14 3 16

WORKING CAPITAL
FINANCIAL MANGEMENT
INTRODUCTION:
Financial management is that managerial activity which is concerned with the
planning and controlling of the firms financial resources. It was a branch of
economics till 1890, and as a separate discipline, it is of recent origin. Still it has no
unique body of knowledge of its own, and draws heavily on economics for its
theoretical concepts even today.
The subject of financial management is of immense interest to both
academicians and practicing managers.
SCOPE OF FINANCE:
What is finance? What are a firms financial activities? How are they related to
the firms others activities? Firms create manufacturing capacities for production of
goods. Thus, the three most important activities of a business firm are:
Production
Marketing
Finance
WORKING CAPITAL
Working capital management involves the relationship between a

firms short-term assets and its short-term liabilities. The goal of working capital management
is to ensure that a firm is able to continue its operations and that it has sufficient ability to
satisfy both maturing short-term debt and upcoming operational expenses. The management
of working capital involves managing inventories, accounts receivable and payable, and cash.
Working capital typically means the firms holdings of current, or short-term, assets
such as cash, receivables, inventory and marketable securities. These items are referred to as
circulating assets because of their cyclical nature. In a retail establishment, cash is initially
employed to purchase inventory, which is in turn sold on credit and results in accounts
receivables. Once the receivables are collected, they become cash-part of which is reinvested
in additional inventory and part going to profit or cash throw-off.
The need for working capital to run the day to day business activities cannot be
overemphasized. We will hardly find a business firm which does not require any amount of
working capital. Indeed, firms differ in their requirements of the working capital.
There are two concepts of working capitalgross and net.
Gross working capital refers to the firms investment in current assets. Current assets
are the assets which can be converted into cash within an accounting year an include cash,
Short-term securities, debtors, bills receivable and stock.
Net working capital refers to the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders which are expected to mature for
payment within an accounting year and include creditors bills payable, and outstanding
expenses.
Working Capital is the capital that allows businesses to operate on a day-to-day basis.
Depending on the nature and the time period for which the working capital is held in
business, it can be classified as:
WORKING CAPITAL:
2
CAPITAL
WORKING CAPITAL
FIXED CAPITAL
GROSS
WORKING
CAPITAL
NET WORKING
CAPITAL
OPTIMUM
CAPITAL
NEED FOR THE STUDY:

3
WORKING
CONTINGENT
WORKING CAPITAL
The need of Working Capital cant be over emphasized every businesses needs some
amount of working capital arises due to the time gap between production and realization of
cash from sales. There is time gap in purchases of raw material and production. Production,
sales and realization of cash thus, working capital needed for the following purposes.
For the purchase of the raw materials, components and spares.
To pay wages and salaries.
To incur day to day expenses and overhead costs such as fuel, power and office
expenses etc.
To meet the setting cost as packing, advertising, etc.
To provide credit facilities to the customers.
To maintain the inventories of raw material, work in progress, stores and spares and
finished stock.
Adequate working capital enables a concern to face businesses in emergencies such as
depression, because during such period, generally there is such pressure on working
capital.
Adequacy of working capital creates environment of confidence high morale and
creates overall efficiency in business.
Sufficient working capital enables a business concern to make prompt payments and
hence helps in creating and maintaining goodwill.
Adequate working capital helps in maintaining solvency position of the business by
providing uninterrupted flow of production.
OBJECTIVES OF THE STUDY:

The project study has undertaken to examine the working capital
management in BHARATHI SOAP WORKS at Guntur for the period of 5 years i.e from
2011-2016.
To find out the liquidity position of the company
To find out the determents of working capital in the company
To know asset the working capital prices
To find out the sources of working capital finance
To examine the core management
Bills receivable management Inventory management
To measure the operational efficiency of BHARATHI SOAP WORKS.
To determine the profitability trends of BHARATHI SOAP WORKS
To assess the components of the working capital management and determine the
fluctuations caused due to them.
SCOPE OF THE STUDY:

The study is of significant help to the following groups.
The study provides an insight into the various aspects of WORKING CAPITAL
MANAGEMENT
Studies of this type are also useful to competitors to make necessary steps to improve
WORKING CAPITAL MANAGEMENT
Hence the company can make necessary changes in the policy relating to it.
Studies of this type are also useful to policy makers to make necessary changes in the
policies retaining to the working capital management in BHARATHI SOAP WORKS
The scope of my study constitutes to be one of the interesting and key areas
of working capital management. The study concentrates of the financial status or affairs of
the company and the management of working capital in the company which involves the
study of operating cycle and ratios of different periods and their comparison over the last five
years.
RESEARCH METHODOLOGY:
Case study method been adopted for carrying out the study. For carrying out the
project primary data and secondary data has been used. The collection of data has been done
through them principle sources.
(1)
Primary Data
(2)
Secondary Data
(1) Primary Data:

It is the information collected directly from accountants, account officers and
financial departments, personal interaction and observation.
(2) Secondary Data
Secondary data is the data which is already published in economic and commercial
journals.
The data is collected from:
Annual reports.
Audit reports.
Different books.
Companys website
LIMITATIONS OF THE STUDY:

Every study is conducted under certain limitations. The limitations for this study are
as follows.
The whole study was conducted within a short span of 45 days. I was sincere in my
efforts in gathering the maximum possible information and utilizing it for study.
It was not possible to get the lent percent correct information. The research was made
according to the information available from related departments and through annual
reports published.
The study is based on the information provided by the company.
Working capitals are calculated on the basis of 5 years financial statements.
********
INDUSTRY PROFILE
HISTORY OF DETERGENTS:
Though the beginning of detergent industry is not shrouded in the veils of history
as were the start of soap industry, it is nevertheless not easy to find when the detergent
industry, as such, came into existence. An important issue is to decide exactly what is being
termed as a synthetic detergent as the term itself leads to confusion. In the United States of
America, the word surfactant or syndic is being used, while in Europe the term 'ten sides' (for
tension-active material) came into fashion.
The chemistry of soap manufacturing remain primarily the same
until the year1916, when the first synthetic detergent was developed in
Germany in response to the shortage of fats for making soaps during the
World War I. Commonly known as detergents today, synthetic detergents
are non-soap washing and cleaning products, which are put together
chemically or synthesized to produce variety of raw materials.
Between 1950 and 1965, more than half of the detergents were based on the formula
of a propylene tetramer conjugated to benzene (PT benzene), but later they were blamed for a
rise in eutrophication in lakes and streams as they contain phosphates (from Sodium tri
phosphate). Although the problem has not been completely resolved in some cases, in some
countries there has been an agreement for reducing the uses of phosphates however in
countries
where
it
is
not
big
issue
no
such
action
has
been
taken.
Since those early discoveries in the chemistry and technique of detergents and
builders, developments have been continued that focuses on achieving more efficient and
easy to use detergent products. Now the manufacturers give an important consideration to
safety for consumers and the environment as well. Given below is a brief summary of
important inventions over the years of the history of detergent
1950s
>
Liquid laundry, hand dishwashing and all-purpose cleaning products
Automatic dishwasher powders

Detergent with oxygen bleach
Fabric softeners (rinse-cycle added)
1960s
Laundry powders with enzymes
Prewash soil and stain removers
Enzyme presoaks
1970s
Fabric softeners (sheets and wash-cycle added)
Multifunctional products (e.g., detergent with fabric softener)
Liquid hand soaps
1980s
Automatic dishwasher liquids
Detergents for cooler water washing
Concentrated laundry powders
1990s
10
Ultra (super concentrated) powder and liquid detergents

Automatic dishwasher gels
Ultra fabric softeners
Laundry and cleaning product refills
INDUSTRY OVERVIEW:
The soap and detergent industry includes companies that are primarily engaged in
manufacturing soap, synthetic organic detergents, inorganic alkaline detergents, and crude
and refined glycerin from vegetable oils and animal fats. It is an international
Industry, and during the early years of 1990, world demand for its products has increased 1 to
3 percent every year.
Many of the participants in the industry competed on a global basis. According to
analysts, there is a firm correlation the standard of living of a nation and its usage of soap and
detergent products. The analysts are expecting the industry to continue to grow in both the
industrialized as well as developing nations.
Security Tenders:
According to recent trends, liquid cleansing products are outpacing the traditional
bar soap and powder cleaning products. In addition to environmental and health
considerations, societal transformation has propelled the changes in the soap and
Size:
The industry includes about 700 companies with combined annual revenue of about
$17 billion. Major companies in the consumer sector include divisions of P&G, Unilever, and
Dial. Major companies in the commercial sector include US Chemical and divisions of
Ecolab. The industry is highly concentrated with the top 50 companies holding almost 90
percent of the market.
11
INDIAN DETERGENT INDUSTRY PROFILE

Detergents:
The Indian fabric wash market consists of synthetic detergents, Comprising bars, powder, and
liquids and oil-based laundry soaps.
Although the per capita consumption of detergents in India (2.7 kg pa) is
comparable to some countries like Indonesia, China and Thailand (around 2 kg pas), it is
lower than in others such as Malaysia, Philippines (3.7 kg) and the USA (10 kg). The Indian
detergent market is expected to grow at 7-9% pa in volume terms.
The synthetic detergent market can be classified into premium (Surf, Ariel), mid-price
(Rin, Wheel), and popular segments (Nirma), which account for 15%, 40% and 45% of the
total market, respectively. The product category is fairly mature and is dominated by two
players, HLL and Nirma. Nirma created a revolution in the market by pioneering the concept
of low-cost detergents. Currently, the market is highly segmented with the differential
between the premium and popular segments at almost 7X.
Growth:
High consumer awareness and penetration levels will enable the market to grow at an
average 8-10% per annum with slightly higher growth in the rural areas. Higher penetration
stems from popularity of low-cost detergents. Hence, besides increase in per capita
consumption, there is tremendous scope for movement up the value chain.
HLL, Nirma, and P&G are the major players in the market with 40%, 30%, and 12% share,
respectively. While HLL dominates the premium segment, Nirma is the leader in the popular
segment.
12
Personal Cleaning Products

Personal cleaning products are cleaning agents that are used to wash and clean our
hands, face, body, and hair. These products may include toilet soaps, liquid cleansers, face
wash, shampoos, and conditioners. Personal cleaning products help us remain clean and
healthy by removing dirt, oil, and environmental pollutants from our body. Personal cleaning
products can be categorized into two main types Skin Cleaning Products
Hair Cleaning Products
Laundry Cleaning Products:
Laundry cleaning products are detergents and surface active agents that are
manufactured to wash and clean our laundry items. These products come in various forms,
such as detergent cakes, powders, and liquids and are formulated to meet different
requirements of laundry cleaning, such as stain and soil removal, bleaching, fabric softening
and conditioning and disinfectant requirements under the varying temperature, water, and
usage conditions. Laundry Cleaning Products can be categorized into five main types Detergent Powder
Detergent Cake
Fabric Softener
Laundry Liquid
Stain & Odor Eliminator
13
Household Cleaning Products:

Household Cleaning Products are cleaners that we use in our homes to wash and clean
different household products, such as furniture, glass, plastic items, and different types of
surfaces. These products help us keep fit and healthy are killing and removing harmful
bacteria and germs from our homes and workplaces. Household Cleaning Products can be
categorized into four main classes Floor Cleaners
Glass Cleaners
Toilet Bowl Cleaners
Wood Cleaners
Dish washing Products:
Dishwashing products are cleaning agents that are formulated to wash and clean
dishes and other kitchen utensils. These products are available for hand wash as well as
machine wash and are made for different water, temperature, and usage conditions.
Dishwashing products can be categorized into four main types Dishwasher Liquid
Dishwasher Powder
14
Dishwasher Gel
Dishwasher Tablets
Detergent Cake:
A detergent cake is generally an all-purpose laundry cleaning detergent that comes in
the form of a cake. Easy and convenient to use, detergent cakes are generally meant for hand
washing of all washable clothes and fabrics. Detergent cakes are one of the most popular and
widely used detergent products for laundry cleaning. Detergent cakes are generally
formulated using one or more surfactants to improve their cleaning performance and make
them good even foruse in hard water conditions.
Formulation:
Detergent cakes are formulated using batch or continuous process of soap making.
These cleansing products contain different ingredients that are used to improve their cleaning
performance. The surfactant play an important role in improving the cleansing action of
detergent by reducing the surface tension of wash liquid thereby improving the wet ability of
washable fabric.
Ingredients:
Some of the important ingredients of detergent cakes include - surfactants, detergent
builders, boosters, brightening agents, synthetic fragrances, colors,
Detergent Powder:
Detergent powders are laundry-cleaning products that are made using a synthetic
surfactant in place of the metal fatty acid salts, which are used in soaps. Made in powder
form, these detergents are also sold as laundry powders, hard surface cleansers, etc. Majority
of the powder detergents has soap in their mixture of ingredients; however they basically
function
more
as
foam
depressant
than
as
surfactant
The main advantage of detergent powders is that they are easy to use and remove the
dust, dirt, grease, oil and other environmental pollutants with ease and
15
Effectiveness. Detergent powders can be used for hand wash as well as machine wash
applications.
Ingredients:
The most common ingredients that are used in making powder detergents are Surfactants, optical brighteners, fabric softeners, enzymes, detergent builders, bleaches and
compounds, synthetic perfumes and fragrances, and more.
Soaps & Detergents Ingredients:

Along with surface active agents, which are prime ingredient in a soap / detergent,
soaps and detergents are made using a variety of ingredients that are added in these products
to give them specific properties and characteristics. Soaps & detergents are cleansing
products
ssential to public and personal health, soaps and detergents contribute to a good
personal hygiene; reduce the presence of germs, which cause infectious diseases; extend the
useful life of tableware, clothes, linens, surfaces and furnishings; and make our homes and
surrounding more pleasant.
Properties & Functions:
These different ingredients impart different properties and functions in soaps and
detergents and their addition or usage depends on the action or characteristics desired in the
end product. For example, toilet soaps may contain antimicrobial agents to kill or inhibit
bacteria, which can cause odor or disease. Some personal cleaning products may be made
using abrasives for removing stubborn greasy dirt.
Important ingredients that are used in making soaps and detergents are
Alkalis
Glycerin
16
Surfactants or Surface Active Agents

Detergent Builders
Detergent Boosters
Detergent Fillers
Rinse Agents
Film Removers
Lime & Rust Removers
Emulsifiers
Dry Cleaning Fluid
Conditioning Agent
Bleaches & Compounds
Ammonia
Detergents and health:
Detergents are household chemical cleaning compounds used for laundering and
dishwashing. They contain wetting agents and emulsifiers, based on non-soap synthetic
surfactants. Synthetic detergent powders consist of surface-active agents, builders, and fillers.
A study done to understand the Indian consumers knowledge of harmful effects of detergents
on health and environment showed that 77.6 percent of respondents had experienced some
kinds of skin irritation due to detergents.
Of these , the majority comprised of dhobis and rural women. Conventional laundry
detergents leave chemical residues on the clothes. These residues enter our bodies either
through the skin or through the lungs. They cause many common health problems including
allergies, skin infections and in rare cases, cancer.
Detergents and water pollution:

Most laundry detergents in India are phosphate based. Phosphates are a major source
of water pollution that has become the direct cause of 42 per cent of human and animal
diseases. In India, per capita consumption of detergents in 1994 was 2.8 kg per annum. This
is projected to rise to over 4 kg/capita by 2005. In rural areas the use of detergent bars is
expected to grow 7-8 per cent annually.
The figures are of concern because high quality detergents have as much as 35 per
cent STPP in them. According to Prof Narinder K. Kauschik, Professor emeritus for
17
environmental biology at the Canadian University of Guelph, "the main problem is that of
phosphate-based detergents promoting eurtrophication of aquatic environments."
Seasonal impacts:
Run-off of phosphates into water streams is not only due to detergents, but also due to
fertilizers and manures. Findings show that during the dry seasons when the run-off from
agriculture is virtually zero, and manure run-off is down to one fifth of the total annual rate,
detergents are responsible for additional loadings of rivers by about 7.3 per cent which poses
significant eutrophication impact risks. In India, it is not uncommon to see ponds, lakes, and
part of rivers choking with algae or other aquatic plants. In the Indian context, this is a grim
situation since these water bodies are the primary sources of water for a large section of the
population
Regulations:
India has addressed the eutrophication problem only at the level of sewage treatment
plants (STPs). The ever-increasing demand of phosphate-laden detergents in rural areas will
increase eutrophication of the local water bodies that serve as the primary water resource.
Even metropolitan cities like Delhi, Calcutta, Mumbai, and Chennai are partially skewered.
More specifically, only 43 per cent of class I cities and 12 per cent of class II cities are
skewered. Of this only 37 per cent of sewage is partially treated in class I cities and 5 per cent
in class II cities.
Prof. Kaushik reveals that in Canada, and in many states of USA, public pressure has
led to the regulation of phosphates in detergents since early 1970s. According to him these
countries have spent $8.5 billion in 1970s to upgrade sewage treatment plants to remove
excessive phosphates. Canada successfully implemented the appropriate regulation to control
phosphates emission into water systems by limiting the amount of phosphates in laundry
detergents to 0.5%.
Progressive labeling requirements BIS:
The Bureau of Indian Standards (BIS) has separately laid down the standards for ecolabeling of detergents in India. Based on the quality, safety and performance of these
detergents, a set of general and specific requirements for an Ecomark have been established.
18
The specific and general requirements laid down by BIS for ecomarking of detergents states
that they should not contain any phosphate. They also stress that the surfactants issued in the
manufacture of household laundry detergent powders should be readily biodegradable and the
products be packed in packages made of recyclable or biodegradable materials.
Eco-friendly household cleaning powders:
An environmentally superior detergent is the one that makes use of lesser chemical
ingredients. The toxicity of detergents decreases by non-addition of additives like perfumes,
color, and brightening agents. Minimal packaging can also reduce environmental harm
substantially. Synthetic surfactants may be replaced by non-petrochemical surfactants or
vegetable oil soaps; builders like phosphates can be replaced by sodium citrate and sodium
bicarbonate; dyes and fragrances can be eliminated or minimized.
Future Outlook:
Factors such as demographics, environment, globalization, and economy continue to
shape the soaps and detergent industry. The effect of demographic factors can be seen in
different sectors of industry. As the population of a nation grows old, the demand for
cosmetic products with softer colors, milder formulations, and the treatments for aging skin
increases. As the consumers become better educated and informed, there is a fast growing
market for scientifically based soap and detergent products, which at the same time medicate
and beautify.
Mergers & Acquisitions / Globalization:
Due to the saturation of traditional markets and in order to tackle the slow growth in
domestic markets, organizations now days, are creating sophisticated infrastructures and
rationalizing their production so as to make the production process centralized in fewer but
larger plants. This has contributed to standardization of the soap and detergent ingredients
across the globe. Manufacturers are striving to adopt basic formulations for all consumers all
across the world, which can be varied by the addition of some ingredients to satisfy the trends
in local markets.
Another major consequence of M&A trend is the rationalization of brands in order to
realize cost cuts in marketing and branding. Another trend, which is a result of M &As, is the
standardization of production process.
19
Competitive Land scape:

Population growth, especially households with children, drives demand in the
consumer sector, while growth in economy drives demand in the commercial sector. The
profitability of individual companies depends on several factors, such as efficient operations
and effective sales and marketing.
Large companies have scale advantages in domains like buying, manufacturing,
distribution, and marketing. Small companies can effectively compete with large companies
by formulating specialized products, offering superior customer service, or catering a local
market. The industry is capital-intensive with average annual revenue per worker more than $
7,00,000.
Research & Technology:

The need to meet environmental regulations across the globe various research
efforts was undertaken by the soap and detergent industry during the early 1990s. Sodium
carbonate, Zeolite, sodium citrate, and sodium nitrate acetate were under investigation as
possible builders to replace phosphates. Other questions that were being addressed, include water quality, product safety, chemical disposal, the ability to wash and clean in unheated
water, and indoor air quality.
Although several technological developments and an increasing expanding
understanding of the chemical processes had improved the ability of industry to restore soiled
garments and other objects to their pre soiled condition, available soaps and detergents still
failed to achieve the desired results. Chemical scientists, therefore, continued to work on
developing and formulating innovative cleaning and laundry additives like new enzymes and
oxygen bleaches.
20
COMPANY PROFILE
M/s BHARATHI CONSUMER CARE PRODUCTS PVT LTD; was a

newly started Private Limited Company in 2012, incorporated under the Companys Act 1956
consisting of with Board of Directors and Managing Director, having registered Office &
Factory situated at Sy.No. 280, 281, PEDDAPARIMI Village, Amaravathi Road,
Nidumukkala(Po),GUNTUR, Andhra Pradesh in which Smt. PARIMALA MANICKAVEL
is the Managing Director of the Company. With her visionable & dynamic leadership, the
company has carved a niche for itself in the market under the guidance of Sri A.Manickavel.
The present running products of its mother Company BHARATHI SOAP WORKS,
GUNTUR, a Proprietorship company were transferred to this new Private Limited company
BHARATHI CONSUMER CARE PRODUCTS PVT LTD; from 01.01.2015 onwards
under an Assignment deed in between the two Companies and continuing with all the
products of the same brands of Detergent cakes & Detergent Powders, Dish wash and other
running products of BHARATHI SOAP WORKS are producing under the name & style of
BHARATHI CONSUMER CARE PRODUCTS PVT LTD; represented by its Managing
Director Smt. PARIMALA MANICKAVEL and Sri.A.MANICKAVEL as Chairman &
Executive Director of the new Company.
21
All the data figures and other tables, and graphics given in this profile are relating to
the Proprietorship mother Company BHARATHI SOAP WORKS only, as this new Private
Limited Company BHARATHI CONSUMER CARE PRODUCTS PVT LTD; is
started just about three years back only, whereas the mother Company BHARATHI SOAP
WORKS is since more than three decades (-30-years) in the detergent Industry as a
significant one. The Chairman & Executive Director of this new Company Sri
A.MANICKAVEL expressed his practical experience and difficulties faced in establishing
the brands by his continuous sincere and hard work in the field under tough marketing
conditions since 1980 to 2012 when he was the proprietor of BHARATHI SOAP WORKS,
GUNTUR in his words as given below.
Sri.A.Manickavel, proprietor of BHARATHI SOAP WORKS, came to Guntur in

1980 with Rs.2000/- cash and brought some Detergent cakes cases of his brothers soap
factory from Chennai by train for livelihood and he sold the soaps by rickshaw canvassing
door to door initially. He slept on folding cots in the Lodge and his daily sales
operations were started from Lodge only by keeping his soaps in a room in the Lodge
and worked sincerely by showing the quality of the soaps by washing before the public at
some centres in Guntur, as the shop keepers rejected even to give placement to his detergent
soaps Blue Diamond & Bharathi . Even then he has not disappointed. He believed in
GOD and luck struck him unexpectedly
He got very good response in Guntur, as people started to purchase his Soaps on
seeing the quality and shop keepers also started to purchase his soaps due to consumer
demand unexpectedly. Then he planned to start a small factory at Guntur with an initial
capital investment of Rs.65000/- and started business on 8-7-1981 at Pothurivarithota, Maya
bazaar, Guntur under the name and style of M/s BHARATHI SOAP WORKS.
The
company was registered under SSI (Small Scale Industry) unit with District Industries
Centre, Guntur.
22
In the initial stage, his factory was started with 12 workers with manual labour. Later
with his hard work, he earned and shifted to D.No.67/B-1 Gorantla village, Guntur Mandal
in 1985 in his own factory premises with power motors & manual in Guntur for the first time.
The then brand names were Blue Diamond, Bharathi. The main objective is to sell
good quality detergent cakes to middle class and lower class people with low price.
Initially the products were sold at Guntur and Prakasam Districts only. But now his
hard work and maintence or quality, he has got very good market reputation all over Andhra
Pradesh by appointing sales agents / Distributors at District Head quarters & surrounding
villages. Through its good management and organization, it acquired a good position in the
detergent industry.
He is the most popularized social worker and philanthropist in Guntur. He directly and
indirectly helped the needy like mission and charitable institution, home for the aged and men
tall challenged persons. He was also the President of TAMIL CULUTRAL ASSOCIATION in
Andhra Pradesh
GROWTH AND EXPANSION OF BHARATHI SOAP WORKS

M/s. BHARATHI SOAP WORKS was expanded with their day to day production capacity
and supply of goods from time to time.
Initially, M/s. Bharathi Soap Works capital
investment is Rs.65,000/- but shortly the investment was reached to
Rs.64, 98,817/-,
hundred times.
With M/s. Bharathi Soap Works good marketing and promotional activities, its turnover was
reached to Rs.8.71 cores during the year 2009-2010 when compared to Rs.24 lakhs at the
initial stage.
M/s. BHARATHI SOAP WORKS was initially manufactured only medium quality
products and gradually started to manufacture Premium and Economy quality products within
a short period. With the increasing market share and to face the competition, it started to
introduce new brands by maintaining different styles of packing to suit the desires of the
consumers.
He was also president for the Nadargal Munnetra sangam. This Sangam is running a
school under the name of Kamaraj Public School at Tadepalli mandal of Guntur district,
Andhra Pradesh.
This school is providing good education to poor students who are
financially poor.
23
SOCIAL ACTIVITIES
He was also enjoyed one more honorable post as president of WALC Foundation
(welfare artificial limb centre) at Guntur. Under this foundation he was providing monetary
support to this association for providing freely artificial legs to the handicapped poor people.
He is also interested to participate in the spiritual, cultural and sports activities in the city and
entire AP and donating the funds to the conductors & participants.
BHARATHI SOAP WORKS PRODUCTS - SALES

TURNOVER
YEAR
PRODUCTS
SALES TURNOVER ( Crores)
2007-2008
Detergent Cake & powder
52,18,496.20
2008-2009
70,71,870.00
2009-2010
66,40,219.00
2010-2011
77,91,690.60
2011-2012
1,60,85,051.07
2012-2013
6,09,56,134.06
2013-2014
7,27,69,815.33
2014-2015
8,71,19,174.47
24
GRAPHICAL REPRESENTATION OF SALES TURNOVER ( BHARATHI SOAP

WORKS)
Detergent and Powder

100,000,000.00
90,000,000.00
80,000,000.00
70,000,000.00
60,000,000.00
50,000,000.00
Detergent and Powder
40,000,000.00
30,000,000.00
20,000,000.00
10,000,000.00
0.00
M/s BHARATHI SOAP WORKS initially manufactured only medium products now
they are manufacturing Premium, Economy quality products. To face competition by
improving market share they introduced different types new brands and packing styles to suit
the desires of the consumers.
25
The main aim of the company M/s BHARATHI SOAP WORKS was to supply
quality products to consumers. Quality is more important than profit. It is the key factor for
the success of the company. The company stress upon the quality of the products rather than
its profit margins.This motivational policy was to earn huge market share at all places of
southern India.
AWARDS & CERTIFICATES WON BY THE COMPANY

BHARATHI SOAP WORKS
1
The best Entrepreneur of the State Award for the year -2005 received on
26.01.2005,
The prestigious award Indira Gandhi Sadbhavana Award for the year 2005,
Bharathi Soap Works is an ISO 9001:2000 Certified Organization,
Certification from MOODY International Certificate,
Ukas Quality Management Certification,
Guntur District Best Industrialist Award received,
The prestigious Seva Ratna Award for the Year 2012, received on 02-10-2012.
M/s. Bharathi Soap Works was also recognized under the Nielsen top 10 list of
Regional Brands recently, after conducting National survey by M/s. Nielsen India
and also published on the popularity of its (BHARATHI SOAP WORKS) quality
detergent soaps and Washing Powder viz Triple-X (XXX), Blue Diamond, Green
26
Diamond, Magic
like 10 brands of washing soap in the National daily news
paper The Economic Times on 26-10-2012.
The secret behind the success of any famous or growing industry is nothing but
the sincere and hard working of both the Management and workers by mutual understanding
and respecting each other under the coordination and moving towards aimed goal with
dedication cooperatively for the growth of the Industry unto last. In other words,
The Management and workers are the two wheels of a cart in an Industry and if
any one of the wheels is damaged, the cart cannot move to reach the destination. Or
otherwise, the Industry will be collapsed if Management and workers differ each other and
move in different way. Both categories should move like one family to reach their goals and
to run the Industry successfully for mutual benefit. Management must recognize the worker
/employee, by encouraging him on his achievements in his work from time to time, so that he
will sacrifice his whole time in his work sincerely to get better appreciation and recognize
from the Management side.
Many multinational Companies are adopting the system of Kaizen as
universally accepted to get more productivity from the worker/employee, i.e.extraction of
maximum productivity in minimum time.
KRUSHITO NAASTHI DURBHIKSHAM
27
BHARATHI CONSUMER CARE PRODUCTS PVT. LTD.

The recently started new company BCCPPL (BHARATHI CONSUMER CARE
PRODUCTS PVT.LTD.), is installed with fully automatic machinery to increase their
production capacity into 4 times, so has to supply their products in time to meet the ongoing
market competition in full swing.
The company is also giving preference in marketing services by appointing field force
to cover all over nationwide markets by collecting day to day information and regarding
quality complaints and product supply as feedback on day to day basis and resolving the
problems on immediate attention by rectifying the same from time to time to create consumer
satisfaction at all levels by maintaining their regular market share. They are also planning to
launch their products on nationwide markets in other states also shortly.
They are also planning to enter into food division of daily needs with R&D facilities.
They are feeling as Customer satisfaction is their own satisfaction. They are also entering into
new ventures in the fields of DETERGENT LIQUID, FLOOR CLEANER, TOILET
CLEANERS,
MULTIPURPOSE
CLEANER,
and
SHAMPOOS
&
WASHING
MACHINE DETERGENT POWDER, suitable to both Top load and front load Washing
machines shortly. Although the company is started Three decades back, the company was
grown with Jet speed, by facing the tough competitors, keeping in view of middle class and
lower class people by producing various types of consumer goods by selling on reasonable
rates suitable to the pockets of all kinds of consumers with their dedicated servicing mode.
WORKERS OF BHARATHI CONSUMER CARE PRODUCTS PVT. LTD.
28
At present 75 workers are at production department and 5 employees at office, 2

employees at canteen and 18 employees as motor transport workers. The company provides
complete facilities to its workers and employees.
As it provides complete assistance and facilities to the employees, workers
dedicatedly contribute to increase its market share.
The working environment brings about a pleasant atmosphere and enables the
employees work dedicatedly, and also he is providing employment for more than 1000
families indirectly for marketing his products all over Andhra Pradesh..
QUALITY POLICY OF THE COMPANY
Satisfying the costumers by providing quality products and services and striving
towards continual improvements at all levels under strict vigilance
QUALITY OBJECTIVES
To improve sales compared to last year.
To improve the customer satisfaction level.
To reduce the wastage in production process.
To update the knowledge of the employees.
To continuously improve the process in all sections from time to time.
QUALI TY MAINTENANCE OF BHARATHI CONSUMER CARE PRODUCTS

PVT LTD.
The main aim of M/s BHARATHI CONSUMER CARE PRODUCTS PVT LTD is
to supply quality products to its consumers, since quality is more important than
profit. It is the key for the success of the company
The company stress upon the quality of the products rather than its profit margins.
This motive earned huge market at all places in Andhra Pradesh.
The company is strictly adopting quality preference only in purchases of raw
materials, as well as delivery of finished goods and they assure customer that they
never compromise with quality at all stages.
29
Quality assurance demands a degree of detail in order to be fully implemented at

every step.
Planning, for example, could include investigation into the quality of the raw
materials used in manufacturing, the actual assembly, or the inspection processes
used.
The Checking step could include customer feedback, surveys, or other marketing
vehicles to determine if customer needs are being attended or not. If not, what are the
seasons?
Acting could mean a total revision in the manufacturing process in order to correct a
technical or cosmetic flaw.
Competition to provide specialized products and services results in breakthroughs as
well as long-term growth and change.
Quality assurance verifies that any customer offering, regardless if it is new or evolved
is produced and offered with the best possible materials, in the most comprehensive
way, with the highest standards.
PRODUCTION CAPACITY OF BHARATHI CONSUMER CARE PRODUCTS PVT LTD.
Company has an excellent production capacity of 150 Tons of Detergent cakes per
day as per infrastructure. The present installed production capacity is 60 To 70 Tons of
Detergent cakes per day and 20 Tons of washing powder per day. The machines are operated
according to the demand in the market.
Products leave factory only after thorough quality check in the laboratory with
qualified technicians under proper supervision at all levels, and it is all done before reaching
to market, so as to satisfy the customers and they feel proud of customer satisfaction.
30
The main aim of M/s. BHARATHI CONSUMER CARE PRODUCTS PVT. LTD. is
to supply quality products to its consumers. Quality is more important than profit. It is the key
for the success of the company.
The Company is also launched a SOLAR POWER PLANT near the Factory under
the name and style of BSP ( BHARATHI
SOLAR
POWER ) on 09-07-2014 at
Nidumukkala(v), AmaravthiRoad, GUNTUR(Dist), AP., and supplying the generated power

to Govt. Grid so as to help to society during this Power shortage period by providing
employment to new employees.
The company BHARATHI
CONSUMER CARE
PRODUCTS
PVT. LTD
recently launched their new product COCORACO tooth paste (siddha Ayurveda) as
consumer care product under the name and style of BCCPPL which is accepted by the
consumer and moving in the market.
The company is planning to launch XXX CHANDANA bath soap based on turmeric
and sandal wood oil after some modifications to the consumers shortly which is under R&D
final testing. The recently started company BCCPPL (BHARATHI CONSUMER CARE
PRODUCTS PVT. LTD.), is installed with fully automatic machinery to increase their
production capacity into 4 times, so has to supply their products in time to meet the ongoing
market competition in full swing.
The company is also giving preference in marketing services by appointing field force
to cover all over the in land and out land markets by collecting day to day information and
regarding quality complaints and product supply as feedback on day to day basis and
resolving the problems on immediate attention by rectifying the same from time to time to by
spot replacement of the complaint products received if any to create consumer satisfaction at
31
all levels by maintaining their regular market share. They are also planning to launch their
products on abroad markets shortly.
FUTURE PLANS OF BHARATHI CONSUMER CARE PRODUCTS PVT LTD
The company is also planning to enter into food division of daily needs with R&D
facilities. They feel as Customer satisfaction is their own satisfaction. They are also entering
into new ventures in the fields of DETERGENT LIQUID, FLOOR CLEANER, TOILET
CLEANERS, MULTIPURPOSE CLEANER, SHAMPOOS & WASHING MACHINE
DETERGENT POWDER (XXX MATIC) suitable to both to Top and front load Washing
machines. Although the company is started -3- years back, the company is growing like Jet
speed facing the tough competitors, keeping in view of middle class and low class people by
producing various types of consumer goods by selling on reasonable rates suitable to the
pockets of all kinds of consumers with their dedicated servicing mode.
BHARATHI CONSUMER CARE PRODUCTS PVT. LTD.- PRODUCTS

S.N
O
1.
PRODUCTS
DETERGENT SOAPS
BRAND NAME
/ CAKES
32
BLUE DIAMOND
TRIPLE-X ( XXX )
MAGIC
GREEN DIAMOND
THREE DIAMONDS
SAREGAMA
2.
3.
4.
5.
DETERGENT POWDER
POWDER
/ WASHING
XXX SILVER FOAM
XXX SILVER LINE
XXX HI-POWER
XXX LAVENDER
MAGIC
.
.
DISH WASH CAKES (ROUND & BAR )
BATH SOAP ( AYURVEDIC )
XXX RUF & TUF
XXX LAHARI
XXX COCORACO
TOOTH PASTE (AYURVEDIC )
At present BHARATHI CONSUMER CARE PRODUCTS PVT. LTD. is producing - 40

varieties of detergent cakes and detergent powders, dish wash cakes etc under different
brand names as given below. Among them, XXX (Triple-X) brand is the premium brand of
the company.
XXX BRAND DETERGENT CAKES

PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
(VARIETIES):-
Triple X (XXX) MORE WASH

Detergent Cake
300 gms.
Rs.25-00
Rs.5/-worth XXX Det. Powder pouch free
---------------------------------------------------------------------------------------------------------------PRODUCT NAME : Triple X (XXX) BAR

2
TYPE
: Detergent Cake
WEIGHT
: 300 gms.
M.R.P.
: Rs.25-00
33
FREE OFFER
PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
----Triple X (XXX) EASY WASH

Detergent Cake
250 gms.
Rs.23-00
PRODUCT NAME
: Triple X (XXX) ACTION SOAP
4
TYPE
: Detergent Cake
WEIGHT
: 250 gms.
M.R.P.
: Rs.17-00
FREE OFFER
:
-------------------------------------------------------------------------------------------------------------------PRODUCT NAME : Triple X (XXX) WHITE
5
TYPE
: Detergent Cake
WEIGHT
: 250 gms.
M.R.P.
: Rs.18-00
FREE OFFER
:
----PRODUCT NAME : Triple X (XXX) MOR WASH (Medium)
6
TYPE
: Detergent Cake
WEIGHT
: 150 gms.
M.R.P.
: Rs.10-00FREE OFFER:
-------------------------------------------------------------------------------------------------------------------PRODUCT NAME : Triple X (XXX) QUICK WASH
7
TYPE
: Detergent Cake
WEIGHT
: 250 gms.
M.R.P.
: Rs.25-00
FREE OFFER
: Bucket FREE offer for 12 Soaps purchase of WHITE / BLUE
---------------------------------------------------------------------------------------------------------------RODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
Triple X (XXX) MORE WASH (Medium)

Detergent Cake
165 gms.
Rs.10-00
-----
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
Triple X (XXX) Lavender (WHITE / ROSE)

Detergent Cake
150 gms.
Rs.10-00
-----
--------------------------------------------------------------------------------------------------------------34
PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
Triple X ( XXX ) SMALL

Detergent Cake
125 gms.
Rs.10-0
10
PRODUCT NAME : SUPER Triple X (XXX)

11
TYPE
: Detergent Cake
WEIGHT
: 125 gms.
M.R.P.
: Rs.8-00
FREE OFFER
:
-------------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
Triple X (XXX) MORE WASH (Mini)

Detergent Cake
80 gms.
Rs.5-00
------
12
DIAMOND BRAND DETERGENT CAKES ( VARIETIES ) :PRODUCT NAME

TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
BLUE DIAMOND (BIG)

Detergent Cake
200 gms.
Rs.12-00
-----
13
-------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
BLUE DIAMOND
Detergent Cake
125 gms.
Rs.7-00
-----
14
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
THREE DIAMONDs ( 3 Diamonds)

Detergent Cake
300 gms.
Rs.16-00
----35
15
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
GREEN DIAMOND
Detergent Cake
125 gms.
Rs.7-00
-----
16
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
MAGIC
Detergent Cake
200 gms.
Rs.10-00
-----
17
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
MAGIC
Detergent Cake
100 gms.
Rs.5-00
-----
18
---------------------------------------------------------------------------------------------------------------PRODUCT NAME : NEW SAREGAMA

19
TYPE
: Detergent Cake
WEIGHT
: 300 gms.
M.R.P.
: Rs.16-00
FREE OFFER
:
--------------------------------------------------------------------------------------------------------------------
PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
SAREGAMA
Detergent Cake
100 gms.
Rs.5-00
----CHAMP
20
---------------------------------------------------------------------------------------------------------------------
Triple X (XXX) BRAND DETERGENT POWDER (VARIETIES):PRODUCT NAME

TYPE
WEIGHT
:
:
:
Triple X (XXX) SILVER FOAM

Detergent Powder
1 Kg.
36
21
M.R.P.
FREE OFFER
:
:
Rs.60-00
250 gms. XXX Action Soap free worth Rs.17/-
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
Triple X (XXX) HI-POWER

Detergent Powder
1 Kg.
Rs.65-00
200 gms. XXX RUF & TUF Big Dish wash cake
22
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
Triple X (XXX) LAVENDER

Detergent Powder
1 Kg.
Rs.55-00
----
23
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
Triple X (XXX) SILVER LINE

Detergent Powder
3 Kg.
Rs.300-00
Plastic Bucket + XXX Cocaraco Tooth Paste free
24
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:

Detergent Powder
5 Kg.
Rs.275-00
------
25
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:

Detergent Powder
500 gms.
Rs.31-00
65 g. Mini XXX Soap
26
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:

Detergent Powder
500 gms.
Rs.28-00
----37
27
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
Triple X (XXX) HI-POWER

Detergent Powder
500 gms.
Rs.28-00
100 gms. XXX RUF & TUF Small Dish wash cake
28
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:

Detergent Powder
300 gms.
Rs.20-00
-----
29
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:

Detergent Powder
170 gms.
Rs.10-00
-----
30
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:

Detergent Powder
75 gms.
Rs.5-00
-----
31
----------------------------------------------------------------------------------------------------------------
PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
Triple X (XXX) POWDER POUCH (High Power)

Detergent Powder
75 gms.
Rs.5-00
-----
32
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
Triple X (XXX) POWDER POUCH

Detergent Powder
30 gms.
Rs.2-00 (Two rupees)
----38
33
PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
Triple X (XXX) POWDER POUCH

Detergent Powder
12 gms.
Rs.1-00 ( One Rupee )
-----
34
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
MAGIC
Detergent Powder
1 Kg.
Rs.45-00
-----
35
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
MAGIC
Detergent Powder
3 Kg.
Rs.250-00
Plastic Bucket
36
----------------------------------------------------------------------------------------------------------------
DISH WASH CAKES ( VARIETIES ) :PRODUCT NAME

TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
Triple X (XXX) RUF & TUF

Round Dish wash
500 gms.
Rs.40-00
Scrubber
37
---------------------------------------------------------------------------------------------------------------PRODUCT NAME : Triple X (XXX) RUF & TUF

38
TYPE
: Round Dish wash
WEIGHT
: 250 gms.
M.R.P.
: Rs.23-00
FREE OFFER
: Scrubber
---------------------------------------------------------------------------------------------------------------PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:

Dish wash cake ( Big )
200 gms.
Rs.10-00
-----
39
39
PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:

Dish wash cake ( Small )
100 gms.
Rs.5-00
-----
40
PRODUCT NAME
TYPE
WEIGHT
M.R.P.
FREE OFFER
:
:
:
:
:
XXX COCORACO
HERBAL TOOTH PASTE (SIDDHA AYURVEDIC)
40 gms.
Rs.20-00
-----
41
WORKERS WELFARE OF BHARATHI CONSUMER CARE PRODUCTS PVT. LTD.
At present there are 76 workers at production department and 5 employees at

office, 2 employees in the canteen and 17 employees as transport workers. The company
provides complete assistance and facilities to the employees, workers dedicatedly contributed
to increase its market share.
The working environment brings about a pleasant atmosphere and enables the
employees work dedicatedly. And also he is providing employment for mare than 1000
families in directly for marketing his products all over southern India.
40
ORGANIZATION STRUCTURE OF BHARATHI CONSUMER CARE PRODUCTS PVT. LTD.
MANAGING DIRECTOR
(M.D.)
DIRECTORS
CHAIRMAN &
EXECUTIVE DIRECTOR
GENERAL
MANAGER
(GM)
MARKETING
MANAGER
FINANCE
MANAGER
SALES FIELD
STAFF (REPS.)
PRODUCTION
MANAGER
ELECTICAL
SECTION
41
TRANSPOR
T
SECTION
LEGAL
MANAGER
ACCOUNTS
DEPT
ASST GENERAL
MANAGER
(AGM)
MACHINERY SEC.
SUPER
VISORS
WORKERS
CHEMIST &
RD
DRIVERS
WRAPPERS &
PACKING
SECTION
THEORETICAL FRAMEWORK - WORKING CAPITAL

INTRODUCTION:
Though working capital of vital significance to an undertaking in several ways, the
management of which did not receive adequate attention until recently the literature of
finance concentrated more on the infrequent episodic events mergers and liquidation
neglecting completely the management of working capital. Even now, the management of
fixed assets is getting precedence over the working capital.
It has been observed by shall and Haley that managing current assets requires
more attention than managing plant and equipment expenditure. Mismanagement of current
assets can be costly. Too large an investment in current assets means tying up capital that can
be used productively elsewhere. On the other hand, too little investment can also be
expensive.
42
For example, insufficient inventory may result in loss of sales as the goods that a
customer wants to buy may not be available. The finance manager will be forced to spend a
large percentage of his time in managing current assets. It is because these assets vary quickly
and a lack of attention paid to them may result in appreciably lower profits for the firm.
Working capital Definitions:
The following are the some of the definitions given for working capital by experts in
the area of finance.
The sum of the current assets is the working capital of a business.- J.S.Mil.
Any acquisition of funds which increases the current assets, increased working
capital, for they are one and the same.-Bonneville and Dewey
Working capital has ordinarily been defined as the excess of current assets over
current liabilities.-C.W.Gerstenberg.
THE NEED FOR WORKING CAPITAL

The Working Capital is necessary to run the day-to-day business activities. It
is very difficult to find a business firm, which does not require any amount of working
capital. However, firms differ in their requirements of the working capital. Companies aim at
maximizing the wealth of shareholders. In their efforts to maximize shareholders wealth,
they should earn sufficient return from their operations. Earning a steady amount of profit
requires successful sales activity. The firm has to invest enough funds in current assets for the
efficient sales activity. Sales do not convert into cash immediately. There is always an
operating cycle involved in the conversion of sales into cash.
The organization may be faced with an uncertainty regarding availability of sufficient
quantity of critical inputs in future and reasonable price. This may necessitate the holding of
inventory i.e., current asset. To ensure that each of current assets is efficiently managed to
43
ensure overall liquidity of the unit and same time not keeping too high level of any one of
them working capital Management is mus.
Nature of working capital management:
Working capital management is concerned with the problems that arise in attempting
to manage the current assets. The current liabilities and the inter relationship that exists
between them. The term of current assets refer to those assets which in the ordinary course of
business can be or will be converted into cash within one year without disrupting the
operating of the firm.
The major current assets are cash marketable securities. Account receivable and
inventory. The goal of working capital management is to manage the firms current assets and
liabilities in such a way that a satisfactory level of working capital is maintained. The current
assets should be large enough to cover its current liabilities in order to ensure a reasonable
margin of safety. Each of the current assets must be managed efficiently in order to maintain
the liquidity of the firm while not keeping too high a level of any one of them.
Each of the short term sources of financing must be continuous managed to ensure
that they are obtained and used in the best possible way .The interaction between the current
assets and current liabilities, is therefore, the main theme of the theory of working capital
mana
Concept of working capital:
Working Capital Management involves the relationship between a firm short term
assets and its short term liabilities. The goal of working capital management is to ensure
that a firm is able it continue its operations and that is has sufficient ability to satisfy both
maturing short term debt and upcoming operational expenses. The management of working
capital involves managing inventories, account receivable and payable and cash to pay
current liabilities as they fall due. This implies a clearly designed risk policy to determine the
required liquidity level.
TYPES OF WORKING CAPITAL

Working Capital may be classified in two ways.
On the basis of Concept
On the basis of time
44
On the basis of Concept Working Capital

1. Gross Working Capital
2. Net Working Capital
Based on time, Working Capital can be classified into
1. Permanent Working Capital
2. Temporary Working Capital
ON THE BASIC OF CONCEPT:
Gross working capital:
The gross working capital also known as current capital or circulating capital is
represented by the sum total of all current assets of the enterprise. Current assets are the
assets which are meant to be converted into cash within a year or an operating cycle. Stock of
raw materials, stock of semi-finished goods, stock of finished goods, trade debtors, bills
receivable, prepaid expenses, cash at bank and cash at hand.
Net working capital:
On the other hand, the term net working capital refers to the difference between
current assets and current liabilities. Both the net and the gross concepts of working capital
have their own uses. The choice of a particular concept obviously depends upon the purpose
in view.
If the objective is to measure the size and extent to which current assets are being
used to optimize productivity of the concern, the gross concept is more useful. If, on the other
hand, the objective lies in evaluating the liquidity position of an undertaking, the concept of
net working capital becomes pertinent and preferable.
On the basis of time:
Working Capital can be classified into
Permanent Working Capital
Temporary Working Capital
Permanent Working Capital:
Permanent or fixed Working Capital is the minimum amount, which is required to
ensure effective utilization of fixed facilities and for maintaining the circulation of current
assets. There is always a minimum level of current assets, which is continuously required by
the enterprise to carryout its normal business operations.
45
For example, every firm has to maintain a minimum level of raw materials, work-inprogress, finished goods and cash balance. This minimum level of current assets is called
fixed Working Capital.
Temporary Working Capital:
Any amount over and above the permanent level of working capital is temporary,
fluctuating, or variable working capital. This portion of the required working capital is
needed to meet fluctuations in demand, Consequent upon the change in production and sales
as a result of seasonal changes.
Temporary working capital can be further classified as:
Seasonal working capital:
Most of the enterprises have to provide additional working capital to meet the
seasonable and special needs. The capital required to meet the seasonal needs of the
enterprise is called Seasonal Working Capital.
Special working capital:
Special working capital is that part of the working capital which is required to meet
special exigencies such as launching of extensive marketing campaigns for conducting
research etc.
Structure of working capital;
For a proper appreciation of the problems of working capital management, a
closer look at the individual items of working capital is essential. The components of current
assets and current liabilities, which are constituents of working capital, are shown in the
following table.
Current Assets
1.
2.
3.
4.
5.
6.
7.
Cash in Hand
Cash at Bank
Bills Receivable
Stock
Prepaid Expenses
Accrued income
Short-Term Investment
Current liabilities
1.
2.
3.
4.
5.
6.
7.
46
Bills Payable
Sundry Creditors
Accrued Expenses
Short Term Loans
Dividends Payable
Bank over Draft
Provisions for Taxes
8.
Working in progress
9.
Finished goods
10.
Stores and spares
11.
Advances to suppliers
Working capital management:

Working capital management is concerned with all decisions and acts that influence
the size effectiveness of working capital. According to Gilman, the goal of working capital
management is to manage each of the firms current assets and current liabilities in such a
way that an acceptable level of net working capital is maintained.
It is concerned with the determination of appropriate levels of current assets and their
efficient use, as well as the choice of the financing mix for raising the current resources.
Adequacy of working capital:
Adequacy of working capital implies that should neither be excessive nor
inadequate of the firms requirements. Excessive working capital means that the firm has
funds which earn no profit for the firm. Inadequate working capital means the company does
not have sufficient funds for carrying out its operations, which ultimately result in production
interruptions and decreasing the profitability.
Working capital should be adequate for smooth running of the operations and
uninterrupted flow of production. It will maintain credit-worthiness in the market and meet
all the current obligations including the payment of dividends to shareholders. It enables the
firm to avail cash discounts by making prompt payments.
Inadequate working capital:
Both the inadequate and excessive working capital is dangerous. If the working
capital is inadequate, the production will suffer. Credit worthiness in the market will be
affected because of lack of liquidity. Low liquidity and low production may lead to low
profitability which in turn affects the liquidity.
Dangers of Inadequate working capital:

The following are the dangers of inadequate working capital
Loss of goodwill and creditworthiness
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Firm cannot avail the favorable opportunities

Adverse effect on credit opportunities
Operational inefficiency
Low rate of return on fixed assets
Increase in business risks
Adverse effect on the morale of business executives.
Excessive working capital:

If the working capital is excessive, excessive inventory is the main target. It results in
the operational inefficiency leading to low profitability. Ralph Kennedy and Mc Muller
observed that the availability of excessive working capital may lead to carelessness about
costs and, therefore, leads to inefficiency of operations.
Dangers of excessive working capital:
It is not only inadequacy of working capital which is dangerous but also excessive working
capital leads to many problems, which are given below:
Low rate of return on capital
Decline in capital and efficiency
Loss of goodwill and confidence
Misapplication of funds
Evils of over-capitalization
Inefficient management
Optimum level of working capital:
Thus, every finance manager has to work out the optimum level of working capital in
order to avoid the dangers of inadequate and excessive working capital. Thus, both the
situations of inadequate and redundant working capital are dangerous.
Objectives of Working Capital:
The need for working capital cannot be over emphasized. Every business need some
amount of working capital. The need for working capital arises due to the gap between
production and realization of cash from sales it requires.
For the purpose of materials, components and spares.
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To pay wages and Salaries.

To incur day-to-day expenses and overheads such as full, prior, and office expenses
etc.
To meet the selling costs as packing, advertising etc.
To provide Credit facilities to the customers.
To maintain the inventories of raw materials, work in progress, stares and spores and
finished stock.
Aspects of working capital:

The aspects of management of working capital are:
Determining the requirements of working capital
Financing the requirements; and
Efficient utilization of working capital.
Determination of the requirements of working capital:
Efficient management of working capital involves careful determination of working capital
requirements and formulation of plans for meeting them. A large number of factors influence
the working capital needs of firms. The most important of these are:
The nature and size of business
Manufacturing cycle
Business fluctuations
Production policy
49
Credit policy
Credit availability
Growth and expansion activities
Profit margin and profit appropriation
Price level changes
Financing of working capital:

A working capital forecast is prepared to determine the amount of working capital
required to finance particular level of business operations. The exercise involves complicated
calculations embracing every aspect of business activity. The items usually taken into
consideration while preparing a working capital forecast are: -Costs to be incurred on material; wages and overhead expenses. The budgetary
approach to determine the working capital requirements involves preparation of cash budget
which is an integral part of the overall budgetary process in any firm.
The information required for each of the items in the cash budget has to be assembled
from various functional budgets and supporting schedules. Cash budget may be prepared for
any frequency depending upon the efficiency of the information system used in the firm and
the relevance of the frequency.
Efficient utilization of working capital:
All the components of working capital viz., cash, debtors, inventory and inventories, are to be
managed efficiently. There should not be excess or shortage of investment in any of these
components.
Organizational set-up:
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Normally a separate organizational set-up for management of working capital in business

enterprise may not exist. It is generally invested with the financial executive who looks after
all the aspects of financial management of the enterprise.
He is concerned with the funds forecasting laying down suitable policies and
procedures;
Monitoring the levels of cash, receivables and inventory;
Deciding about the financial mix for working capital
Expenditure control by fixing limits to expenditure
Working capital control, review and preplanning
Formulation of guidelines for working capital expenditures
Obtaining bank finance and other funds to meet the working capital requirements.
Importance of working capital management:
The management of working capital is one of the key areas of financial decision
making. It is significant because the management must see that an excessive investment in
current assets should be minimized as it leads to low profitability. At the same time it should
protect the company from the problems of stock-outs and risk
The management of fixed assets will be impossible without maintaining proper level
of current assets. Current assets will also determine the liquidity position of the company. The
importance of working capital can be understood from the following points.
Time devoted to working capital decisions:

The financial manager will mdevote their largest time for working capital financing,
control of current assets, management of liquidity etc. In view of this, it can be said that
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effective working capital decisions are also significant for successful management of the
companys affairs.
Investment in current assets:

Characteristically, current assets present more than sixty percent of the total assets of
many firms, because they represent a large investment in the various components of current
assets.
Further, the investment trends tend to be relatively volatile. Hence, the financial
manager has to show special attention for them
Importance to small firms:

The management of working capital is particularly important to small firms, because
for a small firm it may be possible to minimize its investment in fixed assets but it cannot
avoid an investment in cash, receivables, and inventors.
Therefore, current assets are particularly significant for the financial managers of
small firms. Small companies have relatively limited access to long-term capital market, they
have to depend heavily on trade credit and short-term loans form banks, both of which affect
the net working capital.
Relationship between sales growth and current assets:

The relationship between growth in sales and increase in current asset investment are
very close and direct. An increase in sales will accompany a similar rate of immediate
increase in additional inventories and cash balance. All such needs must be financed.
52
Determinants of working capital:

There are no set rules or formula to determine the working capital requirements of a
firm. A large number of factors influence the size of investment in working capital these
include:1.
Nature of the business: The working capital requirements of a firm are basically
influenced by the nature of its business. Firms engaged in trading and financing activities
make very heavy investment in current assets as compared to the investment in fixed assets,
whereas in the case of rail and road transport and other public utility services, steel, assets.
2.
Operating cycle: The operating cycle implies the stages or processes through which
the raw materials are processed to get the final product. If the process is lengthy and takes
long time to get the finished products, the requirements of working capital will be much
larger than that of a unit which has a relatively low operating cycle. The shortest
manufacturing process will minimize the investment in the form of work-inprogress.
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3.
Seasonal elements: The requirement of working capital to a company is influenced by
the demand for the product. If the firms product is seasonal demand-oriented not only the
amount of working capital fluctuates from one season to the other, but also the composition
of working capital changes over the time.
During the season, cash and bank balances are converted into inventory. The working
capital level will increase and cash balances may reduce.
Growth and expansion of business:
The working capital requirements of the firm will increase as it grows in terms of sales
or fixed assets. Current assets are closely related with that of sales. The requirements of
working capital for a growing firm will be more.
A growing company has to maintain proper balance between fixed and current assets
in order to sustain its growing production and sales. This will in turn increase the investment
in current assets to support the increased scale of operations.
Firms credit policy
The credit policy of the firm affects working capital by influencing the debtor
balances. The credit terms of a company may also depend upon the industry credit norms.
If a company follows a liberal credit policy, with out following the norms of credit, it will
result in more credit sales, increased book debts and increased investment in working capital.
Turnover of current assets:
Turnover of current assets refers to the speed at which the components of current
assets can be converted into cash.
The greater the turnover is, greater will be the cash flow and lesser will be the level of
working capital. If the turnover is low, the company can witness heavy piling up of vaus
components of current assets and increased level of working capital.
Availability of credit:
The level of working capital of a company also depends upon the credit facility
available to it. The firm will need less working capital, if liberal credit terms are available.
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The availability of credit facility from commercial banks also influences working
capital needs of the firm. Generally, if a firm gets credit facility easily, on favorable
conditions, it can operate with less working capital than a firm without such facility.
Dividend policy:
Dividends are paid to shareholders of the company out of the profits. The payment
of dividends results in cash outflow.
Further, a desire to maintain an established dividend policy may affect the company
by reducing the cash balances. It will cause changes in the level of working capital. Often,
changes in working capital also bring an adjustment in the dividend policy. Shortage of
working capital therefore, acts as a powerful reason for reducing or skipping a cash dividend.
Taxation:
Taxation is a short-term liability payable in cash. Advance payment of tax may have
to be paid on the basis of anticipated profits. Tax is the first appropriation out of profits.
Higher the tax, greater is the strain on the working capital of the company.
Government regulations and restrictions
Regulations and restrictions by the government and reserve bank of India through such
controls, as credit control, import regulations, influence the working capital of companies.For
instance, the Tendon committee has prescribed norms for holding inventory and debtors
which the company is nit expected to exceed.
Principles of the working Capital:
With regard to management of working capital, three propositions will be there. These
propositions are also termed as the principles involving risk that serve as the basis of working
capital theory.
Investment risk and return:
If working capital is varied relative to fixed asset investment, the amount of risk that a
firm assumes is also varied and the opportunity for gain or loss is increased.
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This principle assumes that a definite relation exists between the degree of risk that a
firm assumes and the rate of return. The more the risk assumed, the greater is the opportunity
for gain or loss.
The opportunity for gain is increased by choosing an appropriate asset and liability structure.
The firms return on investment will be greater when there are a low proportion of current
assets to total assets and a high proportion of current liabilities to total liabilities.
Contribution to net worth:
Capital should be invested in each component of working capital as long as the
equity position of the firm increases. This principle is based on the concept that each rupee
invested in fixed or working capital should contribute to the net worth of the firm.
Flow of funds:
The greater the disparity between the maturities of a firms short-term debt
instruments and its flow of internally generated funds, it is not possible to closely synchronies
the schedule of expected net cash flows and payments on debt will depend upon the risk
preferences of management. The shorter the maturity schedule of debt in relation to expected
net cash flows, the less the risk of inability to pay the debt.
However, financing is likely to be costlier under longer maturity schedule thus cutting
into profits. Profits can be maximized by making every effort to tie debt maturities with the
cash inflows of internally generated funds, since in such a case, there will be no need to hold
low yielding liquid assets, nor to have more long-term financing then is absolutely necessary.
Maximization of shareholders wealth:

On the whole, management has to determine the liquidity of the firm on the basis of
the information about risk and opportunity costs of holding liquidity. The degree of liquidity
desirable is a function of the probability of insolvency at various levels of liquidity, the
opportunity cost of maintaining those levels, and the cost of bankruptcy.
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The behavior of the management should be influenced not only by the risk and the
opportunity costs associated with various levels of liquidity, but also by the cost of
bankruptcy. The management must behave in a manner consistent with maximization of
shareholders wealth.
Techniques of working capital management:
There are several techniques of control as regards working capital management.
Some of the important techniques are ratio analysis, systems approaches applied in the case
of material management, PERT as applied in the case of operating cycle analysis,
mathematical models as applied in determining economic order quantities; safety stocks and
order points; Discriminate analysis, and decision three approaches as applied in credit
granting and collection decisions; discriminate analysis and simulation; and linear
programming techniques as applied in cash management decisions; cash flow and funds flow
analysis
Concerned as it is with the determination of appropriate levels of current assets and

their efficient use, as well as the choice of the financing mix for raising current resources,
working capital management deals with decisions, acts and procedures relating to the use and
the method of financing each current assets and determining its optimal level. The important
components of working capital management, therefore, are inventory management,
receivables management and cash management.
A variety of factors influence the working capital needs of firms. All factors are of
different importance. Further the importance of the factors change for a firm over time. So,
an analysis of the relevant factors should be made in order to determine the total investment
in working capital. The following is the description of the factors, which largely influence
the working capital requirements of the companies.
Nature and Size of the Business
Business fluctuations
Growth of the firm
Manufacturing cycle
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Seasonal fluctuations
Credit policy
Production policy
Operational efficiency
Price changes
Technology
Sources of Working Capital:
There are two types of financing sources. They are:
a)
Long term
Financing which have a maturity period for long term, such as shares, debentures,
preference shares, and retained earnings, loans from financial institutions, public deposits etc.
b)
Short term
Financing which are to be repaid in short span like one year, bank overdraft, commercial
papers, and factoring receivables etc.

Short term financing refers to borrowing funds or raising credit for a maximum of
1 year period i.e., the debt is payable within a year at the most. Whereas, the Long term
financing refers to the borrowing of funds or raising credit for one year or more. The finance
manager has to mix funds from these two sources optimally to ensure profitability and
liquidity. The mixing of finances from long term and short term should be such that the
firm not faces either short of funds or idle funds. Thus, the financing of working capital
should not result in either idle or shortage of cash funds.
A choice can be made between
these two sources in the following ways or approaches.

Approaches of Working Capital
Depending on the mix of short and long-term financing, the approach followed by any
company fall under these three categories
Matching Approach
Conservative Approach
Aggressive Approach
a)
Matching approach or Hedging approach:

In matching approach, long-term sources of finance are used to finance permanent
working capital. Temporary working capital can be financed from the short-term funds. The
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rationale of matching approach is that the maturity of source of funds should match the nature
of assets to be financed.
b)
Conservative approach:
According to this approach, most of the requirements of funds should be met from
long-term sources. Short term sources should be used only for emergency requirements.
Under a conservative plan, a firm finances all its permanent current assets and part of the
temporary current assets with long term sources. Conservative approach is less risky but
more costly as compared to matching approach. In other words, it is low profit low risk
approach.
c)
Aggressive approach:
In the aggressive policy, firm uses more short-term sources of financing than
warranted by the matching plan i.e., the firm finances apart of its permanent current assets
with short term financing. On the other hand more use of short-term financing makes the
more risky but less costlier.
Financing of working capital:
The sources of finance for working capital can be classified as under:
1.
Short-term sources.
Sundry creditors
Bank overdraft
Advance payments receive
2. Long term sources
Redeemable debentures.
Redeemable preference shares & Public deposits.
3. Permanent sources
Share capital.
Irredeemable debentures.
Plough back of profits.
Permanent and variable working capital:
In the similar way, the working capital requirements of the concern can be divided
into two portions Permanent portion and
Variable portion.
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Permanent working capital:

The total fund requirements (both on fixed capital and working capital) increases
with increased production over a period of time. A portion of the working capital remains the
same throughout. In other words, there is a limit below which the current assets do not fall.
This portion is the permanent working capital. This minimum level or lowest level of
current assets that a company should hold it, is known as the hard core or fixed working
capital. The Deejay committee and the Tendon committee have referred to the permanent
working capital as the core current assets
Fluctuating working capital:
There is a variable portion of current assets, over and above the permanent assets. It
varies with production plans, seasonality etc. This portion, also known as the fluctuating or
temporary working capital. It can be estimated in advance. The variable prtion of working
capital can be financed by short-term funds.
The general principle is that the fixed asset and the permanent portion of the working
capital should be financed by capital and reserves, long term debt and
permanent portion of the current liabilities.
Financing of working capital
The committee recommended that the core portion of current assets should be
financed by the company out of equity or by raising long term debt. But till recently,
companies continued to rely on commercial banks as the major suppliers of working capital.
By utilizing the long-term funds for permanent working capital,
the company ensures
stability. The loan need not be repaid at frequent intervals. The repayment over a period can
be planned depending on the surplus generated. The liquidity of the concern is increased.
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STATEMENT SHOWING THE CHANGES IN WORKING CAPITAL (YEAR-WISE)
PARTICULARS
CURRENT ASSESTS
INVENTORIES
BOOK- DEBTS
CASH /BANK BALANCES
LOANS & ADVANCES
TOTAL CURRENT ASSETS (A)
CURRENT LIABILITIES
ADVANCES
FROM
CUSTOMERS
SUNDRY CREDITORS
OTHER LIABILITEIS
PROVISIONS
TOTAL CURRENT LIABILITIES
(B)
NET
WORKING
CAPITAL
(A-B)
DECREASING
WORKING
CAPITAL
TOTAL
Previous
Current
Year
XXX
XXX
XXX
XXX
XXX
XXX
XXX
Year
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
INCREASE DECREASE
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
CASH MANAGEMENT
Effective management of working capital involves management of its components
viz., cash, debtors, and stock. Out of all these current assets, cash assumes specific
61
identification, because the operations of business result in the conversion of cash into rawmaterials. Cash is the most liquid asset that a business firm possesses.
It includes money and such instruments as money orders, and bank drafts. Cash in the
enterprise maybe compared to the blood in the human body. Even though firms differ in
terms of nature of business, capital structure, and risk and so on, they have in common the
basic mechanism involving conversion of funds into saleable products and back into cash.
But cash balance in its own form will not yield any return
Functions of Cash Management:
Management
The following are the functions of cash after of any business concern irrespective of
its size, nature, volume of business, age etc. The same can also be said that management of
receipts and payments.
Forecasting cash needs.
Expediting cash collections.
Disbursing cash to meet firms obligations.
Gainful investment of surplus cash.
Importance of Cash Management:
Management
Cash is unique resource and not comparable with any other component of current
asset. If excess cash is held, it will not generate profits since cash is sterile. It will not be
productive directly as in the case of other assets. Inventory bought excess will be useful even
after sometime, without loss of value and many a time value of inventories tend to increase
due to inflation. Hence idle cash will not generate profit but causes loss of interest.
Further, cash shortage causes irreparable loss to the management, since firms loose
not only profitable business opportunities but also good will when they fail to clear the bills
timely to cash shortage.
Motives of Holding Cash:
Cash
Famous economist, Keynes said that businessmen hold cash for 3 motives, which are as
follows.
Transaction motive.
Speculation motive.
Precautionary motive
Transaction motive:
Cash manager is expected to arrange appropriate amount of cash in right time to pay
for a right purpose. In fact, the cash receipts will never synchronize with cash obligations to
pay for.
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Hence to meet the expenses timely, a firm has to hold optimum amount of cash and
keep the firm comfortable in its cash transactions. Larger the business transactions more the
amount of cash balance to be maintained and vice versa.
Precautionary motive:
Firms at times need cash without prior notice. They need cash under emergency
conditions such as break down of machines, fire, theft, accidents etc, failing which they have
to pay heavy penalties. In such cases, cash rich companies can with stand rather than nil less
cash complaints.
The causalities, accidents, theft, machinery break down etc., in organizations
generally demand cash immediately. To meet the said eventualities, the firms have to
maintain cash balances. This cash balance is called precautionary cash balance. Hence they
have to raise funds in very short notice or some times spontaneously also. At that time only
cash rich companies credit worthy will be able to survive under hectic conditions cited above.
Speculative motive:
Of course, not all firms do business with speculative motives. Occasionally, every
business firm comes across speculative conditions such as sudden and heavy fluctuations in
prices of raw materials and rates or interest leading to rise in market for goods.
Hence, there is sudden rise in demand for goods, which warrants availability of cash
in very short notice. Thus the speculative conditions give chance to rise profitable
opportunities. Firms, having ability to generate cash in Short notice will take advantage of
these speculative conditions of business opportun
Factors affecting cash management:

management
The amount of cash requirement of a business firm depends upon the following
factors, which are discussed as under.
Credit Position:
Firms having goodwill in the market do not require cash balance much. They get
services and goods on credit as they re pay the bills timely out of the sales proceeds and
such firms need not maintain heavy cash balances.
Nature of market:
It has great influence on cash requirement, in certain markets one has to buy on cash,
since credit facility is not available. In some of the UN organized sectors and small
businesses where bank loans are not extended, their firms have to arrange their own cash.
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Inventory levels:
Higher the inventory levels a firm follows more the cash required. Lower the
inventory level, less lowly the cash balances to be needed. Thus, inventory level certainly
influences the cash requirements of the business.
Technology:
The firms, which are, followed manual methods need more cash by week ends to pay
for wages. Where as the firms whose business activities are more technologies based required
less amount of cash for the above said purposes.
Efficiency in using cash:
Cash balance depends upon the efficiency in using cash. Professional managements
maintain optimum cash balance and discharge cash obligations.
Benefits of adequate cash maintenance:
maintenance
The following are the benefits to a business firm who maintains adequate cash:
Cash Discount:
Firms can enjoy cash discounts and get goods/services at considerable prices if they
make down payments. This will increase profits and credibility. Occasionally, creditors may
also extend cash discounts for people who pay in advance or with in stipulated period.
Large scale buying
If firms buy raw materials in large quantities, they can get at low prices, which will
increase the overall profitability of the firms. The firms with cash balances will be able to
order bulk purchases to get them at lower prices.
Liquidity:
Firms, regular in payments of bills and taxes will be respected by the suppliers and co
operate by way of supplying required quantity of goods at lower prices. The suppliers can
also ensure supply of goods in times of scarcity.
Profitability:
Firms, which bargain at the turn of purchasing inputs and services, will get production
at low cost. This will enhance profit margin of the firms, which in turn will enhance its
profitability.
Better bargain:
Firm with adequate cash can bargain and obtain inputs at reasonably low price and
reduce cost of production.
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Techniques involved in Cash Management:

Management
A management cash flow involves vigilant and efficient practices on the part of
financial manager. Then only it becomes possible sound cash management. The financial
manager should see that there should not be a deviation between projected cash flows and
actual cash flows.
In order to achieve this, cash management efficiency will have to be improved

through a proper control of cash collection and disbursement. The two objectives in
managing the cash flows.
To accelerate cash collections as much as possible.

To de accelerate or delay cash disbursements as much as possible
1) Accelerating Cash Collections:

A company can reduce its requirements for cash balances, if it is able to speed up its
cash collections. An efficient financial manager can reduce the firms deposit float by
speeding up the mailing processing and collection times. Finance manager may use the
technique of decentralized collections or lock box system in order to accelerate cash
collections.
2) Lock box System:

In a lock box system, the company establishes a number of collection centers for its
customers and remittances. At each center, the company hires a post office box and instructs
customers to mail their remittances to the box. The local bank is given with the authority to
pick up the cheques directly from the lock box and deposit the cheques in firms account. The
bank prepares a detailed statement of cheques picked up and submits it to the company.
3) Controlling Disbursements:
The control of disbursement can also help the firm in conserving cash and so reducing
the financial requirements. The firms objective in collecting cash is to speed up collections
as much as possible. Whereas the objective of disbursements is to slow down the cash
outflows as much as possible. Disbursements (cash outflows) arise due to trade credit. The
firm should make the payments using the credit terms to the fullest extent. There is no
advantage in paying them sooner than agreed upon. But delaying payments as much as
possible, the company makes maximum use of trade credit as a source of funds. Often it is
interest free source of funds.
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Optimum Cash Balance:

Balance
Cash balance cannot be too high or low. If the cash balances are lower then the
required level, then it will create problem. The higher level of cash balance will ensure
liquidity, but the firm has to sacrifice profits, as excess cash will not yield returns. Thus, the
cash manager of a firm has to trade off between higher and lower levels of cash balance and
reach out optimum level of cash.
The optimum cash balance can be decided considering two types of costs involved in
it. They are:
Transaction costs:
Company has to maintain certain cash balance to meet transaction costs. If such
balance is lesser, firm has to borrow higher amounts from outside and consequently incurs
higher interest charges. Hence, such interest charges are higher when cash balance is lesser,
and lower when cash balance is more.
Opportunity costs:
Opportunity cost is the revenue forgone by the company when cash balance is more.
Because simply cash at bank does not yield any return. Such cost is higher when cash balance
is more and lower when cash balance is lesser.
Significance:
Cash management is concerned with minimizing unproductive cash balances,
investing temporarily excess cash advantageously, and to making the best possible
arrangements for meeting planned and unexpected demands on the firms cash.
It involves managing of cash flows in-and-out of the firm. Cash flows within the
firm, and cash balances held by the firm at a point of time. Cash management must be
thought of in terms of the overall liquidity needs of the firm.
Specifically its current assets and liabilities. In order to reduce the influence of
uncertainties with regard to cash needs and to ensure adequate liquidity, firms shall have the
need for protective liquidity.
The efforts involved for this purpose, usually take the form of:
Explicit identification of the kinds of contingencies against which protection is
desirable.
Assessment of the probabilities or odds that each of these will develop within a given
period in future, such as 5 years.
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Assessment of the probabilities that developments creating cash drains will occur at
the same time.
Assessment of the likely amount of cash drain that will result of each of the
contingencies develops.
An important policy decision regarding cash management is: what should be the optimum
amount of cash balance to be held? In determining such a balance, the management needs to
consider the joint impact of the follows:
The philosophy of the management regarding liquidity and risk of insolvency.
The expected cash inflows and outflows based on the cash budget forecast
encompassing long-range and short-range cash needs.
The size of sales in relation to fixed asset investment.
The degree of deviation between the expected and actual net cash flows.
The maturity structure of the firms liabilities.
The firms ability to borrow at short notice in the event of an emergency.
The status of the firms receivables and inventory.
The credit position of the firm.
The nature of business.
Efficient planning and control of cash.
Objectives of cash management:
Cash management must aim to reduce the required level of cash but minimize the
risk of being unable to discharge claims against the company as they arise.
If the firm holds too small a cash balance, its liquidity position becomes weak;
although the overall profitability will be high, the risk of technical insolvency will increase.
On the other hand, if the firm maintains too much of cash balance, it will have a sound
liquidity position and less risk. But its overall profitability will be reduced.
Therefore, the firm should maintain an optimum cash balance, which is neither small
nor large. It is that balance where the liquidity and profitability goals meet and there is a trade
off between risk and return.
When cash reaches an upper limit, marketable securities are converted into cash. The
level of marketable securities should also include resources which are saved to meet large
expenses.
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Another consideration that affects the level of marketable securities is the firms
banking relationships. If these are good, it means that the securities balance can be reduced.
There are various collections and disbursement methods which exercise a joint impact
on the over all efficiency of cash management. These methods speed up the mailing time of
payments from customers to the firm; reduce the time during which payments received by the
firm remain uncollected and speed up the movement of funds to disbursement banks.
Methods of cash control:
The methods which accelerate the collection process are concentration banking, lockbox system, special handling of remittances which involves personal picking up of these
cheques or the use of air-mail or special delivery, initiating controls to accelerate the deposit
and collecting of those small cheques up inter-bank transfers of cash and transfers between
various divisions of the company, closing of unnecessary bank accounts which create
unnecessary pockets of idle funds.
The objective of control of disbursements is to slow them down and yet ensure that
they are made in time. Establishing a minimum level of cash balance depends in part, upon
the compensating balance requirements of banks.
In exercising such control, the firm should give consideration to such aspects as quick
shifting of funds to the disbursing bank accounts, preventing excessive balances being built
up in a particular bank, establishing well defined operating procedures for disbursement,
eliminating or minimizing the loss of cash discounts on accounts payable due to clerical
inefficiencies and the timing of payment. Some of the methods of delaying disbursement.
Use of drafts instead of cheques, playing the float, maintaining a separate account for
pay roll disbursements in order to minimize cash balance in that account by predicting when
the pay cheques are likely to be presented for collection
INVENTORY MANAGEMENT
The term inventory comprises raw material, work-in-progress, finished goods and
stores and spares. Inventories represent a significant portion of assets in the case of most of
the manufacturing firms and require substantial investments.
Inventory management is concerned with the determination of optimum level of
investment for each component of inventory and the inventory as a whole, the efficient use of
the components, and the operation of an effective control and review mechanism.
Characteristics of inventory:
inventory
1. Stock out problem:
68
If adequate stocks are not maintained, the firm faces stock out problem risks for not
maintaining adequate stocks. If raw materials are not adequate, production schedules suffer
and interrupted production will not ensure regular supply of goods whereby firm looses its
market.
If production activities are stopped due to irregular supply of raw materials and other
inputs, cost of production will be high since fixed costs per unit will be more.
2. Lead time:
It is the time taken from the initiation of order till the arrival of goods. Lead-time may
vary from one day to many days. It depends upon the availability of item, distance,
transportation, etc. The time gap can be reduced through proper inventory planning.
3. Quantity Discounts:
If goods are produced on large-scale, producers will enjoy economies of scale. These
economies or savings occur where fixed costs are distributed over large production;
ultimately cost of production per unit will be lower. Some times production will extend to
customers by giving quantity discounts. This is peculiar characteristic associated with inputs
mainly raw materials and other consumables.
Motives of Holding Inventories:
Inventories
In a country like India inventories are necessarily to be held. The motives for holding
inventories are 3 types such as:
Transaction motive.
Precautionary motive.
Speculation motive.
a)
Transaction motive:
To ensure continuous business transactions raw material are held. without adequate
inventories it is hardly possible to imagine continuity of production. If enough raw materials
are not held, production activities cannot be carried out regularly. If for any reason production
is stopped for want of raw materials the staff, depreciation, rent etc., will cause severe loss to
the firm
b)
Precautionary motive:
Some times accidents, machine break down, lay off, strikes, etc occur without prior
notice under which situation, production should not suffer. Hence inventories are necessarily
to be carried out for smooth going of production and sales even in adverse times.
c)
Speculation motive:
Changes in technology, market conditions, and cause sudden rise or fall in prices of
supplies. To cope with changing conditions businessman carries inventories. Price
69
fluctuations affect demand and supply aspects of goods, which will in turn affect production
and sales activities. To avoid such odd situations inventory holding is appropriate.
Significance:
In inventory decisions, management has to take into consideration factors like
inventory carrying costs, ordering costs, costs of stock-outs, the rate of return on investment,
and the cost of capital. In the case of running enterprises, the decision is concerned, also with
additional investments in order to estimate and compare additional costs and additional
returns and the net effect on the maximization of the value of the firm.
While the technique of marginal analysis is found suitable in taking such decisions,
the classification of costs into fixed, variable and relevant, is considered as essential. The
decision to invest further, in inventory should be based on considerations of trade off between
the resulting savings associated with excess investment and the total cost of holding added
inventory.
Factors of influencing inventory:
Levels of inventory holding are also influenced by the operational flexibility it offers
to the firm. A lower inventory level gives less flexibility while a higher inventory level gives
greater flexibility. In evaluating the level of inventories, management must therefore, balance
the benefits of economics of production, purchasing and increased production demand against
the cost of carrying the additional inventory
Other things remaining constant, the greater the efficiency with which the firm
manages inventory, the lower the required investment and the greater the owners wealth. An
important step in inventory management is determination of investment in each component of
inventory, viz., raw material, work-in-process, finished goods and stores and spares. Some
important factors which influence the levels of each component are stated hereunder.
1. Raw material inventory:

The volume of safety stocks needed to protect against material shortages that
interrupt production.
Considerations of economy in purchase.
The outlook for future movements in the price of materials.
Anticipated volume of usage and consumption.
70
The efficiency of procurement and inventory control functions.

The operating costs of carrying the stocks.
The costs and availability of funds for investment in inventory.
Storage capacity.
Recomponent cycle.
Indigenous or force. .
The lead time of supply.
Formalities force..
2. Work-in-process inventory:
The length of the complete production process.
Technological considerations influencing process time.
Management policies affecting the length of process time.
Length of production runs.
Actions that speed up the production process,
Managements skill in production scheduling and control.
Sales expectations.
Level of sales and new orders.
Price levels of raw materials used, wages and other items that enter into
production costs and the values added in production.
Customer requirements
Usual period of ageing.
3. Finished goods inventory:

The policy of the management to gear the production to meet the firm orders
in hand.
71
The policy to produce for anticipated orders and stock-keeping.

Goods required for the purpose of minimum and safety stocks.
Sales policies of the firm.
Need for maintaining stability in production.
Price fluctuations for the product.
Durability, spoilage, and obsolescence.
Distribution system.
Ability to fill orders without delay.
Storage capacity.
Availability of raw material on seasonal basis, while customers demand spread
throughout the y
Stores and spares inventory:
Nature of the product to be manufactured and its lead time of manufacture.
State of technology involved.
Consumption patterns.
Lead time of supply.
Indigenous or foreign sources.
Minimum and safety stocks and ordering quantities
Objectives of inventory management:
72
Turning to the practical aspects of inventory management, the first step is to define its
objectives. Some of these are;
To assure continuity of operations in the most efficient manner possible , so that the
enterprise may reach its overall objectives.
To achieve a balance between economics of holding large inventories and of holding
small inventories.
To minimize direct and indirect costs associated with holding inventories.
Some of the important inventory policies relates to;
Procurement of raw materials and spares.
Size of minimum, optimum, and maximum stocks;
Safety stocks, order quantities, order levels and anticipation stocks.
Waste, scarp, spoilage, and defectives;
Policies relating to alternative use; and
Policies relating to order filling.
Role of finance manager:
Inventory management having become a separate function by itself, there should be a
separate organization for it. The finance executive should therefore exercise an overall
supervision and control over inventory management. The finance executives role in
inventory management may be stated as follows;
By understanding the implications of changing inventory policies and positions, he
has to anticipate changes in the need for funds.
Where finances are a limited factor, he has to help directly in shaping inventory
policies that are consistent with the realities of the firms financial position.
He has to help in the formulation of inventory policies designed to speed up turnover
and maximize return on investment.
Inventory control:
73
Inventory control is usually concerned with minimizing the total cost of the inventory.
Inventory control is the application of the general theory of material control to inventories. In
UK, the term often used is stock control. The efficiency of inventory control affects the
flexibility of the firm. They are;
The economic order quantity which enables determination of optimum size of order to
place, on the basis of demand or usage of the inventory.
The technique of safety stocks to overcome problems of uncertainty.
The order point formula which tells us the optimum point at which to reorder a
particular item of inventory.
Techniques of inventory control:
The finance managers should aim at an optimum level of inventory on the basis the tradeoff between cost and benefit, to maximize the owners wealth. As observed above, in this
section some simple production-oriented methods of inventory control to indicate a board
framework for managing inventories efficiency in format with the goal of wealthmaximization. The major problem that arises comprise the heart of inventory control are;
The classification problem to determine the type of control required,
The order quantity problem,
The order point problem, and Safety stock.
Fixation of stock levels:
Inventory control demands the maintenance of every item of material at a low level
but at the same time making it available when needed. These twin objectives could be
realized only through proper planning of inventory levels. With out proper planning, the firm
may be compelled to incur losses in the form of either overstocking or under stocking.
The store-keeper and stock manager or purchase manager
therefore fixes the
maximum and minimum levels for important stores items on a regular basis. The various
stock levels that are usually considered are;
74
1.Maximum level:
This is the level beyond which stock should not be maintained. In technical terms, it is
the sum total of the minimum quantity and the economic order quantity. If stock levels go
beyond this level, overstocking results in eating away capital, space and the energies of the
store-keeper.
The losses arising from depreciation in value, obsolescence, careless and reckless
handlings of materials also pose additional dangers. The maximum level is fixed after a
careful consideration of; the availability of capital, space available in stores, rate of
consumption, delivery time to obtain fresh stock, price fluctuations, cost of holding the
inventories, seasonal nature of supply, fashion changes, changes in governmental policies,
reorder level and economic order quantity.
Max. Stock level = (Reorder level + Reorder quantity)
(Minimum consumption x Minimum reordering period)
2.
Minimum level: (safety or buffer stock):

This is the level below which the stock of an item should not fall. This is essentially a
safety stock and hence, it is not normally touched. If the stock of an item goes below this
level, there is every possibility of production being held up for want of materials.
Consequently, the minimum level is fixed to avoid the danger of production
dislocations due to the non-availability of materials. This level is decided on the basis of rate
of consumption, the lead time, the availability of substitutes and reorder level.
Minimum stock level = Reorder level (Average rate of
Consumption x Average lead time)
Or
Minimum stock level =Reorder level (Normal consumption x
Normal reorders period or average delivery time).
3.
Reorder level: (ordering level) :

This is the point at which the store-keeper should initiate purchase requisition for
fresh supply. This is normally the point lying between the maximum and minimum levels. It
is fixed in such a way that the difference between the minimum level and the reorder level is
75
sufficient to meet the production requirements till fresh stocks arrive. Basically two factors;
maximum consumption and lead time determine the reorder level.
Reorder level = Maximum consumption x Maximum reorder period
Or
= Minimum level + consumption during the time required to get fresh supply.
Or
= Safety stock +consumption during lead time.
4. Danger level: This is the level below which the stock should never be allowed to fall
under normal circumstances. It is slightly less than the minimum level. When the
materials reach danger level, the store-keeper should make special efforts to get fresh
supplies, so that production is not held up for want of material
Danger level = Average rate of consumption x Urgent supply time.
Economic order quantity:
It is the quantity of material which can be reasonably ordered at a time and purchased
most economically. It is the quantity which is most favorable to order when fresh supplies are
needed. Reorder quantity, it should be remembered, is such that when it is added to the
minimum stock it does not exceed the maximum stock level. EOQ is fixed after taking the
following costs into consideration.
Ordering cost:
This is the cost of placing an order and securing the supplies.
It depends on the
number of orders placed and the number of items ordered each time. Whenever orders
increase in number and fewer quantities are purchased on each order, the ordering cost would
begin to rise.
Annual ordering cost = D/Q x S.
Where D = demand for item

Q = units to be purchased on each order
S= cost for order.
76
Carrying Costs:
Warehousing, insurance, wastage, loss due to theft, deterioration, etc. are called
inventory-carrying costs. These costs are more, as the level of stock is higher. These costs are
also known as holding cost.
Storage Costs:
77
Costs pertaining to warehousing of goods or inventory are generally called as storage

costs. Example: rent, lighting, insurance, checking.
Obsolescence Costs:
When goods are stored more quantity than demand for it, the quality deteriorates and
models will become outdated. At times they have to be sold at heavy discounts since the
quality of goods is poor and design or models are outda
Set up costs:
Normally production is made regularly any item for few days/ weeks. Whenever order
is placed for different items the producer changes the regular processing and shift to new
process to make it suitable to new order placed. Thus, when processing is shifted, the firm
incurs costs of design, loss of clerical time consumption, components, and spares etc. All
these constitute set up costs.
ACCOUNTS RECEIVABLES / CREDIT MANAGEMENT:
Sales cannot be done for cash alone and Trade credit is inevitable in the modern
business society, which is the basis of accounts receivables. Credit is also allowed by many as
a sales technique to maximize the sales and profit. Trade credit acts as bridge between
producers, as funds will be tied up. Hence, accounts receivables management is also a vital
aspect of working capital management.
In cash sales risk is zero whereas in credit sales risk is high. As the seller receives
payment later for transfer of goods effected today. In the credit business, it is not only the
uncertainty element but also depreciated value of the when served in the later date i.e., a
rupee received today is stronger than expected to receive tomorrow.
Objective:
Objective
The Objective of receivables management is to promote sales and profits until that
point is reached where the return on investment is further funding of receivables is less than
the cost of funds raised to finance that additional credit.
Protecting its current sales from the competitors.
Expanding sales by attracting potential customers.
Obtaining more sales from existing customers.
Costs:
Costs
The major categories of costs associated with the extension of credit and accounts
receivables are:
Collection Costs:
78
These costs are administration cost incurred in collecting the receivables from the
customers to whom credit sales have been made.
Capital Costs:
The increased level of accounts receivable is an investment in assets. They have to be
financed thereby involving a cost. The cost on the use of additional capital to support credit
sales, which apparently could profitable employed elsewhere, are therefore a part of the cost
of extending credit or receivables.
Delinquency Cost:
This is the cost, which arises out of the failure of the customer to meet their
obligations when payment on credit sales becomes due after the expiry of the period of credit.
Default Cost:
Sometimes the firm may not be in a position to recover the dues because of the
inability of the customers, such debts are treated as bad debts and are written off as they
cannot be realized, and such costs are known as default costs associated with credit sales and
accounts receivables.
Factors of Credit Policy:

Policy The following are the factors deciding the credit policy.
Competition.
Producers Capacity.
Buyers Condition.
Marketing Techniques.
Trade Practice
Competition:
Competition is the important factor why seller makes credit sales. Producers always
wish to leave the goods from the factory premises as early as possible.
Producers Capacity:
The more the producers financial capacity the more credit they allow to customers.
Buyers Needs:
Buyers do wish to get on credit even if the prices are slightly high. It has become
common habit to buy more if credit is easily available.
Buyers Status:
79
Buyers feel credit as if it is a status. They buy more even though the price is slightly
higher.
Marketing Technique:
Companies use credit as a technique to maximize its sales and push the sales, to make
more turnovers and thereby more profit.
Trade Practice:
Credit has become a tradition both for production and buyers. So the practice is
continued.
Extreme levels of Credit:

Credit
The credit policy will never be balanced unless managed with all precautions. A rider
on horse if not careful will get slipped. Similarly credit policy if not carefully designed will
end up in losses.
The credit policies are different types.
Liberal credit policy
Stringent credit policy
Optimum credit policy
Liberal credit policy:
Under this policy, the firm is ready to sell more on credit so as to maximize the sales.
Profits will increase in liberal credit policy as a result of increased sales. More sales by way
of liberal credit policy would also give rise to bad debts and losses there upon.
Stringent credit policy:
The firm is highly careful in extending credit to customers. The financial manager
through rigid standards often sacrifices profitable sales opportunities and profits in the name
of rigid and cautious credit norms. Therefore the objective of profit maximization is partially
fulfilled.
Optimum credit policy:
Sales increase by credit extension is associated with bad debts costs, because of
defaulting accounts. Though return on credit sales increases firms returns, simultaneously
firms liquidity is affected because of slow recovery of debts and at times no recovery of
some of the debts. The optimum investment in credit can be shown in a graph where it is the
intersection of the two curves i.e., marginal ratio or return on investment and marginal cost of
80
Capital.
Managerial aspects of credit policy:

policy
Credit policy determines the sales volume and future. So, the credit policy of a
company is competitively determined in the market. Even though the company has no
control over economic conditions and practices prevailing in industries, it can improve its
profitability through an intelligent receivables management. The decision areas in credit
policy are:
Credit Terms.
Credit Standards.
Collection Policy.
Credit Terms:
Terms
The second basic aspect of receivables management is to determine the credit terms,
which cover three things: cash discount, cash discount period, and credit period.
Changes in any of the firms credit terms may have an effect on its overall
profitability.
When a firm initiates or increases a cash discount, the sales volume will increase; the
average collection period, the cost of carrying accounts receivable and bad debt
expenses will decrease.
81
The decrease in average collection period and in bad debt expense results in increased
profits.
The negative aspect of an increased cash discount is a deceased profit margin per unit.
Decreasing or eliminating a cash discount would have opposite effects.
When the cash discounts period is increased, there is a positive effect on profits.
Many people who did not take the cash discount in the past will now take it, there by
reducing the average collection period.
The negative effect on profits is the resulting solar average collection period because
people, who were already taking the cash discount, will be able to still take it and pay
later.
If the discount period is shortened, the effects would be the opposite.
Changes in credit period also affect the firms profitability.
Increasing the credit period should increase sales.
But both average collection period and the bad debt expenses are likely to increase as
well.
Thus, the effect on profits may be negative.
An optimum solution is achieved at a point where the resulting marginal costs and
marginal gains from a decision are equal.
In determining the best combination of the three variables, the managements decision
is again based on the risk return trade off.
An optimum solution in achieved at a point where the resulting marginal costs and
marginal gains from a decision are equal.
Credit Standards:
Standards
The methods used by firms for the extension of credit are called as credit standards. A
firm can follow either tight or loose standards. A tight credit policy is likely to lead relatively
low sales and debtors.
On the other hand, liberal or lenient credit standards are likely to create more sales
and receivables. The four Cs of credit standards are capital, capacity, character, and
conditions.
Capital refers to the financial resources of the debtors.
Capacity relates to the ability of the customer to pay as demonstrated in earlier cases.
Character refers to the reputation of the customer in fair dealings.
Conditions signify the prevailing business condition.
82
Liberal credit standards increase various costs like credit administration and collection
costs, opportunity costs, bad debts losses, production and selling costs and cash discounts.
But at the same time profitability on additional sales can also increase.
Collection policy:
policy
By calculating the marginal cost of increased collection efforts and the decrease in
sales, and comparing this with the savings from reduced bad debt expenses and decreased
investment in accounts receivable, various strategies for increasing the level of collection
effort can be assessed.
The firms collection policies are the procedures followed to collect accounts
receivables when they are due.
The effectiveness of the firms collection policies can be partially evaluated by
looking at the bad debt expenses.
This level depends not only on the collection expenditures should reduce the bad debt
expense and the average collection period, thereby increasing profits.
The costs of this strategy may include lost sales in addition to increased collection
expenditures.
If the level of collection effort is too intense. Proposed reduction in the level of
collection effort can be evaluated in a similar manner.
Credit monitoring:
monitoring
Accounts receivables are monitored through the following techniques:
Aging Schedule.
Balance of payment patte
Aging Schedule:
Aging schedule is a technique to check and regulate the accounts receivables.
According to this method, bills are listed on the basis of due dates. Then the total sum due
from debtors is divided into different age groups.
Balance of payments pattern:
In this method out of the total sales made in month wise payments received will be
shown separately. It will reveal the extent of bills pending and yet to be received. This will
83
help collection departments to know how it has received so far and how much is pending so
far and further measures can be taken for the delay in payment if delay is done.
Benefits of Credit:
Credit
Credit Management is risky and it is known as riding on a double-edged sword. If
credit is not given sales will not increase, which is allowed as a chance of bad debts. Hence,
every firm has to be careful in credit sales and credit extension. The firm has to trade all
between benefits and costs of credit sal
The higher the credit, more the sales that will go along to increase profits and wealth
maximization to share holders. Simultaneously, this liberal credit policy of the firm may
cause funds shortage and problem of illiquidity. As such a prudential finance manager has to
be optimum in deciding the quantum of credit, standards, and procedures as well as terms of
credit.
Objectives of receivables management:
The first step in the efficient management of receivables is to define its objectives.
The more important of these objectives are;
To achieve growth in sales.
To over come the competitors.
Increase profits
Finance the customer.
84
Effective policies as regards credit grating and collection have to be evolved keeping
in view of the set objectives. Some of the possible credit policies are
Open credit without approval of appropriate authority up to a certain limit or with
approval if the credit exceeds that limit.
Limited credit.
Restrictive credit
No credit.
An effective collection policy has to be developed defining clearly the procedure for
Determining delinquent accounts.
Developing collection correspondence,
Dealing with discount chiselers,
Legal action for collection
Adjustment and liquidation proceedings.
Control:
Some of the important techniques for controlling accounts receivables are ratio analysis,
discriminate analysis, decision tree approach, and electronic data processing. Information
system with regard to receivables turnover, age of each account, process of collections, size
of bad debt losses and number of delinquent accounts is also used as one of the control
measures. Taken together, the various measures may present a picture of undesirable
restrictiveness or leniency. As always, the problem is to determine, on the basis of historical
and industry standards, whether or not, the relevant percentages and ratios are unusually high
or low.
********
DETERMINATION OF WORKING CAPITAL

WORKING CAPITAL CALCULATION (IN CRORES) Rs.
Particulars
2009-2010
2010-2011
85
2011-2012
2012-2013
2013-201
Inventories
2,14,90,126.31
1,98,72,779.31
Sundry Debtors
19,93,760.72
Cash
&
Bank
2,53,74,465.24
333473872.30
6075849.00
17,57,698.76
77,54,736.21
19840788.50
11426467.4
19,41,424.50
11,40,501.80
38,05,359.33
895534.47
13891215.3
9,46,581.22
5,24,715.22
4,48,089.12
2269534.00
10262673
--------
1790179.00
5031004
Balance
Loans & Advances
Prepaid Expenses
-------
16,17,347.00
TotalCurrent
2,63,71,892.75
2,49,13,042.09
3,73,82,649.90
358269907
41926204.8
Current Liabilities
3,28,80,429.28
3,00,85,841.28
2,98,45,473.69
20983549
22863418.0
Provisions
-------
--------
-------------
----------
TotalCurrent
3,28,80,429.28
3,24,87,368.28
2,98,45,473.69
20983549
22863418.0
-7574326.19
7537176.21
337286358
19062786.8
Assets(A)
24,01,527.00
Liabilities(B)
Net
Working -6508536.53
Capital(A-B)
86
STATEMENT OF CHANGES IN WORKING CAPITAL OF M/S BHARATHI SOAP

WORKS
From:
Particulars
Inventories
Sundry Debtors
2009
2010
10175201.4
21490126.3
2
3561176.60
1
1993760.72
Working Capital( In crores)

Increase
Decrease
11314924.89
1567415.88
Cash & Bank 285179.33
1941424.50
1656245.17
Balances
Loans
946581.22
534221.00
& 412360.22
Advances
Prepaid
425988.00
Expenses
Total
Current 14859905.5
26371892.7
Assets (A)
Current
7
16338858.1
5
32880429.2
Liabilities
7
2921519.80
8
-
Provisions
Total
Current 19260377.9
Liabilities(B)
Working Capital
7
-4400472.40
425988.00
16541571.11
2921519.8
32880429.2
8
6508536.53
Net Decrease in
2108064.13
Working Capital
TOTAL
18534974.99
18534974.99
Source: BHARATHI SOAP WORKS audited annual reports
Particulars
2010
2011
87
Working Capital( in crores)
Increase
21490126.31
Inventories
Sundry Debtors
Cash & Bank Balances
Loans & Advances
Prepaid Expenses
Total Current Assets (A)
Current Liabilities
Provisions
Total
19872779.3
Decrease
1617347.00
1993760.72
1757698.76
236061.96
1941424.50
1140501.80
800922.7
946581.22
524715.22
421866
1617347.00
26371892.75
24913042.0
32880429.28
9
30085841.2
8
2401527.00
Current 32880429.28
Liabilities(B)
Working Capital
6508536.53
1617347.00
2794588.00
2401527.00
32487368.2
8
7574326.19
Net Decrease in Working
1065789.66
Capital
TOTAL
5477724.66
5477724.66

Particulars
Inventories
2011
2012
19872779.3
25374465.2
88
Working Capital (in crores)

Increase
Decrease
5501685.93
Sundry Debtors
Loans & Advances
Prepaid Expenses
Current Liabilities
Provisions
Total Current Liabilities(B)
Working Capital
Net
increase
in
1757698.76
7754736.21
5997037.45
1140501.80
3805359.33
2664857.53
524715.22
448089.12
76626.10
1617347.00
1617347.00
24913042.0
37382649.9
9
30085841.2
0
29845473.6
240367.59
8
2401527.00
9
-
2401527.00
32487368.2
29845473.6
8
9
-7574326.19 7537176.21
15111502.4
Working
Capital
TOTAL
0
16805475.5
16805475.5
Working
Particulars
2012
2013
89
crores)
Increase
Capital
(in
Decrease
Inventories
Sundry Debtors
Loans & Advances
Prepaid Expenses
Current Liabilities
Provisions
Working Capital
Net
decrease
in
25374465.2
333473872.3
308099407
7754736.21
19840788.50
3805359.33
895534.47
448089.12
2269534.00
1821445
1790179.00
1790179
37382649.9
358269907
0
29845473.6
20983549
8861924
9
-
29845473.6
20983549
9
7537176.21
337286358
12086052
2909825
7742454
Working
Capital
10652279
TOTAL
Particulars
Inventories
2013
2014
333473872.3
6075849.00
0
90
10652279
Working Capital (in crores)

Increase
Decrease
13764939.5
Sundry Debtors
Loans & Advances
Prepaid Expenses
Current Liabilities
Provisions
Working Capital
Net
decrease
19840788.50
11426467.4
8414321.01
895534.47
9
13891215.3
12995680.8
2269534.00
5
10262673
8
7993199
1790179.00
5031004.00
3240825
358269907
41926204.8
20983549
4
22863418.0
-------
3
------
20983549
22863418.0
337286358
3
19062786.8
6099214.14
-
-------
1
in
4048769.77
Working
Capital
TOTAL
28278476.6
28278476.6
RATIO ANALYSIS:
1. CURRENT RATIO:
Current ratios are a measure to find out the liquidity of the business of a company. It
is calculated in the following way.
Current Ratio=Current Assets/Current Liabilities (In crores)
91
Current
Current
Assets
Liabilities
2008-09
3,52,41,872.90
2,90,90,342.69
1.211
2009-10
6,71,60,506.78
3,72,94,274.05
1.800
2010-11
8,19,84,258.99
2,32,15,999.72
3.531
2011-12
10,29,19,291.71
4,06,21,557.35
2.533
2012-13
11,03,55,546.34
2,49,06,586.03
4.430
Year
Figure-1
92
Ratio
CURRENT RATIO
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2008-09
2009-10
2010-11
2011-12
2012-13
INTERPRETATION:
The company current ratio was sound enough decreasing 2007-08 to2011-12.In
the year 2007-08 it was further decreased to 0.77,and In 2008-09 it was shortly increased
to 0.80, in the year 2009-10 the company current ratio some decreasing 0.77 in.2010-11
the company current ratio some increasing to1.25 and 2011-12 also increased to 1.7 It
means that company liquidity position is critical position period.
4. QUICK RATIO / ACID TEST RATIO:
93
Quick ratio should be 1:1 to indicate a satisfactory healthy financial condition of a

company. This test is considered to be better than the current ratio because it is able to assess
the liquidity of a company since it includes only quick conversion assets.
Quick Ratio = Current Assets Inventory / Current Liabilities
(In crores)
Quick
Current
Assets
Liabilities
2009-2010
1,76,40,901.21
2,90,90,342.69
0.606
2010-2011
3,18,52,751.33
3,72,94,274.05
0.854
2011-2012
3,12,16,652.09
2,32,15,999.72
1.344
2012-2013
4,51,05,780.71
4,06,21,557.35
1.110
2013-2014
5,15,06,975.34
2,49,06,586.03
2.068
Year
figure-2
94
Ratio
QUICK RATIO
2.5
1.5
0.5
0
2008-09
2009-10
2010-11
2011-12
2012-13
INTERPRETATION:
The company quick ratio was no sound enough since 2006-07 but later in the
year2010-11 it was increased to 0.40. It means that company liquidity position was
becoming good in positive way in compensation to previous years
3. WORKING CAPITAL TURNOVER RATIO:

95
This ratio measures the turnover of sales with working capital.

Working Capital T.O. Ratio = Sales / Working Capital (in crores)
Year
Sales
Working Capital
Ratio
2008-09
190969819.09
6151530.21
31.04
2009-10
344323299.36
29866232.73
11.53
2010-11
422842627.78
58768259.27
7.19
2011-12
580226645.02
62297734.36
9.31
2012-13
669201033.90
85448960.31
7.83
Figure-3
96
35
30
25
20
15
10
0
2008-09
2009-10
2010-11
2011-12
2012-13
INTERPERTATION:
The stock turn our ratio of the company is in the year 2007-08 is less than the
2008-09.next two years decreased the last year 2010-11 increased in cost of goods Sold as
well as average inventory and in 2011-12increased. It indicates effective use of firms
inventory
4. INVENTORY TURNOVER RATIO :
97
Inventory turnover ratio indicates the velocity of debt a firm. In collection of

simple words it indicates the number of times average inventory are tuned over during
a year.
Inventory Turnover Ratio = Cost of Goods Sold / Average Stock

(in crores)
Year
Cost of goods sold
2008-09
128867284.52
2009-10
Average stock
17803656.50
206000409.91
Ratio
7.23
24541202.99
8.39
2010-11
287400779.87
41162650.10
6.98
2011-12
399202475.90
52131687.95
7.657
2012-13
438381063.70
54551757.50
8.036
Figure-14
98
9
8
7
6
5
4
3
2
1
0
2008-09
2009-10
2010-11
2011-12
2012-13
INTERPRETATION:
The collection period of the company better in 2010-11 and the collection period
of the company are higher in 2007-08. So that the average working capital ratio of the
company where higher in 2010-11. In 2011-12 is highly inventory turnover ratio. The
company efficiency in terms of collection and as well as managing working capital is
increase.
FINDINGS
99
In all the years, current assets are more than current liabilities. In these, ratio years is
satisfactory.
The current ratio was fluctuating through out the study period. It is not appreciable.
The inventory turnover ratio is not satisfactory as the ratio is decreasing year by year
and inventory period is slightly increased.
The quick ratio of the Ms. BHARATHI SOAP WORKS is sufficient as the quick
assets are More than current liabilities.
The quick ratio of BHARATHI SOAP
WORKS is satisfactory.
Working capital turnover of BHARATHI SOAP WORKS is slightly decreased in the
year 2007- 08 and in 2009-10, working capital turnover ratio increased. In the year
2008-09 and 2010-11 decreased.
But the overall performance is good, since the risk and hard work by all the staff of
company yielded very good results and reputation all over the state.
100
SUGGESTIONS
It is suggested that the company should concentrate on the management of current
assets and current liabilities more effectively.
The total currents assets were continuously decreasing and adversely. The current
liabilities were increasing continuously; take necessary steps to maintain the ratio.
Inventory should be reduced maximum possible extent by following procedures like
just in time import substitution. As far as possible, the raw material should be
bought as and when necessary.
The inventory levels are nearly 60%-65% of the total current assets. It is not
achievable to any organization to maintain that level of inventories management
should concentrate on effective.
The investment in loans and advances should be minimized to the possible extent.
It is found that expenditure on major assets are showing increasing trends .it is there
fore suggested to introduce cost control system ,and this is possible by purchasing
bulk of material.
The company needs to get and continue current ratio of the firm in order to acquire
the standard norms of current ratio in 2:1.
101
CONCLUSION
The structure of the current asserts had been study at and found that the
current asserts position is satisfactory during the period. The company has all
the facilities of achieving full capacity utilization as achieved in previous year.
But due to working capital constraints the company is under utilizing its
capacity and is forced to go for trading to improve the profitability to achieve
better result, management as to take necessary steps in future like. Decrease the
purchase price .decrease day to day operating expencess.maintaining inventory
level .maintaining adequate cash for operation
102
BIBLIOGRAPHY
Financial Management
Khan & Jain
I.M.Pandy
Financial Manageme
Prasana Chandra
Theory & practice
Ravi M.Kishore
S.N.Maheswary.
R.K. Sarma & Shasi
Management Accounting
K.Gupta
103
104

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WORKING CAPITAL

Working capital management involves the relationship between a

NEED FOR THE STUDY:

OBJECTIVES OF THE STUDY:

SCOPE OF THE STUDY:

(1) Primary Data:

LIMITATIONS OF THE STUDY:

Liquid laundry, hand dishwashing and all-purpose cleaning products

Automatic dishwasher powders

Ultra (super concentrated) powder and liquid detergents

INDIAN DETERGENT INDUSTRY PROFILE

Personal Cleaning Products

Household Cleaning Products:

Soaps & Detergents Ingredients:

Surfactants or Surface Active Agents

Detergents and water pollution:

Competitive Land scape:

Research & Technology:

M/s BHARATHI CONSUMER CARE PRODUCTS PVT LTD; was a

Sri.A.Manickavel, proprietor of BHARATHI SOAP WORKS, came to Guntur in

GROWTH AND EXPANSION OF BHARATHI SOAP WORKS

Initially, M/s. Bharathi Soap Works capital

investment is Rs.65,000/- but shortly the investment was reached to

This school is providing good education to poor students who are

BHARATHI SOAP WORKS PRODUCTS - SALES

SALES TURNOVER ( Crores)

Detergent Cake & powder

Detergent Cake & powder

Detergent Cake & powder

Detergent Cake & powder

Detergent Cake & powder

Detergent Cake & powder

Detergent Cake & powder

Detergent Cake & powder

GRAPHICAL REPRESENTATION OF SALES TURNOVER ( BHARATHI SOAP

Detergent and Powder

Detergent and Powder

AWARDS & CERTIFICATES WON BY THE COMPANY

Bharathi Soap Works is an ISO 9001:2000 Certified Organization,

Certification from MOODY International Certificate,

Ukas Quality Management Certification,

Guntur District Best Industrialist Award received,

like 10 brands of washing soap in the National daily news

paper The Economic Times on 26-10-2012.

KRUSHITO NAASTHI DURBHIKSHAM

BHARATHI CONSUMER CARE PRODUCTS PVT. LTD.

At present 75 workers are at production department and 5 employees at office, 2

To improve sales compared to last year.

To improve the customer satisfaction level.

To reduce the wastage in production process.

To update the knowledge of the employees.

To continuously improve the process in all sections from time to time.

QUALI TY MAINTENANCE OF BHARATHI CONSUMER CARE PRODUCTS

Quality assurance demands a degree of detail in order to be fully implemented at

Nidumukkala(v), AmaravthiRoad, GUNTUR(Dist), AP., and supplying the generated power

The company BHARATHI

BHARATHI CONSUMER CARE PRODUCTS PVT. LTD.- PRODUCTS

XXX SILVER FOAM

XXX SILVER LINE

DISH WASH CAKES (ROUND & BAR )

BATH SOAP ( AYURVEDIC )

XXX RUF & TUF

TOOTH PASTE (AYURVEDIC )