, quarterly, semiquarterly and yearly basis.

Functions of Maintenance Department: 

To identify key process equipments



To rectify day- to –day breakdown of the equipments



To plan and procure the spare parts equipments Maintenance



To maintain and update all records related to breakdown/ calibration/

installation and commissioning / retrofitting/ spare parts etc. 

Provide adequate to organization by keeping the equipments

under proper working condition, to qualitative and cost effective manufacturing of products. 

Design

and

implement

an

effective

preventive

and

predictive

maintenance system so as to keep high uptime for equipment Babasabpatilfreepptmba.com

40




Recondition old equipments to effectively maintain machine capability

and retrofit the new technology to enable more effective capital deployment for minimizing unscheduled downtime and maintain machine capability.

6. Manufacturing Department This business process manufactures product as per production orders released by planning. They follow the entire standard, i.e. quality and process to realize the products. They assist manufacturing engineering to establish the new manufacturing process. They develop various job/ work instructions to guide operations to perform better and better. They plan and accomplish manufacturing of products so that customer requirements are fulfilled. This business process ensures maintenance of manufacturing fixtures and tooling required for product realization. Monitoring and Measurement of Manufacturing processes: 1.

During initial process approvals, the new processes are studied with the

help of PFMEA (Process Failure Mode Effective Analysis) to establish process controls to achieve process capability. The results o such process studies are documented in PFMEA ( Process Failure Mode Effective Analysis) and developed to further documents like process plans, maintenance check sheet’s tooling manual. These documents also contain acceptance criteria of relevant process parameters. 2.

We

achieve

and

maintain

manufacturing

process

performance

capabilities, functional heads of manufacturing and quality assurance ensure that PFD (Process Flow Diagram), (control Plan), process plan when acceptance criteria is not met with. 3.

Significant process events such as tool change, machine repair etc. are

recorded in process monitoring charts. Babasabpatilfreepptmba.com

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4.

100% inspection of products is done at stages for critical special

characteristics whenever process becomes unstable or process capability is lower then target. For other characteristics 100% inspection decision is taken depending upon making on further process in house or customer end, results are recorded in inspection reports.

Functions of Manufacturing Department: 

To identify the tooling resources.



To identify process special characteristics as per (production part

approval process) PPAP and company procedures. 

To prepare process maintaining and operator instructions



To Identity manpower requirements



To maintain the process control in manufacturing



Provide smooth flow of production as per schedule, under the overall

guidance of plant in charge. 

Execution of development activity by participating in APQP (Advanced

Production Quality Planning) System. 

Optimize utilization of manpower and machines as per production plan.



Ensure safety and cleanness of plant and machine.



Plan and procure jigs, fixtures and tooling required for production

function. 

Maintaining and updating all records related to process charge.



Co-ordinate with other works functionaries to ensure effective on going

production 

Work towards zero defect production system with the help of

predestinated process. 

Adoption of new technology for manufacturing process to improve the

quality and cost effectiveness. Babasabpatilfreepptmba.com

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7. Quality Assurance Quality Assurance is given for finished products. For every machine Quality audit report is prepared and certain observations are noted down. Statistical process control is carried out by once in 15 days. It is an important tool in the machine shop. Different products/ processes are evaluated through audits and feed back is given to the manufacturing management for further improvements.

Function of Quality Assurance: 

To identify the acceptance criteria of receipt stage ( for attribute

characteristics visual inspection ) 

To prepare receipt and final product Quality plan.



To maintain all inspection and test records.



To select appropriate IMTE (Instrument Measuring Test Equipment) and

calibrate all IMTE at prescribed interval. 

To maintain all calibration records.



To prepare and execute plan.



Ensure non- confirming products are not supplied to customers and also

ensure proper identification at all stages of manufacturing. 

Verification and control of PPAP (Production Part Approval Process)

reports and samples. Babasabpatilfreepptmba.com

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

Analyze monthly rejection data on LRN ( Line Rejection Note ) Basis



Ensure

calibrated

and

capable

inspection,

measuring

and

test

equipments are available for accurate evaluation of products. 

Evaluate different products/ processes through audits and give

to manufacturing/ management for improvements. 

Ensure planning for product quality from “Development stage”. APQP

(Advanced Production Quality Planning), with the use of proper gauging and process control techniques.

8. Finance and s Department: Finance is essential component of the business. To maintain this effectively a specialized department is there i.e. Finance Department. This department is concerned with the day to day financial activities like consumable purchase, sale, payments, receipts etc. It properly manages the s of concerned year. Functions: 

Cash handling –petty cash handlings



Bank transactions – cash withdrawals, maintaining record of bank

balance, details of check payments. 

Preparation of statements for funds requirements of the month including

statutory and supplier payments. 

Recording of all the transactions in the books of s



Preparation of cash flow statement budget.

.

SKILLS The skills required for every level in the organization are well defined through a skill matrix exhaustively. For example in the stores department the Babasabpatilfreepptmba.com 44


skills identified by Manager are – communication skills, negotiation skills, interpersonal skills, Managerial skills, computational skills and problem solving skills. A team of top management assesses these skills through a competency matrix & training needs are recommended by the respective section heads in order to improve the weak areas. For top management, wherever necessary the company employs outside agencies to assess the skills & competency levels. Training is given to the identified employees in all the levels in house, outside as well as on – job.

STYLE The organization style of management can be described as to participative in nature at various levels. 

Every day representatives from the all the departments meet together &

discuss the progress of the jobs & any difficulties faced. Decisions to solve the bottlenecks are taken & time frames are fixed with specific responsibilities to the person of related department. However the management gives all the to sole the problem. 

On a weekly basis the progress of the job is reviewed by the section

heads, which is chaired by the head of the plant. Major decisions related to project status, customer readiness, site condition, status of the component parts etc. shall be discussed & appropriate decisions are taken. 

Employees are treated in a most friendly way rather than boss –

subordinate way & suggestions are taken from all the level for improving the process however trivial it may be. 

Top management always encourages changes for betterment of the

organization. The staff is also given continual training to cope up with the changing scenario & to keep their skills abreast with the latest technology & methods. Babasabpatilfreepptmba.com

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

Apart from regular official work, the employees participate in various

recreational activities during festivals by organizing sports, competitions etc. 

The success of the organization is attributed to each & every person &

not a single key person as DWPL gives importance to the efforts of the entire staff.

STRATEGY The company has adopted the strategy of ‘Continual Improvement’. Continual improvement is a way of life and part of DIPL’s culture. It is comprehensive & all encoming system of methods & practices based on continuous learning to achieve greater effectiveness & efficiency of the business processes. It is driven by a close understanding of our customers to give them a defect & hassle free experience, disciplined use of facts, data & analysis and diligent business processes to reduce variation & waste. Continual Improvement helps to: 

Continually improve the effectiveness and efficiency of the organization’s

processes for its products and services 

Enhance Customer Satisfaction by emphasizing the fundamental

principle of : -

Defect Prevention

-

Reduction of variation and waste in Supply chain.

SYSTEM Babasabpatilfreepptmba.com

46


System followed by DIPL to Improve the Work Place - JAPANESE 5S 5S is a system of steps and procedures that can be used by individuals and teams to arrange work areas in the manner to optimize performance, comfort, safety and cleanliness. '5S' driven workplace enhances productivity and competitiveness and fosters a productivity culture through a continual process of identifying, reducing and eliminating Waste.'5S' helps:

•

Identify, Reduce and Eliminate Waste

•

Organized & World Class Workplace Enhancement in Productivity &

Competitiveness •

Better Living and improved work life

•

“5S'' is a tool with Japanese roots, focused on fostering and sustaining

high quality house keeping, Safety (preventing accidents). Quality (preventing errors) and equipment maintenance (reduction in

•

breakdowns). •

Safety (preventing accidents),

•

Inculcates in the employees a mentality for continuous improvement. “A place for every thing and every thing in its place.” JAPAN

TRANSLATION

ENGLISH WORD

Seivi

Organization

Sorting

Seiton

Neatness

Simplifying Access

Seiso

Cleaning

Sweeping

Seiketsu

Standardization

Standardization

Shitsuke

Discipline

Self Discipline


47


•

Seiri : Sorting out - "When in doubt, throw it out"

•

Seiton : Systematic Arrangement Straighten - Everything has a place,

everything in its place •

Seiso : Spic and Span Scrub - Clean it up

•

Seiketsu : Standardizing- Stabilize - Standardized cleaning and

housekeeping Shitsuke : Self-discipline -Sustain - Make it a way of life .

•

''5S'' is the beginning of a productive life for everyone in DWPL and is fundamental to productivity improvement. A clean, organized and systematic workplace directly impacts Waste and thus impacts Productivity, Quality, Costs and other factors.’5S’is a time tested and proven approach (infact a stepping stone) to achieving World-Class status.

STAFF The staff of DIPL – Top, middle and lower management have nurtured following qualification thereby being able to meet the expectations of their valuable customers.



Quality: DIPL staff maintains professional attitude among all employees.



Line & Staff Relationship: Line refers to those positions of an organization, which have

responsibility, authority and is able for accomplishment of primary objectives. The relationship existing between two managers due to delegations of authority and responsibility and giving or receiving instructions Babasabpatilfreepptmba.com

48


or orders is called line relationship. Line authority represents uninterrupted series of authority and responsibility delegating down the management hierarchy. DIPL has adopted Line & Staff organizational structure that offers individual the opportunity to meaningfully learn & participate across diverse business processes. The Managing Director of this company is CEO for the Quality Management System. He is overall in-charge overseeing the overall growth of the company, whereas plant heads look after day -to -day activities. The business process heads, as shown in overall organization chart, are treated as top management to establish, implement, maintain & continually improve effectiveness of Quality management to establish, implement, maintain & continually improve effectiveness of Quality Management System. The Deputy General Manager follows the Managing Director. The team leaders of various departments report to the Deputy General Manager.

SHARED VALUES Organization Purpose: 

To pursue excellence in all spheres of our business activity

through a process of continual improvement 

To produce detect – and hassle free quality products &

services to meet or exceed customer expectations. 

To attain leadership in the market.



Commitment to high standards of motivation & competency

that is essential to the persuit of excellence. Babasabpatilfreepptmba.com

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The company is achieving its objectives through Key Performance Indicators (KPI’s). Top management has defined measurable KPI’s for each business process which are also Quality objectives for the company. Each business process owner utilizes Multi-disciplinary action approach to measure and analyze the data & information to arrive at a action plan which is implemented & reviewed every month. This monthly review also serves as one activity to improve & maintain internal communication. These KPI’s are for overall functioning of business processes. Quality objectives are deployed within the organization through KPI’s. While defining KPI’s company ensures that all KPI’s are: S

-

Specific

M

-

Measurable

A

-

Achievable

R

-

Realistic

T

-

Time Bound

The status of KPI’s is shared within the team for sustaining or improving the performance. The status of KPI with the action plan is shared with the management in various forums, which range from weekly to quarterly forums.

SWOT Analysis Strengths of DIPL: The quality management system is in Corporate Culture: DIPL are committed to customer satisfaction at all levels in the organization. DIPL has Quality Assurance and QMS departments where in all Babasabpatilfreepptmba.com 50


the queries, difficulties or any type of assistance required by customer is taken care. The issues relating to customer complaints, resolutions, corrective actions etc., suggestions by customers for improvement in processes / products are discussed on weekly basis and actions are initiated to resolve the problems. DIPL provides total transparency in dealing with its customers and are committed to enhance their capabilities, by providing them with latest technological advantage and utilizing maximum capacity to meet their requirements. They process the knowledge and the technology that is relevant to the products being designed, manufactured and supplied. Company has On-line communication system, capable to be linked with customer’s On-line system. 

line with QS-TS-16949 certification, which can achieve a good

market for its product at global level. 

The company has adopted Continual Improvement philosophy,

which helps to achieve greater effectiveness & efficiency in all the business processes. 

Customer complaints are systematically handled through team

– oriented problem solving 8 – D methodology for internal as well as external concerns. 

There is well- designed automation & workstation near every

machine, which are operator friendly. 

There is teamwork among the employees in the company.



Each process (activity) is measured for effectiveness &

efficiency to meet quality objectives. Competency to adopt new system, implementation, practice & sustenance. 

Most of the workforce comprises of well informed, competent

youngsters qualified with diploma or graduation in engineering. Babasabpatilfreepptmba.com

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Global Scenario: 

Divgi is one among the world – class competitors at global level.



DIPL works with world’s best logistics agencies to bring unbeatable value

& supply chain management capabilities from India to right at your door step across the globe. 

Packaging developed to minimize dunnage at assembly plants while

protecting materials in transit to any part of world.

\ Weakness of DIPL: 1.

DIPL is situated in a remote place or area, which is far away from

metropolitan cities, and it is not connected with national or state highways. 2.

The lack of connectivity with proper roads & highways leads to the

problem of procuring inputs & delivery of outputs. 3.

There is transportation problem because Sirsi is a hilly region above sea

level so there is no facility of railways, which is the faster means of transportation than roadways. 4.

The company hires employees on contract basis, which makes rigorous

training essential.

Opportunities at DIPL: 1.

There is a scope for making final products instead of component parts

and make it available for profit & loss.


52


2.

There is an opportunity for making future expansion in business by going

for t ventures & tie-ups with other company’s also. 3.

The company provides various employment opportunities to new

graduates & local people of Sirsi. 4.

By adopting QMS – ISO 14001, the next aim of the company is to

“Deming Award” of certified by Japanese, which is given for quality management systems. 5.

The vast area of land & space of building can be effectively used for

future expansions.

Threats of DIPL: DIPL, Sirsi mainly depends on the parent company i.e. DWPL,Sirsi and Pune. The parent may change its base of manufacturing for marketing its products outside India. The major raw material used in the production is steel, presently there is a huge demand for steel & there is rise in the price of steel for last few years in India & all over the world. The rise in the input cost will reduce the margin of the company. There is always a risk of change in Government Policies.


53


Title of the Study: “A Study on Working Capital Management with reference to Divgi Industries Private Ltd. SIRSI.”

Working Capital Management Definition: Working Capital Management is defined as, “a process of determining quantum of current of assets to be held at a right time, so as to discharge current liabilities and thereby utilizing them to their maximum extent, and at the same time increasing over all value of the firm keeping the liquidity position intact. Working capital management is the functional area of finance. It involves the formulation of policies for managing the current assets and current liabilities so as to maximize the benefits arising there from. Management of working capital involves deciding upon the amount and composition of current assets and tapping proper sources of finance for acquiring current assets. Hence proper management of working capital ensures adequate investments in current assets avoiding the possible losses arising out of deficit or excess funds. Babasabpatilfreepptmba.com

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Objectives of the Study: 1.

To know the financial position of the company access.

2.

To assess the financial strengths and weakness of the company

to give valuable suggestions to attain operational excellence. 3.

To study the importance of Working Capital Management in a

manufacturing concern. 4.

To study and evaluate the present Cash Management system of

the company. 5.

To suggest strategies to improve the liquidity position of the

company.

Methodology of Data Collection Research methodology is a systematic way for solving any research problem. It’s a science of analyzing how research is done scientifically. It studies the various steps that are generally adopted by a researcher in studying the research problem. Sources of Data: There are 2 types of data: 1.

Primary Data

2.

Secondary Data

Primary Data The primary data are those which are collected fresh for the first time and thus happen to be original in character. The primary data collection involves the collecting of information for the first time by observation, experimentation, questionnaire and through interview schedule in the original form by the researcher himself or his nominees. Babasabpatilfreepptmba.com

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Plan of action: The primary data was collected through discussion with the finance manager using the interview schedule. This data was obtained to study the latest procedures relating to working capital management and cash management system followed by the company. Secondary Data The secondary data are those which have been collected by some other and which have been processed. Generally speaking secondary data are information, which have been previously collected by some organization to satisfy its own need. But the department under reference for an entirely different reason is using it.

There are two main sources for Secondary Data: 

Published Data: Data that is already available in books, magazines,

trade journals, newspapers, reports, prepared by research scholar etc. 

Unpublished Data: This is not published; it can be found in unpublished

biographies, autobiographies, some governmental

aspects

and private

individual organizations etc. The Secondary data used in the study are: 1. Annual Report of the company. 2. Published financial reports of the company. 3. Financial records and stores manual of the company. 4. Directors reports, auditors report and other schedules.

Statement of the Problem: Financial statements can provide valuable insights into a firm’s performance. Analysis of financial statements is useful for the company to evaluate its own performance and also it is of interest to lenders (short term as well as long term), investors, security analysts, managers and others. To Babasabpatilfreepptmba.com

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evaluate the effectiveness of operations and to determine its success an analyst has to combine quantitative results with qualitative factors. For instance a company’s current profitability may be low. However, because of actions initiated by the management like technology up gradation, t venture and collaboration with a foreign partner, etc. The prospects for better performance of the company in future may be bright. To fulfill its endeavor to maximize the shareholder’s wealth, firm has to earn sufficient return from its operations, which needs a successful sales activity. The firm has to invest sufficient funds in current asset to succeed in sales, as the sales do not convert into cash instantaneously because of time gap between the sale of goods and actual receipt in cash. Hence there is a need for Working Capital in the form of current assets to sustain sales activity during that period.

Limitations of the Study: 

The span of study is confined to only 5 years. The comparison



of various ratios may not have the same conditions, which may result in

unrelated comparisons.



DIPL depends completely on Divgi Warner Pvt. Ltd (Pune) for

procurement of raw materials & supply of finished goods. Hence the Working Capital Inventory management techniques have to be adjusted on a timely basis, based on DWPL’s needs.


57




In this project report the Working Capital Management & Cash

Management system followed during the time of doing the project is recorded and analyzed.

Need and Importance of Working Capital: To fulfill its endeavor to maximize the shareholder’s wealth, firm has to earn sufficient return from its operations, which needs a successful sales activity. The firm has to invest sufficient funds in current asset to succeed in sales, as the sales do not convert into cash instantaneously because of time gap between the sale of goods and actual receipt in cash. Hence there is a need for Working Capital in the form of current assets to sustain sales activity during that period.

The need for Working Capital arises for following reasons: 

To purchase raw-materials, spare parts and other components



To pay wages and salaries and other charges



To meet over-head expenses



To pay selling and distribution expenses



To grant credit facility to customers



To hold adequate stock of raw-materials finished goods, spare parts,

etc. 

To provide for Contingencies.


58


Principles of Working Capital: 

Principle of Risk Assumption



Principle of Net Worth Position



Principle of Maturity of Payment



Principle of Cost of Capital

Classification of Working Capital: 1.

Gross Working Capital

2.

Net Working Capital

3.

Permanent Working Capital

4.

Temporary or Fluctuating Working Capital

5.

Negative Working Capital


59


1. Gross Working Capital: The gross working capital consists of total current assets. It provides the correct amount of working capital required at the right time. In financial management, the major thrust is upon the management of current assets. It tries to maximize return on investment by avoiding two extremes. Excessive investment in current assets simply reduces the profitability of an enterprise, since, the investment becomes idle. Whereas, inadequate working capital effects the solvency of the company negatively. 2. Net Working Capital: Net working capital is defined as the difference between current assets and current liabilities. A company has to give more importance to liquidity, because inability to pay short-term creditors may prove to be dangerous to the organization. Current assets should be sufficiently above the current liabilities low liquidity is harmful to the solvency of the company. 3. Permanent Working Capital: It refers to the current assets that are required to be maintained continuously throughout the year to carry on the business operations. In other words, it represents that part of the working capital which remains permanent in the business, in one form or the other in the same way as the fixed assets. For e.g. Cash or bank balance, stock-intrade to be maintained as minimum to carry on business operations at any time. 4. Temporary or Fluctuating Working Capital: It refers to the additional current assets required to meet the changing demands of an industrial or business enterprise caused by seasonal change. During peak season, a company requires additional funds to hold extra stock of goods. Thus, fluctuating working capital is not permanently locked up unlike the fixed working capital. It varies according to the changes in the volume of business caused by seasonal changes or any other factors. 5. Negative Working Capital: It refers to the deficit working capital. When the current liabilities exceed the current assets it is known as negative working Babasabpatilfreepptmba.com

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capital. Under this situation a firm actually suffers from the shortage of funds and is a sign of unhealthy developments in business. It results in damage to the reputation of a concern. Current Assets Current assets are those assets, which in the normal course of business, convertible into cash within a short period of time i.e. an ing year (or operating cycle) Components of Current Assets: 

Stock of materials in trade and in transit



Stores and spare parts



Bills of exchange



Loans and advances



Deposits



Cash and Bank bal



Investment in Govt. and other securities



Amount due from subsidiary Companies etc.



Prepaid expenses



Outstanding Incomes.

Current Liabilities Current Liabilities include all the obligations of the concern that are maturing within an ing year. Components of Current Liabilities: 

Sundry Creditors.



Loans from bank & others



Provision for taxation, dividend etc.



Liabilities towards gratuity etc



Outstanding expenses


61




Incomes received in advance.

Operating Cycle of Working Capital Operating cycle refers to the length of time involved between the sales & their actual realization in cash. In other words, it is the cycle time required in conversion of: a.

Cash to raw materials

b.

Raw materials to work in process

c.

Work in process to finished goods

d.

Finished goods to s Receivables(A / R)

e.

A / R to Cash

The operating cycle of DIPL is as follows: 

Purchase of resources such as Raw Material, labour, power and fuel etc.

with cash. 

Conversion of Raw Material into Work-in-Process into finished goods.



Sale of finished product either for cash or on credit. Credit sale create

book debts for collection. 

Conversion of book debt (s Receivables) into cash.

The operating cycle of DIPL may be diagrammatically shown as:

CASH

RAW MATERIAL

s

Work in

Receivables

Process


62


FINISHED GOODS

The above phases affect the cash flows. The cash inflows and cash outflows are neither synchronized nor certain. The firm needs to maintain liquidity to purchase raw material and pay expenses such as wages. Salaries other manufacturing and istration & selling expenses and taxes, as the cash outflows are certain. It surplus cash is available at any time in an intermediary state should be invested in short term securities without keeping it idle. Longer the duration of the operating cycle greater is the extent of working capital requirements. Generally, the operating cycle is lengthier in case of manufacturing industries. Operating Cycle with reference to DIPL may be calculated as follows: Operating Cycle = Inventory Period + A / R Period – s Payable Period. = 2 Days + 60 Days – 60 Days = 2 Days. Financial Sources for Working Capital The firm can finance its Working Capital needs from different sources of funds using different approaches. The sources of funds are categorized as:•

Long term financial sources

•

Short term financial sources

•

Spontaneous sources.


63


Long Term Financial Sources: Long term financial sources are sources through which funds are raised for a longer period of time i.e. more than 1 year. It is used mainly to finance permanent assets. Following are the long term financial sources: 

Equity Shares



Preference Shares



Debentures



Retained Earnings



Loans and advances from banks and specialized financial

institutions. 

Public Deposits

Short Term Financial Sources: Short term financial sources provide financial assistance for a shorter period of less that one year. The firm must arrange these sources in advance to meet day-to-day operational expenses. Following are the short term financial sources: 

Trade Credit



Customer’s Advance



Installment Credit



Discounting of bills



Bank Finance



Factoring

Spontaneous Sources: Spontaneous sources refer to the automatic or instant funds which arise in the regular courses of business operation. The major sources of such financing are trade credit & outstanding expenses.

Analysis of Gross Working Capital Babasabpatilfreepptmba.com

64


Concept: Gross working capital refers to the total current assets which include debtors, cash and bank balances and loans and advances. 2003-04

2004-05

2005-06

2006-07

2007-08

Debtors

20,35,974

15,17,190

23,88,962

24,83,950

33,12,312

Cash and

50,913

32,588

2,30,605

40,694

12,913

2,32,801

3,61,417

6,24,889

9,80,256

14,45,510

23,19,688

19,11,195

32,44,456

35,04.900

47,70,735

Bank balances Loans and Advances Total

Table 1: Composition of Gross Working Capital

Interpretation: The debtors balance has increased over the years which shows that lot of funds have been blocked up in the debtors and where the company needs to improve its credit policy. The cash and bank balances has increased considerably in the year 2005-06 which shows that the company is trying to maintain a good liquidity position. The gross working capital is increasing over the years mainly because of increase in the debtors and loans and advances. But in the year 2005-06 less than 75% of the gross working capital is made up by debtors which is a sign of improvement compared to the previous years.

NET WORKING CAPITAL Concept: Net working capital is the difference between current assets and current liabilities. Babasabpatilfreepptmba.com

65


Year

Current

Current

Networking

2003-04

Assets 23,19,688.84

Liabilities 24,54,857.93

Capital (1,35,169.09)

2004-05

19,11,194.6

21,06,271.35

(1,95,076.75)

2005-06

32,44,456.39

22,66,085.75

9,78,370.64

2006-07

35,04,899.10

25,18,040.70

9,86,858.40

2007-08

47,70,735.74

12,68,630.90

35,02,104.84

Table 2: Net Working Capital

Interpretation: In the years 2003-04 and 2004-05, DIPL had a negative working capital which is not a favorable position to the company. But in the year 2005-06, 2006-07 and 2007-08 the net working capital has improved drastically compared to previous years, which shows that the liquidity position of the company has improved. Hence there is much capital available with the company to pay off the current liabilities.

Statement of Changes in Working Capital for year 2003-04 Particulars Current Assets Debtors Divgi Warner Pvt. Ltd.

31.3.04 20,35,974.00


31.3.03

Increase 20,35,974.00

Decrease

66


Cash and Bank Balance Cash in Hand Sirsi Urban Co-op, Bank Sirsi Urban Co-op, Bank Loans and Advances Advance Modi Xerox Centre Divgi Metal Ware Pvt., Ltd. Pune Advanced Partnership in which directors are interested. Other Advances Electricity Deposit Advanced to Staff & Workers T.D.S. Total Current Liabilities Creditors for suppliers & services Creditors for outstanding expenses Total Net Working Capital (Current Asset – Current Liability)

40,022.87 8,980.00 1,910.17

4,686.00 85.00 -

35,336.87 8,895.00 1,910.17

5,340.00 26,093.00

5,340.00 26,093.00 76,619.00

66,890.00 42,486.00 91,992.00

48,170.00

18,720.00 42,486.00 91,992.00

23,19,688.84 2,41,654.00

20,78,034.80

21,40,125.93

1,55,912.0 0

19,84,213.93

3,14,732.00

3,03,471.00 11,261.00

24,54,857.93 1,67,173.00 (1,35,169.09)

22,87,684.93

74,481.00 (2,09,650.09)

Table 3: Statement of changes in Working Capital for the year 2003-04

Statement of Changes in Working Capital for year 2004-05 Particulars Current Assets Debtors Divgi Warner Pvt. Ltd. Babasabpatilfreepptmba.com

31.3.05 15,17,190.00

31.3.04 20,35,974.00

Increase

Decrease 5,13,784.00

67


Cash and Bank Balance Cash in Hand Sirsi Urban Co-op, Bank Sirsi Urban Co-op, Bank Loans and Advances Advance Modi Xerox Centre Divgi Metal Ware Pvt., Ltd. Pune Other Advances Electricity Deposit Advanced to Staff & Workers U.L. India Pvt. Ltd., Bangalore Gagni International, Hubli T.D.S. Total Current Liabilities Creditors for suppliers & services Creditors for outstanding expenses Total Networking Capital (Current Asset – Current Liability)

21,384.70 9,980.00 1,223.27

40,022.87 8,980.00 1,910.17

7,829.63

5,340.00 26,093.00

66,890.00 56,047.00 84,375.00 2,950.00 1,43,325.00

66,890.00 42,486.00 91,992.00

19,11,194.60

23,19,688.84

18,37,154.35

21,40,125.93 3,02,971.00

2,69,117.00

21,06,271.35

3,14,732.00

18,638.17 1,000.00 686.9

5,340.00 18,263.37

13,561.00 84,375.00 2,950.00 51,333.00

4,08,494.92

45,615.00

24,54,857.93 3,48,586.60

(1,95,076.75) (1,35,169.09)

59,907.66


Statement of Changes in Working Capital for year 2005-06 Particulars


31.3.06

31.3.05

Increase

Decrease

68


Current Assets Debtors Divgi Warner Pvt. Ltd.

23,88,962.60

15,17,190.00

8,594.89 980.00 1,96,272.87 24,757.00

21,384.70 9,980.00 1,223.27 -

7,829.63 2,62,003.4

7,829.63

23,618.00 68,775.00 2,62,663.00

66,890.00 56,047.00 84,375.00 2,950.00 1,43,325.00

Cash and Bank Balance Cash in Hand Sirsi Urban Co-op, Bank Sirsi Urban Co-op, Bank Vijaya Bank Loans and Advances DWPL, Pune DWPL, Sirsi Other Advances Electricity Deposit Advanced to Staff & Workers U.L. India Pvt. Ltd., Bangalore Gagni International, Hubli Prashant Tools Pvt. Ltd. T.D.S. Total Current Liabilities Creditors for suppliers & services Creditors for outstanding expenses Total

8,71,772.60

12,789.81 9,000.00 1,95,049.6 24,757.00

2,62,003.4 66,890.00 32,429.00 84,375.00 2,950.00 68,775.00 1,19,338.00

32,44,456.39

19,11,194.60 13,33,261.79

18,90,298.75

18,37,154.35

53,144.40

3,75,787.00

2,69,117.00

1,06,670.00

22,66,085.75

21,06,271.35

Net Working Capital (Current Asset – Current Liability)

1,59,814.4

9,78,370.64 (1,95,076.75) 11,73,447.39


Statement of Changes in Working Capital for year 2006-07 Babasabpatilfreepptmba.com

69


Particulars Current Assets Debtors Divgi Warner Pvt. Ltd. Cash and Bank Balance Cash in Hand Sirsi Urban Co-op, Bank Sirsi Urban Co-op, Bank Vijaya Bank kansur Vijaya Bank sirsi Loans and Advances DWPL, Pune DWPL, Sirsi Other Advances Advanced to Staff & Workers Prashant Tools Pvt. Ltd. T.D.S.

Total Current Liabilities Creditors for suppliers & services Creditors for outstanding expenses Total Net Working Capital (Current Asset – Current Liability)

31.3.07 31.3.06 24,83,949.50 23,88,962.60

12,489.59 1,680.00 999.98 24,646.00 878.00

8,594.89 980.00 1,96,272.87 24,757.00 ---

7,829.63 5,73,656.40

7,829.63 2,62,003.40

17,732.00

23,618.00

1,25,000.00 2,56,038. 00

68,775.00

Increase 94,986.90

Decrease

3894.70 700.00 1,95,272.89 111.00 878.00 3,1,653.00 5,886.00 56,225.00

2,62,663.00 -

6,625.00

35,04,899.10 32,44,456.39 2,60,442.71 21,08,000.45 18,90,298.75 4,10,040.25

2,17,701.70

3,75,787.00

34,253.25

25,18,040.70 22,66,085.75

2,51,954.95

9,86,858.40

9,78,370.64

8,487.76



70


Statement of Changes in Working Capital for year 2007-08 Particulars Current Assets Debtors Rediant Securities Service ,Pune Divgi Warner Pvt. Ltd. Sirsi

31.3.08

2,872.00

31.3.07

-----

Increase

2,872.00

33,09,440. 50

24,83,949. 50

3,787.23

12,489.59

1,680.00

1680.00

4,178.98 2,389.00 878.00

999.98 24.646.00 878.00

3,179.00

61,329.63 9,22,031.40

7,829.63 5,73,656.40

53,500.00 3.48,375.00

11,500.00

17,732.00

1,25,000.00 3,25,649.00

1,25,000.00 2,56,038.00

Cash and Bank Balance Cash in Hand Sirsi Urban Co-op, Bank Sirsi Urban Souharda Coop Bank Vijaya Bank Kansur Vijaya Bank Sirsi Loans and Advances DWPL, Pune DWPL, Sirsi Other Advances Advanced to Staff & Workers True Consultants Belgaum . T.D.S Total Current Liabilities Creditors for suppliers & services Creditors for outstanding exps


Decrease

8,25,491.00 8,702.36

22,257.00

6,232.00 69,611.00

47,70,735.74 35,04,899.10 12,65,836.64

7,25,630.65 21,08,000.45

4,52,690.20

5,43,000.25

1,32,960.00

4,10,040.25

71


Total Net Working Capital (Current Asset – Current Liability)

12,68,630.90 25,18,040.70 35,02,104.84

5,85,650.20

9,86,858.40 25,15,246.44


Interpretation: The working capital of the company should be always positive. It should not be negative. In the years 2003-04 and 2004-05, DIPL had a negative working capital which is not a favorable position to the company. It clearly shows that DIPL was a newly established company. So it was facing shortage of working capital in initial years, so it had to increase its working capital to stand in the business world. Then again in the year 2005-06, 2006-07 and 2007-08 DIPL’s net working capital has increased to Rs.9,78,370.64, Rs9,86,858.40 and Rs35,02,104.84 which is a very positive sign of prosperity and it will help DIPL to sustain its expansion programmes.

Ratio Analysis Ratio analysis is a widely accepted tool of financial analysis. It is defined as a systematic use of ratio to interpret the financial statements so that the strengths and weakness of the firm as well historical performance and current financial conditions can be determined. The term ratio refers to the numerical or quantitative relationship between two items or variables. Babasabpatilfreepptmba.com

72


Current Ratio Concept:

Current ratio is a measure of firm’s short term solvency i.e. its

ability to meet short term obligations. This ratio is also known as Working Capital ratio. The current ratio is the ratio of total current assets to total current liabilities. Current Assets Current Ratio

= Current Liabilities

Year

Current Assets

Current

Ratio

2003-04

23,19,688.84


0.95 : 1

2004-05

19,11,194.6

21,06,271.35

0.91 : 1

2005-06

32,44,456.39

22,66,085.75

1.43 : 1

2006-07

35,04,899.10

25,18,040.70

2007-08

47,70,735.74

12,68,630.90

1.39: 1 3.76: 1

Table 8: Current Ratio Interpretation: The Current Ratio was 0.95 for 2003-04 and decreased to 0.91 in the year 2004-05 and for 2005-06 the ratio increased to 1.43.and then decreased to1.39 in the year 2006-07 and for 2007-08 the ratio increased to 3.76. The current ratio has met the standard of 2:1 ratio and hence it can be said that there is enough working capital to meet the current liabilities. Hence it can be noted that steps have been taken to increase the current ratio in the previous financial years .so that enough working capital is available to meet the current obligation. Thus the liquidity position, as calculated by the current ratio, is improved in the financial year 2007-08. Babasabpatilfreepptmba.com

73


Absolute Liquidity Ratio Concept:

Absolute liquidity ratio is a ratio of cash in hand and at bank to

Current Liabilities. The standard ratio is 0.5: 1. Cash in hand + Cash at bank Absolute Liquidity Ratio = Current Liabilities Year

Cash

Current

Ratio

2003-04

50,913.04


0.021 : 1

2004-05

32,587.97

21,06,271.35

0.015 : 1

2005-06

2,30,604.76

22,66,085.75

0.102 : 1

2006-07

40,693.57

25,18,040.70

2007-08

12,913.21

12,68,630.90

0.016: 1 0.010: 1

Table 9: Absolute Liquidity Ratio

Interpretation: The absolute liquidity ratio was 0.021 for 2003-04 and decreased to 0.015 in the year 2004-05 and for the year 2005-06 the ratio increased to 0.102 and then in 2006-07 and 2007-08 the ratio decreased to 0.016 and 0.010 respectively. The absolute liquidity ratio is below the standard of 0.5:1. It shows that the liquidity position of the concern is not good. Hence adequate cash balance need to be maintained by the company.


74


Working Capital Turnover Ratio Concept:

This ratio indicates how efficiently the working capital of the firm is

being utilized. Sales / Income Working Capital Turnover Ratio = Net working Capital Year

Sales

Net

Working

2003-04

58,31,018.2

Capital (1,35,169.09)

(43.14)times

2004-05

90,88,657.33

(1,95,076.75)

(46.59)times

2005-06

1,22,61,058.8

9,78,370.64

12.5 times

2006-07

1,33,77,943.25

9,86,858.40

13.5 times

2007-08

1,71,49,248.50

35,02,104.84

Ratio

4.89 times

Table 10: Working Capital Turnover Ratio Interpretation: The working capital turnover ratio was negative for the years 2003-04 and 2004-05. in the year 2005-06 and 2006-07 it has increased to 12.5 times and 13.5 times respectively. But in the year 2007-08 it has considerably decreased to 4.89 times. Working capital turnover is the ability to generate sales per rupee of working capital. It should always be positive but in the initial years the ratio was negative which is not a favorable position to the company. For year 2005-06, 2006-07 the ratio has improved to12.5 times and 13-5 times But in the year 2007-08 it has decreased to 4.89 times which shows that the organization is not able to utilize its working capital full.


75


Debtors Turnover Ratio Concept:

Debtors are expected to be converted into cash over a short

period of time and therefore are included in current assets. It shows how many times debtors are converted into cash in a year. Net Credit Sales Debtors Turnover Ratio = Average Debtors Where, Average Debtors= opening Debtors + closing Debtors _____________________________ 2 Year

Credit Sales

Average Debtors

Ratio

2003-04

58,31,018.2

20,35,974

2.86 times

2004-05

90,88,657.33

17,76,582

5.12 times

2005-06

1,22,61,058.8

19,53,076.3

6.28 times

2006-07

1,33,77,943.25

24,36,456.05

5.49 times

2007-08

1,71,49,248.50

28,98,131.00

5.91 times

Table 11: Debtors Turnover Ratio Interpretation: The debtors turnover ratio was very less for the year 2003-04 at 2.86 times, it has increased to 5.12 and 6.28 times in the years 2004-05 and 200506. subsequently in the year 2006-07 it has decreased to 5.49 times. Again the debtors turn over ratio has increased 5.91 times in the year 2007-08. This shows that the company is making all the efforts to speed up the collection process. Babasabpatilfreepptmba.com

76


Debtors Conversion Period Concept:

Debtors are expected to be converted into cash over a short

period of time and therefore are included in current assets. It shows how many times debtors are turned over during the year. It is the number of days needed for debtors to get converted into cash.

No. of days in a year Debtors Conversion Period = Debtors turnover Ratio Year

Table 12: Debtors Conversion Period Debtors Turnover Debtors

2003-04

Ratio 2.86 times

Period 128 days

2004-05

5.12 times

71 days

2005-06

6.28 times

58 days

2006-07

5.49 times

66 days

2007-08

5.91 times

62 days

Conversion

Interpretation: The debtors conversion period was 128 days in the year 2003-04 and over the years it is improving by reducing debtors conversion period days it has significantly reduced from 128 days in the year 2003-04 to just 62 days in the current year 2007-08. The standard period of credit allowed is 30 days, if it is less than the standard it indicates the credit collection is efficient and if it is more, it indicates that its credit collection is inefficient. But in the case of DIPL, even though the debtors conversion period is falling short of the standard period. The company has shown that it is making all the efforts to speed up the collection period. Babasabpatilfreepptmba.com

77


Creditors Turnover Ratio Concept:

Creditors turnover ratio establishes relationship between net credit

purchases and average trade creditors and s payable. The ratio indicates the velocity with which the creditors are turned over in relation to purchases. The objective of computing this ratio is to determine the efficiency with which the creditors are managed.

Net Credit Purchases Creditors Turnover Ratio = Average Creditors Where, Average Creditors= opening creditors+ closing creditors ________________________________ 2

Year

Credit

Average

Ratio

Purchases 50,47,654.21

Creditors 13,11,015.5

3.85 times

2004-05

64,38,433.5

22,80,564.6

2.82 times

2005-06

1,02,27,956.31

20,49,057.25

4.99 times

2006-07

1,11,01,526.70

23,92,063.23

4.64 times

2007-08

1,37,46,031.96

18,93,335.80

7.26 times

2003-04

Table 13: Creditors Turnover Ratio


78


Interpretation: The creditors turnover ratio was 3.85 times in the year 2003-04 and then decreased to 2.82 times in the year 2004-05. In the year 2005-06 it increased to 4.99 times. Subsequently in the current financial year 2007-08 it has increased to 7.26 times. Generally lower the ratio better is the liquidity position of the firm and vice versa. But lower ratio also implies lesser discount facilities availed or higher prices paid for the goods purchased on credit. The creditors turnover ratio is important tool of analysis as a firm can reduce its requirement of current assets by relying on suppliers credit. From the above table it can be known that that the creditors turnover ratio in the current financial year 2007-08 is increased considerably over the previous year and hence the company’s liquidity position is not good in current years.

Average Collection Period Concept:

Average collection period is the period within which the creditors

are repaid. Higher the credit period enjoyed by the company from its creditors, higher will be the liquidity of the company. 365Days Average Collection Period = Creditors Turnover Ratio


79


Year

Table 14: Average Collection Period Creditors Turnover Conversion Period

2003-04

Ratio 3.85 times

95 Days

2004-05

2.82 times

129 Days

2005-06

4.99 times

73 Days

2006-07

4.64 times

79 Days

2007-08

7.26 times

50 Days

Interpretation: Generally higher the credit period enjoyed by the company better is their liquidity status. But the credit period has decreased in the current financial year 2007-08 to 50 days which shows that there is a prompt repayment to creditors

Current Asset Ratio Concept:

This ratio measures sales per rupee of investment in current

assets. This ratio measures the efficiency with which current assets are employed – a high ratio indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use of current assets. Net Sales Current Asset Ratio = Average Current Assets


80


Where, Average Current Assets = opening + closing _______________ 2

Year

Sales

Average

Current

Ratio

2003-04

58,31,018.2

Assets 12,80,671.42

4.55

2004-05

90,88,657.33

21,15,441.72

4.30

2005-06

1,22,61,058.8

25,77,825.5

4.76

2006-07

1,33,77,943.25

33,74,677.74

3.96

2007-08

1,71,49,248.50

41,37,817.42

4.14

Table 15: Current Asset Ratio Interpretation: The current asset ratio for the year 2003-04 was 4.55 and in 2004-05 it slightly decreased to 4.30 and in the year 2005-06 it has increased to 4.76. and then decreased to 3.96 in the year 2006-07. In the current year 2007-08 the ratio is slightly increased to 4.14. The current asset ratio shows the relationship between or elasticity of current assets to sales and it depicts how efficiently current assets are employed in an organization to boost the sales.


81


Findings: 1.

View of financial position: The Company was incorporated in the year

2000, its actual commercial work started in the year 2003 April 1st.The Company had not started any business, so there is no question of profit from the year 2000 to 2003. But however as a first step towards the commencement of commercial activity the company has taken over the business of timing gear blanker on April 2003. 2.

In 2003-04 the Company started commercial activity by acquiring the

building, plant & machinery from Divgi Metal Ware Pvt. Ltd., on an annual lease of Rs.9,00,000/- plus taxes of Rs.51,750/-. Using these leased assets the company carried out job work for Divgi Warner Pvt. Ltd. After expenses the company made a modest profit of Rs.3,745/- before depreciation. 3.

The debtors component in the composition of current assets is the

highest. It was 87.77% in the year 2003-04, 79.38% in 2004-05, 73.63% in 2005-06, 70.87% in 2006-07 and 69.43% for the year 2007-08. It may be noted that debtors components in current assets is decreasing over the years. 4.

The cash and bank component for the year 2003-04 was 2.19%.it was

1.71% in 2004-05, 7.11% in 2005-06, 1.16% in 2006-07, 0.27% in 2007-08. The loans and advances component was 10.04% in the year 2003-04, 18.91% in 2004-05, 19.26%

2005-06, 27.97% in 2006-07, 30.30% in 2007-08. The

debtors component in the composition of current assets decrease the loans and advance component is on an increase. 5.

In the years 2003-04 and 2004-05, the company had a negative working

capital of Rs.1,35,169.09 and Rs.1,95,076.75 respectively which is not a favorable position to the company. Then in the year 2005-06, 2006-07 and 2007-08 the Net Working Capital has improved drastically to Rs.9,78,370.64 ,.Rs9,86,858.40, and Rs 35,02,104.84 respectively.

Suggestions and Recommendations: Babasabpatilfreepptmba.com

82


1.

The Debtors component is the highest among the five years and it

amounted to nearly 76% of the total current assets. But the percentage has decreased over the year which is a good sign of improvement. The second highest element is the loans and advances component which has increased over the years because of the expansion programmes undertaken by the company. In the initial years the company had not maintained a considerable amount of cash and bank balances, but over the years the company is maintaining adequate cash so as to meet its immediate cash requirements. 2.

The working capital of the company should be always positive. It should

not be negative. In the years 2003-04 and 2004-05, the company had a negative working capital which is not a favorable position to the company. Then again in the year 2005-06, 2006-07, and 2007-08 DIPL’s net working capital has increased to Rs.9, 78,370.64, RS9,86,858.40, and Rs 35,02,104.84 which is a very positive sign of prosperity and it will help the company to sustain its expansion programmes. It also shows that the liquidity position of the company has improved. Hence there is much capital available with the company to pay off the current liabilities. . 3.

In order to ensure liquidity and quick cash collection the company can go

for factoring technique, through which the company can get immediate cash for its s receivables and employ it in business and there by improve its profitability.


83


Conclusion: The Working Capital management contributes much in the overall management of the organization affairs. Efficiency of organization operations depends on how it manages its short-term business dealings. Working capital management contributes for the firm’s efficiency as well as the bottom line by optimally utilizing the available wealth and maintaining the required liquid


84


Bibliography 

Financial Management by M Y KHAN AND P K JAI



Divgi Industries istrative Manual.



Divgi Industries Directors Report.



Financial Reports of the company

Web Site Visited: www.divgi-warner.com www.google.com


85

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