WORKING CAPITAL MANAGEMENT

The prime objective of any management is to make maximum profit. For attaining maximum profit which enables the organization to accomplish to other objectives of the business firms. Working capital management involves the administration of current assets of a firm namely cash, receivables, and inventory. dministration of fixed assets comes with in the preview of capital budgeting while the management of working capital is a continuing function which involves controlling of every day ebb and flow of financial resources circulating in the bunnies. There fore a business can not survive in the absence of satisfactory ratio between current assets and current liabilities !efore going to deal with various aspects of working capital management it is better to under take definition and concepts of working capital. "efinitions and concepts of working capital#$ %Working capital is the excess of current assets over current liabilities& ''''' (. ). *ill %Working capital refers to the firm+s investment in the short term assets like cash, account receivable and inventories& '''''Western and !righam. Working capital management is also known as current assets management. %Working capital management usually is considered to involve the administration of current assets namely cash and marketable serenities, receivables and inventories and the administration of current liabilities& ''' (ames ,. -an .orne Working capital concept can be categorized into two categories. -iz. /. 0et concept ccording to the gross concept %working capital refers to sum total of all current assets& '''' 1. *. )rivastava

2ross working capital rupees to the firm+s investments in current assets.0et working capital rupees to the difference between current assets and current liabilities the net working capital indicates 3a4 li5uidity position of the firm 3b4 suggests the extents to which working capital need may be financed by permanent sours of funds. Types of working capita Working capital is different types. The following are the important types of working capital. 1! Per"anent or reg# ar working capita 6ermanent or regular working capital is the minimum amount which should always be there in minimum current asset like inventory or cash balance in order to carry out the business smoothly. $! %aria& e working capita The amount of working capital over and above the permanent working capital is known as variable working capital. The extra working capital need to support the changing production and sales activities is called the fluctuating or variable or temporary working capital. It "ay &e f#rt'er (i)i(e( into two types na"e y 3a4 )easonal working capital. 3b4 )pecial working capital. )easonal working capital is a re5uired to meet seasonal demands. *easona (e"an(s )pecial working capital is re5uired for meeting the contingencies like fire accidents, strikes and advertisement campaign. Nee( for working capita The bunnies firm has to invest maximum funds on current assets for the success of sale activity. ,urrent assets are need because when the sale is not converting into cash immediately. There is always an operating cycle involving in the conversion of sales into cash.

Operating Cyc e

The times re5uire to complete the se5uence of events in the case of manufacturing firm is called operating cycle. "ebtors )ales

,ash

Finessed 6roduct

1aw materials

Working programs

Fig# /./. 7perating ,ycle of the *anufacturing firm The operating cycle consist of 8 phases. 9n the /st phase cash gets converted into inventory. This includes purchase of raw material, conversion of raw material in to work$ in$process and working in program to finished product. 9n the :nd phase the stock is converted into receivables it credit sales are made. 9n the 8rd phase the conversion of receivable into cash after certain period. the operating cycles of a non manufacturing firm is ccounts receivables

,ash

)tock finished good Fig# /$: operation cycle of non manufacturing firm

%The operating cycle refers to the length of time necessary to complete the following cycle of events&. Working Capita Working capital is the excess of current assets over current liabilities. ,urrent ssets /. ,ash :. !ank balance 8. )hort term investment <. !ills receivable =. Trade debtors >. )hort term loans ? advances A. 9nventories ,urrent ;iabilities /. !ank over draft :. !ills payable 8. Trade creditors <. 6rovision for taxation =. proposed dividends >. @nclaimed dividends A. dvance payments discounts. B. 6repaid payments B. 7ccurred interest on unexpired discounts. C. 7uts trading expenses ? unexposed

Operationa ,efinitions of t'e Concepts

Working Capita Working ,apital may be regarded as that proportion of a firm+s total capital, which is employed in financing its day$to$day operations. 9t is the amount of funds, which a firm holds, in the form of current assets to meet its current liabilities. Net Working Capita -NWC. 0et Working ,apital is the difference between current assets and current liabilities Gross Working Capita -GWC. 2ross working ,apital refers to the firm+s total investment in current assets.

C#rrent assets ,urrent assets are those assets which can be converted into cash within an accounting year or within the operational cycle, without under going diminution in value of or disrupting operational cycle. They include cash, short$term securities debtors. !ill receivable and stock 3inventory4. C#rrent ia&i ities ,urrent liabilities are those of outsides that are expected to mature for payment with in an accounting year 3or operating cycle4. They include creditors. !ills payable and out standing expenses that are the short$term sources. Cas' ,ash is the money the firm can disburse immediately without any restriction. 9t includes coins, currency, che5ue held by the firm and balance in bank accounts. )ome times mere cash items such as marketable securities or bank time deposits are also included in cash. The basic characteristics of near cash assets are that they readily convertible into cash. In)entories 9nventory refers to stock of goods or products of the company. 9t may be in the firm of raw material, work$in$progress and finished goods.

,E*IGN O0 T1E *T2,3

Working capital management is very significant aspect in the management of finance of any organization. !y checking the level of working capital one can easily identify and profitability position of the firm and the decision regarding. /. The level of working, which can be determined, by the level of current assets and current liabilities. :. The composition of current assets and current liabilities 8. Financing of current assets and current liabilities are of at most importance and significant in the financial management of the business because it not only shows the financial efficiency of business but also it credit worthiness which has gained importance in these days of credit s5ueeze. This fact has been justified by many industries which have failed fre5uently due to faulty management of working capital, especially with regard to effect of various suggestions and regulations laid by tendon, chore *ara the committee is very necessary. 9t is this view that a case study has been made on working capital management in 2- Films.

O&5ecti)es of t'e st#(y

/. To study the various changes in working capital of %2- Films&. :. To study the working capital management with regards to cash, and inventory of 2- Films. 8. To study the li5uidity position of 2- Films <. To study the creditors conversion period of 2- Films.

Met'o(o ogy
The data were collected from secondary sources.

The secondary data were obtained from the published annual reports of 2- Films, from :DD<$:DD= to :DD>$:DDA. The collecting the data were analyzed by changes in working capital, cash, inventory, li5uidity ratio. The cash analysis is done by cash to networking capital ratio. The receivable analysis is done by debtor+s turnover ratio, average collection period and incremental investment in receivables. The inventory analysis is done by percentage of inventory to total current assets, inventory turnover ratio, holding period of inventory and changes in sales and inventory. The li5uidity analysis is done by current ratio, 5uick ratio and absolute li5uid ratio

*cope of t'e *t#(y

Financial management is that the managerial activity which is concerned with the planning and controlling of the firm+s financial resources. Though it was a branch of economics till /BCD as a separate activity or discipline, it is of recent origin. )till it has no uni5ue body of knowledge of its own and heavily on economics for its theoretical concepts even today. The present study aims at the following .ighlighting the necessity of current and current liabilities. Explain the principle s of current assets, investment and financing. Focus on the proper mix of short term and long term financing for current assets. Emphasis the need and goal of establishing a sound credit policy. Explain the need for holding cash. .ighlight the need for and a nature of inventory.

Li"itations
The study will be only a provisional or based on the data collected from the published annual reports during :DD<$:DDA.

P an of ana ysis
C'apter 81 it gives an introduction in working capital management and also gives a brief theoretical background on working capital management. C'apter 8$ 9t contains the design of the study including objectives of study, operational definition, methodology of study, tools for collecting data and plan of analysis C'apter 8+ it contains a brief profile of the company given. C'apter9/ 9t gives an overview of the pattern of changes in working capital management in 2- Films ltd., C'apter 84 9t discusses the manner in which cash is managed in 2- Films ltd., C'apter 86 9t analyses the inventory management. C'apter 87 Findings and conclusion.

Profi e of 0i " in(#stry

The film industry consists of the technological and commercial institutions of filmmaking# i.e. film production companies, film studios, cinematography, film production, screenwriting, pre$production, post production, film festivals, distributionF and actors, film directors and other film personnel. Though the expense involved in making movies almost immediately led film production to concentrate under the auspices of standing production companies, advances in affordable film making e5uipment, and expansion of opportunities to ac5uire investment capital from outside the film industry itself, have allowed independent film production to evolve. T'e ;irt' of 0i " two second experimental film, Round hay Garden Scene, filmed by Louis Le Prince in 7ctober /BBB in ;eeds, Gorkshire, is generally recognized as the earliest surviving motion picture. William Hennedy ;aurie "ickson, chief engineer with the Edison ;aboratories, is credited with the invention of a practicable form of celluloid strip containing a se5uence of images, the basis of a method of photographing and projecting moving images. ,elluloid blocks were thinly sliced, the slice marks were then removed with heated pressure plates. fter this, the celluloid strips were coated with a photosensitive gelatin emulsion9n /BC8 at the ,hicago World Fair Thomas Edison introduced to the public two pioneering inventions based on this innovation# the Hinetograph, the first practical moving picture camera, and the Hinetoscope. The latter was a cabinet in which a continuous loop of "icksonIs celluloid film 3powered by an electric motor4 was backlit by an incandescent lamp and seen through a magnifying lens. The spectator neared an eye piece. Hinetoscope parlours were supplied with fifty$foot film snippets photographed by "ickson, in EdisonIs J!lack *ariaJ studio. These se5uences recorded mundane events s well as entertainment acts like acrobats, music hall performers and boxing demonstrations.

<

Rise of t'e feat#re fi " an( fi " as art

The standard length of a film remained one reel, or about ten to fifteen minutes, through the first decade of the century, partly based on producersI assumptions about the attention spans of their still largely working class audiences. The ustralian film The Story of the Kelly Gang 3also screened as Ned Kelly and

His Gang4 is widely regarded as the worldIs first Jfeature lengthJ film. 9ts BD minute running time was unprecedented when it was released in /CD>. 9n /CD> "an !arry and ,harles Tait of *elbourne produced and directed IThe )tory of the Helly 2ang.I 9t wasn+t until /C// that countries other than ustralia began to make feature films. !y this time /> full length feature films had been made in ustralia. )oon Europe created multiple$reel period extravaganzas that were even longer. With international successes like Queen Elizabeth 3France, /C/:4, 39taly, /C/84 and Cabiria39taly, /C/<4, the feature film began to replace the short as the cinemaIs central form. T'e *o#n( Era Experimentation with sound film technology, both for recording and playback, was virtually constant throughout the silent era, but the twin problems of accurate synchronization and sufficient amplification had been difficult to overcome 3Eyman, /CCA4. 9n /C:>, .ollywood studio Warner !ros. introduced the J-ita phoneJ system, producing short films of live entertainment acts and public figures and adding recorded sound effects and orchestral scores to some of its major features. "uring late /C:A, Warners released The azz Singer, which was mostly silent but contained the first synchronized dialogue 3and singing4 in a feature film. 9t was a great success, as were follow$ups like WarnersI The Lights of Ne! "or# 3/C:B4, the first all$synchronized$sound feature. The early sound$on$disc processes such as -itaphone were soon superseded by sound$on$film methods like Fox *ovietone, "eForest 6honofilm, and 1, 6hotophone.The trend convinced the largely reluctant industrialists that Jtalking picturesJ, or Jtalkies,J were the future.

1=

1<7=s> T'e ?New 1o ywoo(? or Post9c assica cine"a The 0ew .ollywoodI and Ipost$classical cinemaI are terms used to describe the period following the decline of the studio system during the /C=Ds and /C>Ds and the end of the production code. "uring the /CADs, filmmakers increasingly depicted explicit sexual content and showed gunfight and battle scenes that included graphic images of bloody deaths. 6ost$classical cinemaI is a term used to describe the changing methods of storytelling of the J0ew .ollywoodJ producers. The new methods of drama and characterization played upon audience expectations ac5uired during the classicalK2olden ge period# story chronology may be scrambled, storylines may feature unsettling Jtwist endingsJ, main characters may behave in a morally ambiguous fashion, and the lines between the antagonist and protagonist may be blurred. The beginnings of post$classical storytelling may be seen in /C<Ds and /C=Ds film noir movies, in films such as Rebel $ithout a Cause 3/C==4, and in .itchcockIs Psycho. 1<:=s> se@#e sA & ock&#sters an( )i(eotape "uring the /CBDs, audiences began increasingly watching movies on their home -,1s. 9n the early part of that decade, the movie studios tried legal action to ban home ownership of -,1s as a violation of copyright, which proved unsuccessful. Eventually, the sale and rental of movies on home video became a significant Jsecond venueJ for exhibition of films, and an additional source of revenue for the movie companies. The ;ucas$)pielberg combine would dominate J.ollywoodJ cinema for much of the /CBDs, and lead to much imitation. Two follow$ups to Star $ars, three to a!s, and three 9ndiana (ones films helped to make se5uels of successful films more of an expectation than ever before. ;ucas also launched T.L ;td, a division of ;ucasfilm in /CB: M:N, while )pielberg enjoyed one of the decadeIs greatest successes in E%T% the same year. merican independent cinema struggled more during the decade, although *artin )corseseIs Raging &ull 3/CBD4, 'fter Hours 3/CB=4, and The King of Co(edy 3/CB84 helped to establish him as one of the most critically acclaimed merican film makers of the era. lso during /CB8 Scarface was released, was very profitable and resulted in even greater fame for its leading

11

actor

l 6acino. 6robably the most successful film commercially was vended during /CBC#

Tim !urtonIs version of !ob HaneIs creation, !atman, exceeded box$office records. (ack 0icholsonIs portrayal of the demented (oker earned him O>D,DDD,DDD 3the most money an actor has ever made from one film4 and it brought Tim !urton and *ichael Heaton great fame. !ritish cinema was given a boost during the early /CBDs by the arrival of "avid 6uttnamIs company 2oldcrest Films. The films Chariots of )ire, Gandhi, The Killing )ields and ' Roo( !ith a *ie! appealed to a JmiddlebrowJ audience which was increasingly being ignored by the major .ollywood studios. While the films of the /CADs had helped to define modern blockbuster motion pictures, the way J.ollywoodJ released its films would now change. Films, for the most part, would premiere in a wider number of theatres, although, to this day, some movies still premiere using the route of the limitedKroadshow release system. gainst some expectations, the rise of the multiplex cinema did not allow less mainstream films to be shown, but simply allowed the major blockbusters to be given an even greater number of screenings. .owever, films that had been overlooked in cinemas were increasingly being given a second chance on home video and later "-" $===s The documentary film also rose as a commercial genre for perhaps the first time, with the success of films such as +arch of the Penguins and *ichael *ooreIs &o!ling for Colu(bine and )ahrenheit ,-... new genre was created with *artin Hunert and Eric *anesI *oices of /ra0, when /=D inexpensive "- cameras were distributed across 9ra5, transforming ordinary people into collaborative filmmakers. The success of Gladiator lead to a revival of interest in epic cinema. .ome theatre systems became increasingly sophisticated, as did some of the special edition "-"s designed to be shown on them. The Lord of the Rings trilogy was released on "-" in both the theatrical version and in a special extended version intended only for home cinema audiences. 0#t#re# 6roblems of digital distribution to be overcome $$ higher compression, cheaper technology. ,ontent security. Expiration of copyrights, enforcing copyright

1$

PRO0ILE O0 G% 0ILM* Lt(

Intro(#ction 2- F9;*) ;9*9TE" burst into the 9ndian Film *arket in the year /CBC. The main object of the company was production and distribution of feature films in various languages. This is the first company in the movie business to get listed in the 9ndian bourses and having shareholders through the length and breadth of 9ndia. The ,ompany was promoted by *r. -enkateswaran, who was a ,hartered ccountant by profession. The companyIs contribution to the )outh 9ndian Film 9ndustry is enormous more particularly to the Tamil Film 9ndustry which is the third biggest in 9ndia next to .indi and Telugu Film 9ndustry.

Manage"ent tea"
. -enkataramani $ "irector commerce graduate, promoted kaashyap 1adiant )ystems ltd and is ,hairman? *anaging "irector. .aving been part of the leading corporate in the country for over two decades he played a major role in team building and growth of the respective organizations. *arketing and people management is his forte. .as been in the media business having produced several teleserials and movies. .is expertise and acumen will help the company to growth manifold.

Rag'# Ra"an 8 ,irector graduate in commerce. 6rior to joining he was the "irector in one world *edia 0etwork 9nfotainment ;td., ,hennai.

1+

.as experience over five years in handling administration, operation, .1 and Finance.

-. 1avee alias -. 1amasubramanian $ ,E7 .as more than := years of experience in the media business including film making. part from being responsible for the overall operations of the company, he will be in charge of managing the multiplexes, production, and other activities if the company. H. *uthuswamy P Executive "irector Theatere "ivision P Thanjavur .e has more than five decades of administrative and managerial experience in managing theaters. Entertainment 9ndustry in 9ndia comprises of Film 9ndustry and Television 9ndustry. The 9ndian entertainment industry is among the fastest growing sectors in the country. 9n the past two decades entertainment industry in 9ndia has witnessed explosive growth. 9n television alone, from a single state owned television network, "oordarshan in /CC/, today there are over 8DD national, regional and local channels being beamed across the country. 9ndian film industry is the largest film industry in the world, producing on an average, close to a thousand films a year in all languages. 9n terms of film production 9ndia exceeds .ollywoodIs production volume by over three times. )ome of the fastest growing segments in the 9ndian entertainment industry include music, cable and satellite television, animation and F*. ccording to an estimate by F9,,9 and Ernst and Goung 9ndian entertainment industry would worth more than 1s. <DD,DDD million in :DDB. )everal positive developments like the accordance of the IindustryI status to the film industry, satellite channel penetration, the retail boom in the channels for music sales 3*usic World ? 6lanet *4, the use of digital technology in all spheres of entertainment and the growth of multiplexes have contributed to the growth of this sector. Entertainment industry in 9ndia is presently in a consolidation phase as boundary lines between films, music and television are fast disappearing. )kills and resources are

1/

being pooled extensively. !esides adaptation to high$end digital technology, the entertainment industry is also witnessing rapid development of state$of$the$art studios and post production facilities. 9n terms of employment, an estimated > million people earn their livelihood from the entertainment industry and this number is all set to grow. Entertainment industry in 9ndia is projected to be one of the major economic driving forces of the country. 9n 9ndia, television is the major segment of entertainment industry. 6resently, 9ndia has the third largest television market in the world behind only china and the @) . Today, television reaches about hundred million 9ndian households. 9ndia has the worldIs biggest movie industry in terms of the number of movies produced. 6resently, the technology of film$making in 9ndia is perhaps the best among all developing countries. 9ndian film industry is now increasingly getting professional and a lot of production houses such as Gash 1aj 6roductions, "harma 6roductions *ukta corporate lines. The popularity of 9ndian entertainment industry goes well beyond the geographical frontiers of the country. 9ndian television channels and films are viewed and enjoyed across the entire )outh sia. cross the *iddle East, parts of )outh East merica 3@) sia and frica, large expatriate populations ensure that 9ndian T- channels and films are a regular part of their entertainment bou5uet. 9n @H and 0orth and ,anada4, 9ndian T- channels and films are increasingly finding a foothold beyond the expatriate pockets as the audience there has started to enjoy and identify with the contemporary 9ndian culture. Quite a few of 9ndian film stars are also getting good offers from .ollywood. rts etc. are now working on

The future prospects of 9ndian entertainment industry look to be extremely good. s 9ndiaIs profile rises on the global stage outside interest in 9ndiaIs culture and entertainment industry is also bound to grow.

14

ANAL3*I* O0 ,ATA
Working capita ana ysis The goal of working capital management is to manage the firms current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. This is so because if the firm cannot maintain a satisfactory level forced into bankruptcy. The current assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. Each of current assets must be managed efficiently in order to maintain the li5uidity of the fir, while not keeping too high level of any of one of them. The interaction between assets and current liabilities is. Therefore the main them of working capital management. Accessing working capita "anage"ent Working capital management is the life blood and controlling never center of business. 0o business can successfully run with out an ade5uate amount of working capital. To avoid the shortage of working capital at once, an estimate of working capital re5uirements should be made in advance so that arrangement can be made to procure ade5uate working capital. !ut estimation of working capital re5uirements is not an easy task and large number factors have to be taken into consideration while an estimate of working capital re5uirements Tota cost inc#rre( on "ateria A wage an( o)er 'ea(s The length of time for which raw material are to remain in store before they are issued for production. The length of production cycle or work Pin$ progress conversion of raw material in to finished goods. The length of sale cycle during which finished goods are to be kept waiting for sale. The average period of credit allowed to customer. The amount of cash re5uired to pay day$to$ day expense of the business. The average amount of each cash re5uired making a advance payment, if any The average credit period expected to be allowed by suppliers. Time lag in the payment of wages and other expenses. is, the time taken for

16

From the total amount blocked in current assets estimated on the basis of the first even items given above, the total of current liabilities that is the last two items is deducted to find out the re5uirement of working capital. 9n order to provide for contingencies, some extra amount generally calculated as fixed percentage of working capital can be aided as a margin of study. Working capita "anage"ent in G% 0i " t( The working capital in 2- Film ltd., nearly >DR of total capital employed. .ence working capital become an importance portion in the 2- Films ltd., 0actors of inf #encing t'e working capita re@#ire"ents in G% 0i " t(!A Pro(#ction Progra" 9t is production program films, T- )erials, and film distribution, customer affect the working capital re5uirements of 2- Film ltd., thus the size of the working capital re5uirement is determined on the basis of the production program. 0inance vailability of finance that is, the cash and bank credit affects the working capital re5uirements of 2- Film ;td., to considerable extent Perio( of Cre(it The period of credit allowed by the suppliers and purchases and period of credit allowed to customers on sale also have their own influence on working capital re5uirement of 2- Film ltd., *o#rces of finance of Working capita The working capital re5uirements is estimated through the preparation of capital and revenue budgets. The main source form the 2- Film finances is working capital needs are 1ealization cash ,ash credit from bank ,ash credit form financial institutions and trade credit

17

Ana ysis C'anges in working capita in G% 0i "s t(!

,omponents of working capital in 2- Films ;imited. The Working capital in 2- films consists of different components like inventory ,sundry debtors, cash and bank balance , current liabilities etc.,Which are show in the following table along with amount invested in each for the period of three years. The structure of working capitals is presented in the table for the purpose of effective analysis of current assets #current liabilities and net working capital have been calculated. Each component of current assets and current liabilities and expressed as proposition to total assets total liabilities. Ta& e1!1 s'owing t'e co"ponents of working capita an( Bfor + years of G% 0i " i"ite(>
Partic# ars C#rrent Assets 9nventory )undry "ebtors ,ash? !ank ;oans dvance Total ,urrent ssets C#rrent Lia&i ities )undry ,reditor 8B8C=>BA 7ther liabilities and dvance ::=:B=D< "ues to "irector /:D<=BA= 6rovision for :DDDD Tax F!T F,,! interest provision Total ,urrent liability 0et W. ,apital Trend of 0et working ,apital $ $ A:CCDD>> //>DBB=>:: /DD.DDR =:.>D 8D.BA />.=D D.D8 $ $ :BB:>8=D 8<D>/:=: <A:8:D> <:>::BD $ $ A/BA8DBB <A:8BA8CB <D.>CR <D.// <A.8C >.=A =.C8 $ $ /DD8DDDB 8CDC<BB8 8<=B>>D :8D<A:A/ >D8:BA </A/<>< BD<D==A: /ADDC:C:<A /<>.=:R /:.<A <B.>: <.8D :B.>> .A= =./C $==/9=4 B -1==. $==49=6 B -1==. $==69=7 B -1==.

//=8:C:<:/ <><AB8/C ADBC8CA :AD/===/ /:88BA=>BB

C8.<A 8.AA D.=A :./C

8DCB>DA=A /8/>AAC8< <:/:/</B >D>DD8AA =<<:>D<B>

=>.C8 :<.:D A.A< //./8

8/D/>CC<D ::8=<<:/8 >BD/>C8:> =>A<=/8<D <AB/88<B/C

/A.</ /:.=< 8B./B 8/.BA

*o#rce> published annual report of 2- Films limited :DD< to :DDA. 0ote# The trend of net working capital are calculated by Taking the year :DD< as bases as /DDR.

1:

Ana ysis> The inventory are C8.<ARof total current assets during :DD< $ :DD= and =>.C8Rin :DD= $ :DD> and /A.</R in :DD>$:DDA.it shows the levels of inventory gradually increased :DD< PD= and decreased from :DD=$:DD>?:DD>$:DDA. The sundry debtors are 8.AA R, of total current assets during :DD<$:DD=, :<.:DR in :DD=$:DD>and /:.=<R :DD>$:DDA. 9t shows that the decreased during the period :DD<$:DD=. The cash and bank balance are D.=AR of total current assets in :DD< P:DD=.and A.A<R in :DD=$:DD>. nd 8B./BR in :DD>$:DDA it shows increased from every yearly. ;oans and advance there is :./CR of total current assets in :DD< P:DD= and //./8R in :DD=$:DD> and 8/.BAR in :DD$:DDA here we can say that company was taking more loans and advances from the year :DD>$:DDA. The sundry creditors are =:.>C of the total liabilities in :DD<$:DD= and <D.//R in :DD=$:DD> :DD>$:DDA. Grap' s'owing co"ponents of Working Capita of G% 0i " Lt(!A nd /:.<AR in :DD>$:DDA. 9t shows a gradually decrease in creditors up to mount of sundry debtors has been

Components of Working Capital

Percentage of Working Capital 200% 150% 100% 50% 0% 2004-05 2005-06 2006-07 Years
The above graph showing changes trend percentage of working capital of 2- Film ;td.

Series1

*'owing t'e *tate"ent of C'ange in working Capita $==/9$==4

1<

Working Capita C#rrent Assets 9nventories )undry "ebtors ,ash ?!ank ;oans ? dvance Tota -A. C#rrent Lia&i ities ,urrent ;iabilities Tota -;. A8; 0et 9ncrease in Working ,apital

$==/ //=D<<BC<> 8A8A=C:< B/=>8<A /BCC8A>8 1$1/<7/<:= =A/8:>:/ 471+$6$1 1147:/$+4< 8D<8:>: 116=::4+$1

$==4 //=8:C:<:/ <><AB8/C ADBC8CA :AD/===/ 1$++:746:: A:CCDD>A 7$<<==67 116=::46$1

Increase :B<8<A= C/D:8C= $ BD:/ABB $$

,ecrease $ $ /D>>C=D $ /=B=A<<> 8D<8:>:

116=::46$1

1<<6764:

1<<6764:

*o#rce
6ublished annul reports of 2- Films ltd., :DD<$:DD= Ana ysis bove table shows statement of changing working capital during :DD<$:DD= which has net increase working capital in 1s.8D<8:>:.

$=

*'owing t'e *tate"ent of C'ange in working Capita $==49$==6 Working Capita C#rrent Assets 9nventories )undry "ebtors ,ash ?!ank ;oans ? dvance Tota -A. C#rrent Lia&i ities ,urrent ;iabilities Tota -;. A8; 0et "ecrease in Working ,apital 116=::46$1 116=::46$1 :/+/+166/ :/+/+166/ $==4 //=8:C:<:/ <><AB8/C ADBC8CA :AD/===/ 1$++:746:: A:CCDD>A 7$<<==67 116=::46$1 $==6 8DCB>DA=A /8/>AAC8< <:/:/</B >D>DD8AA 4//$6=/:6 A/BA8DBB 71:7+=:: /7$+:7+<: >BB<CB::8 Increase $ B=/CC>/= 8=D8:D:/ 88=B<B:> ///>CAC >BB<CB::8 ,ecrease B<8<8/>>< $ $ $ $

*o#rce
6ublished annul reports of 2- Films ltd., :DD=$:DD> Ana ysis bove table shows statement of changing working capital during :DD=$:DD> which has net decrease working capital in 1s. >BB<CB::8.

$1

*'owing t'e *tate"ent of C'ange in working Capita $==69$==7 Working Capita C#rrent Assets 9nventories )undry "ebtors ,ash ?!ank ;oans ? dvance Tota -A. C#rrent Lia&i ities ,urrent ;iabilities Tota -;. A8; 0et 9ncrease in Working ,apital 17==<$<$/7 17==<$<$/7 1$+7=7/+++ 1$+7=7/+++ $==6 8DCB>DA=A /8/>AAC8< <:/:/</B >D>DD8AA 4//$6=/:6 A/BA8DBB 71:7+=:: /7$+:7+<: /::B=</B<C $==7 8/D/>CC<D ::8<<<:/8 >BD/>C8:> =>A<=/8<D 17:1++/:1< BD<D==A: :=1=447$ 17==<$<$/7 Increase 8DC/B8 C/B>>:AC >8BD<ACDB =D>B=DC>8 ,ecrease $ $ $ $ B=8:<B<

*o#rce 6ublished annul reports of 2- Films ltd., :DD>$:DDA Ana ysis bove table shows statement of changing working capital during :DD>$:DDA which has net increase working capital in 1s. /::B=</B<C.

$$

CA*1 MANAGEMENT
,ash is an important component of current assets and is most essential for business operations. ,ash is the basic input needed to keep the business running on a continues basis. 9t is also the ultimate output expected to be realized by selling the service and product manufactured by the firm. ,ash is both the beginning and the end of the working capital cycles i.e. cash, inventories, receivables and cash ''''1.H.*ishra, 9ts effective management is the key determinates of sufficient working capital management. ,ash in the business enterprise may be compared to the blood of the human body. !lood gives life the strength to the human body, and cash imports life and strength, profit and solvency to the business organization. '''' 6.-. Hulakarni, *otives for holding cash# There are four motives for main training cash balances. /. Transaction motive :. 6recautionary motive 8. )peculative motive <. ,ompensating motive 7bjectives of cash management# The basic objectives of cash management are as follows. /. To meet the payments schedule. $! *inimizing funds committed to cash balances! Functions of cash management# /. ,ash planning :. *anaging the cash flows 8. "etermining optimum cash balance <. 9nvesting idle cash. ,ash *anagement in 2- Films ;imited

$+

CA*1 MANAGEMENT IN G% 0ILM LT, *o#rces of Cas' The main sources through with 2- Films gets ,ash are the collection from debtors, advances on )ales and other sources. Pay"ent of Cas' The companies main item of expenditure are wages , salaries, bonus , Expenditure salaries , expenditure on development, sales tax, income tax, excise duty , payment to creditors , interest on borrowing. ll the payment to creditors is make through che5ue and cash even expenses are paid , wages salaries exiles duties is paid monthly . *'owing cas' to Networking capita of G% 0i "s $==/9=4 -A"o#nt in Rs. ADBC8CA //>DBB=>:/ D.>/ $==49=6 -A"o#nt in Rs. <:/:/</B <A:8BA8CB B.C $==69=7 -A"o#nt in Rs. >BD/>C8:> /ADDC:C:<A 8C.CB

Partic# ars ,ash ? !ank !alance 0et Working ,apital ,ash to 0W, 1atio 3Times4 *o#rces

6ublished annual reports of 2- Films ltd :DD<$:DDA. Ana ysis Table :./ portrays the size of cash and bank balance in 2- Films from :DD<$:DD= to :DD>$:DDA as a percentage of net working capital. The cash and bank balance were D.>/3times4 of net working capital during :DD<$:DD=, B.C 3times4 during :DD=$ :DD>,8C.CB 3times4 during :DD>$:DDA.

$/

Grap' *'owing Cas' to Net Working Capita Ratio

Cash to NWC
45 40 35 30 25 20 15 10 5 0 2004-05 2005-06 Years 2006-07

Cash to NWC

Series1

Interpretations This ratio indicates the proportion of cash and bank balance maintained by 2Films. 9t is assumes per amount importance of the level of cash balance decides the li5uidity 6rofitability, aspects of the company. The lower the cash to networking capital the grater may be the profitability of the concern and vice$versa. 9t any company holds too low cash and bank balances in the relation to net working capital , it implies the ability of firm to meet day to day re5uirement of cash in the present study cash to current ration of 2- Films ltd., reveals it was D.>/ in :DD<$:DD=and it was increased to B.CR in :DD=$:DD> and 8C.CB R in :DD>$:DDArespectively. 6ractice of holding cash balance in relation to net working capital indicates good cash management in sales

IN%ENTOR3 MANAGEMENT

$4

9nventory management involves the control of assets being produced for the purposes of sale in the normal courses of the company+s operation. 9nventories include raw material, work$in$process and finished good inventory. inventory management is to minimize the total costs direct and indirect that are associated with holding inventories. .ow ever the importance of inventory management to the company depends upon the extent of investment in inventory. Meaning The term %inventory& refers to the stock file of the product which a firm is offering for sale and the components that male the product. Nat#re of in)entories 9nventories are stock of the product a company is manufacturing for sale and components that make up the product. The various forms in which inventories exist in a manufacturing company. 1! Raw "ateria s 1aw materials are basic inputs that are converted in to finished product. 1aw materials inventories are those units which have been purchased and stored for future productions. $! Work9in9process Work in process inventories are semi manufactured products. They represent products that need more work before they become finished products for sale. +! 0inis'e( goo(s Finished goods inventories are those completely manufactured products which are ready for sale. )tocks of raw materials and work$in$process facilitate production, while stock of finished goods is re5uired for smooth maturing operation. Thus inventories serve as a link between the production and consumption of goods. The main goal of effective

$6

firm also maintains a fourth kind of inventory or stores and spares. This category includes those products which are accessories to the main products produced for the purpose of sale. Ex# bolts, nuts, clamps, screws etc. P#rpose of In)entories The purpose of holding inventories is to allow the firm to separate the processes of purchasing, manufacturing and marketing of its primary products. The goal is to achieve efficiencies in are as where costs are involved and to achieve sales at competitive prices in the market place. The main purposes are /. voiding lost sales :. 2aining 5uantity discount 8. 1educing order cost <. chieving efficient production rum. 6urchasing void losses of sales

2ain Quantity discounts Firms holding 9nventories 6roducing 1educe 7rder ,osts )elling chieve efficient production

FigF$6urpose of inventory

O&5ecti)es of In)entory "anage"ent

The main objectives of inventory management as follows /. Ensure a continuous supply of raw materials to facilitate uninterrupted production.

$7

:. *aintain sufficient stocks of raw materials in periods of short supply and anticipate price changes. 8. *aintain sufficient finished goods inventory for smooth sales operation, and efficient customer service. <. *inimize the carrying cost and time. =. ,ontrol investment in inventories and keep it at an optimum level. In)entory contro firm needs an inventory control system to effectively mange its inventory. 9nventory control is concerned with the ac5uisition storage, handling and use of inventories so as to ensure the availability of inventory when ever needed provide ade5uate cushion for contingency and derive maximum economy and minimize wastage and losses 8 R! K! G'os' an( G! *! G#ptaA O&5ecti)es of In)entory contro To minimize the possibility of delay in production through regular supply of raw materials, stores and spares, tools and other e5uipment and when re5uired. /. To avoid unnecessary capital locker up in inventories. :. To exercise economies in ordering, the obtaining and storing of materials Or(ering syste" of in)entories 9n managing inventories, the firm+s objective should be in ,onstance with the share holder wealth maximization principle. To achieve this, the firm should determine the optimum level of inventory. To mange inventories efficiency, answers should be sought to the following two 5uestions like a. .ow much should be ordered b. When should it be ordered There are three important systems of ordering materials they are /. Economic order 5uantity 3E7Q4 7r

$:

:. Fixed period order system or periodic re ordering system or periodic review system. 8. )ingle order and scheduled part$deliveries system. Met'o(s of )a #ing "ateria iss#es The stock of given material will, there fore consist of purchases made at different times at different prices, which poses a problems as to what should be the price when the material is issued. There are many methods of pricing material issues the important A! cost price "et'o(s 9. First in first out ii. ;ost in first out iii. verage cost iv. 9nflated price v. )pecific price vi. !ase stock vii. .ighest in first out ;! Market price "et'o( 9. 1eplacement 6rice 99. 1ealizable -alue C! *tan(ar( price "et'o(s 9. ,urrent standard price ii. !asic standard price Ro e of in)entory in working capita "anage"ent 9nventories are components of current assets. )ome characteristics are important in the broad context of working capital management including. /. current assets :. ;evel of li5uidity 8. ;i5uidity lags <. ,irculating activity

IN%ENTOR3 TOTAL C2RRENT A**TE* Partic# ar 9nventories Total current assets $==/9$==4 //=8:C:<:/ /:88BA=>BB $==49$==6 8DCB>DA=A =<<:>D<B> $==69$==7 8/D/>CC<D /AB/88<B/C

$<

R 7f inventory to total current assets *o#rces

C8.<>

=>.C8

/A.</

6ublished annual reports on 2- Film ltd., from :DD<$:DDA Ana ysis 9nventory to total current assets as the percentage of the total current assets in the year :DD<$:DD= C8.<>, in the year :DD=$:DD> =>.C8R, in the year :DD>$:DDA /A.</R.

Interpretation The total inventory as a percentage of the total current assets as C8.<>R in the year :DD<$:DD= it has gown down to /A.</R, in the year :DD>$:DDA This percentage of inventories to current assets indicates that the inefficiency of inventory management in 2- Films limited ., gown down from :DD=$:DD>. )ince there is decreased in the percentage indicates decreased In)entory T#rno)er Ratio 9nventory turnover 1atio indicates the efficiency of the firm in producing and selling in products )ales 9nventory turnover 1atio S $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ the efficiency of inventory management has

+=

verage inventory *'owing in)entory T#rno)er Ratio of G% 0i "s Lt(!A Partic# ar )ales verage 9nventory 9nventory Turnover 1atio *o#rces 6ublished the annual report on 2- Film ltd from :DD<$:DDA Ana ysis The table shows calculated inventory turnover ratio , it has :.=/R in the year :DD<$:DD= , in the year :DD=$:DD> D .:=R, in the year :DD>$:DDA :.=DR.
Inventory Turnover Ratio
5 Times 4 3 2 1 0 2004-05 2005-06 Years 2006-07

$==/9$==4 :BB=D=:/ //=/BAD>B< :.=/

$==49$==6 /BACB>8A< A8/=A>=BC D.:=

$==69$==7 <:>=>8A>> /AD<8BBA= :.=D

Interpretation 9nventory Turnover ratio measures the velocity and to Fmeasure the efficiency of the company selling it s products. 9n the year :DD<$:DD= it was :.=/R, and D.:=R in the year :DD=$:DD> decreased .the firm has not to maintain efficient management of 9nventory. *'owing 1o (ing Perio( of In)entory Gears :DD<':DD= :DD=$:DD> 9nventory Turnover 1atio :.=/ D.:= 0umber of "ays 8>D 8>D 0umberofdays for 9nventory /<8 "ays /:D "ays

+1

:DD>$:DDA *o#rces

:.=D

8>D

/<< "ays

6ublished annual report of 2- Films ltd., from :DD<$:DD> Ana ysis 9n the year :DD<$:DD= the holding period was /<8 days, /:D days in :DD= P:DD>, /<< days :DD>$:DDA.

Holding Period of Inventory

400 350 300 250 200 150 100 50 0 2004-05 2005-06 Years
The above graph showing changes in the holding period of inventories 2- Films ltd., Interpretation )hows the inventory holding period of through out under the study in the :DD=$:DD> the inventory was sold with in /:D days it is less period compared to other years. C'anges in *a es an( In)entory> 6articular )ales 9nventory ,hanges in )ales ,hange in 9nventory :DD<$:DD= :BB=D=:/ //=8:C:<:/ /DDR /DDR :DD=$:DD> /BACB>8A< 8DCB>DA=A >=.B/R :.>BR :DD>$:DDA <:>=>8A>> 8/D/>CC<D /<A.BR :>.BCR

Days

2006-07

*o#rces

+$

6ublished annual report on 2- Films ltd.,:DD<$:DDA. Note> the percentage in sales and inventory or calculated by taking the year :DD= as basis as /DDR. Ana ysis "epicts the change in sales and inventory over the period under the study, change in inventory was decreased by:.>BR in :DD=$:DD> :>.BCR and :DD>$:DDB respectively.

The above graph showing changes in sales and inventory of 2- Films ltd., Interpretation The study of inventory and change in sales , inventory was not improved and sales are improved. This is because, the sales as increased in the year :DD>$:DDA.

,I*C2**E* T1E LIC2I,IT3 O0 G% 0ILM* LT,!A

Intro(#ction The li5uidity position of 2- Films is analyzed by calculating current ratio , 5uick ration, absolute 5uick ratio C#rrent ratio

++

,urrent ratio to measure the firm+s short term solvency of indicates the availability of current assets in rupees for every one of current liability. firm as more current assets the current liability ,urrent ssets ,urrent 1atio S ,urrent ;iability *'owing of C#rrent Ratio of G% 0i " t(> 6articular ,urrent ssets ,urrent ;iability ,urrent 1atio :DD<$:DD= /:88BA=>BB A:CCDD>A />.CD :DD=$:DD> =<<:>D<B> A/BA8DBB A.=A :DD>$:DDA /AB/88<B/C BD<D==A: ::./= ratio grater than means that the

*o#rce
6ublished annual report of 2- Film ltd., from :DD<$:DDA. The calculated current ration indicates the proportion of current assets to current liabilities in all years is below then the standard ratio. Ana ysis The calculated current ratios are />.CD in :DD<$:DD=, A.=ARin :DD=$ :DD>,::./=Rin :DD>$:DDA since the ratio is grater than its standard in all the year the shot term financial position of the company is very good.

+/

The above graph showing current ration of 2- Films ltd.

Interpretation )hows that the firm calculated current ration is grater than standard ratio 3:#/4 in all years from :DD<$:DD= to :DD>$:DDA. current ratio indicates sufficient level of investment in current assets in all years.

+4

Li@#i(ity Ratio
;i5uidity ration indicate that a relationship between 5uick or li5uid assets and current liabilities. n assets is li5uid if it can be converted in to cash immediately of reasonable soon with out a loose of values. Quick 3or4 ;i5uid ssets ;i5uidity 1atioS 99999999999999999999999999999999999999 ,urrent liabilities ;i5uid or Quick ssets S ,urrent ssets P 39nventory T 6repaid Exp4 *'owing of Li@#i(ity Ratio of G% 0i "s Lt(!A 6articular ;i5uid ssets ,urrent ;iabilities ;i5uid 1atio *o#rce 6ublished annul report of 2- Films ltd., :DD<$:DDA Ana ysis The calculated li5uidity ratio is /./DR in :DD<$:DD= ,8.:>R in :DD=$:DD>, in /B.:CR :DD>$:DDA . :DD<$:DD= BD=B8:>A A:CCDD>A /./D :DD=$:DD> :8<8CCA:C A/BA8DBB 8.:> :DD>$:DDA /<A//><BAC BD<D==A: /B.:C

The above graph showing li5uidity position of 2- Films ltd., Interpretation The li5uid ratio /./DR in :DD<$:DD=,8.:>R in :DD=$:DD>, /B.:CR in :DD$:DDA the company li5uid ratio is good, it maintain sufficient amount of li5uid assets.

+6

A&so #te i@#i( Ratio )ince cash is most li5uid asset a financial analysis may examine the ration of cash and its e5uivalent to current liabilities . trade investment on marketable secularity are e5uivalent to cash. There for may be including in computation of its ratio. bsolute li5uid sset bsolute li5uid 1atio S $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ ,urrent liabilities *'owing of A&so #te i@#i( Ratio of G% 0i "s Lt(!A 6articulars bsolute ;i5uid ssets ,urrent ;iabilities bsolute ;i5uid 1atio :DD<$:DD= )ADBC8CA A:CCDD>A D.DCA :DD=$:DD> <:/:/</B A/BA8DBB D.=B :DD>$:DDA >BD/>C8:> BD<D==A: B.<=

*o#rce
6ublished annual reports of 2- Films ltd.,:DD<$:DDA. bsolute li5uid ratio market cash in hand and at bank and marketable security or temporary investment. The acceptable norm i.e. rate /DK$ worth absolute li5uid asset or considered ade5uate to pay :D 1s Worth . current liabilities in time as all creditors or not expected to demand cash at same time and then as may also be realized from debtors and inventory+s Ana ysis This calculated absolute li5uid ratio are D.DCA in :DD<$:DD=, D.=Bin :DD=$:DD> , B.<=in :DD>$:DDA.

+7

The above graph showing absolute li5uidity position of 2- films ltd., Interpretation 9n the all the years firm calculated cash ratio is higher than the acceptable standard ratio with indicated the firm has been maintain sufficient level cash to meet its data to day obligation.

+:

0IN,ING*
The following of the findings of the 2- Films ;td with regards to working capital management :DD<$:DDA. The investment in inventory gradually decreases from C8.<A R to /A.</ R during :DD<$DA. The amount of sundry debtor has been increased from 8.AAR of total current assets to :<.:DR during :DD=$D> there was a decrease in :DD>$DA, /:.=<R declined in current assets. )undry ,reditors have been decreased during the period under study from =:.>DR to /:.<AR of the total current liabilities The net increase in working capital during the year :DD<$:DD= is 1s# 8D<8:>:. The net decrease in working capital during the year :DD=$:DD> is 1s#>BB<CB::8 The net increase in working capital during the year :DD>$:DDA is 1s# /::B=</B<C. The calculated current ratio />.CD in :DD<$:DD=, A.=A in :DD=$:DD>, ::./= in :DD>$ :DDA. The li5uid ratio is /./D in:DD<$:DD=, 8.:> in :DD=$:DD>, /B.:C in :DD>$:DDA. Except :DD<$DA the li5uid ratio was more than standard ratio, therefore li5uidity position of the origination is satisfactory. ,ash and bank balance vary between D.> 3times4 and B.C 3times4 in 8C.CB3times4 in 2- Films how ever the parties of holding cash balance in relation in net working capital indicate good cash management in 2- Film ;td. The total investment in inventory has been decreased from :DD<$:DDA,it indicates poor performance in inventory management this is due to low investment in raw materials and low production.

+<

*2GGE*TION*
The cash ratio is of the company is not satisfactory through the period of under study, because in all the year cash ratio is below the standard. .ence it is suggested to improve cash and bank balance to meet day to day obligations. 9t is suggested to make investment in inventories and to improve the performance in inventory management.

/=