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REPORT ON SUMMER TRAINING WORKING CAPITAL MANAGEMENT

AT PMP INDIA PVT LIMITED

IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE AWARD OF DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

REPORT ON SUMMER TRAINING WORKING CAPITAL MANAGEMENT AT PMP INDIA PVT LIMITED IN PARTIAL FULFILLMENT OF

SUBMITTED BY:

BABLOO KUMAR REG ID: 10906291

SUBMITTED TO:

LOVELY INSTITUTE OF MGT LPU PHAGWARA

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Acknowledgement

The project "WORKING CAPITAL MANAGEMENT OF PMP INDIA PVT LIMITED" would not have been possible without the kind assistance and guidance of many persons who indeed were helpful, co-operative, kind and hospitable during entire course of my assignment. I take this opportunity to express my acknowledgement and deep sense of gratitude for rendering valuable assistance and guidance to me by following personalities for successful completion of my summer training. . My whole hearted thanks to entire staff of PMP India Pvt. Ltd. for their kind co- operation and assistance in order to take my training successfully. My grateful thank also to Mr.Lovey Aggarwal for their co-operation and valuable guidance during tenure.

BABLOO KUMAR

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PREFACE

A student undergoing a master course needs to be exposed to the realities in the field which puts to test the class room learning. Knowledge cannot be gained only on the basis of theoretical understanding from the book. A practice inside is necessary for the learning process to be complete and effective. I took my training in very well known and well managed organization PMP India Pvt.Ltd, Where I got ample opportunity to give overall working of the organization. Working Capital Management, the project which I did is an important part of financial management. It is most powerful tool for interpreting the current financial health of organization. In the forthcoming pages, an attempt has been made to present a comprehensive report of my study conducted on Working Capital Management of PMP India Pvt.Ltd.

BABLOO KUMAR

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Executive summary

The project undertaken was on “working capital management of PMP INDIA PVT LIMITED”. The company deals with automobile parts. OBJECTIVES The foremost objective of my work was to study the various policies that fall under working capital management and also see the how is the approach of finance department of PMP India Pvt.Ltd towards their day to day operations. Other important objectives were to observe the impact of working capital cycle and long production process on each other. For this full production process was shown to me and various creditors and debtors policies were also told to me. Other important aspects like cash, inventory, receivables management were also studied to completely accomplish the study.

METHODOLOGY Research Type Descriptive Research Data Source secondary data

Research Instrument interactions

The

overall

results

were

Exploratory,

Primary Data,

group discussions,

generally

based

on

observations,

analysis

and

interpretation done during the industrial training and project undertaking.

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FINDINGS

In marketing very less importance is given to advertisement. Company’s marketing strategy has gone lame on the fact that company is having good reputation built in the past which will work for them in future also. Company had some shortcoming in debtor policy which disturbs the working capital cycle. Company gives material to some parties before their requirement date and for this time period company suffers losses and earns no rate of interest. Most of the ratios were accounting to good financial health of PMP India Pvt. Ltd.

RECOMMENDATIONS

Company should pay more attention towards advertisement. For period in which company provides material to the parties early, it should be counted in FOI period of creditor and debtor policy. Proper cash management system should be introduced to the company so that required amount of cash is always available to the company.

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CONTENTS

S.NO

TOPICS

PAGE NO

Chapter-1

INTRODUCTION TO SUBJECT

1-16

 

INTRODUCTION

2-9

 

NEED AND METHODS OF WORKING CAPITAL

10-14

 

REVIEW OF LITERATURE

15-16

CHAPTER – 2(A)

COMPANY PROFILE

17-49

 

TEXTILE INDUSTRY IN INDIA

18

 

INTRODUCTION OF OCM INDIA LIMITED.

19-27

 

HISTORY OF OCM

28

 

ORGANISATION STRUCTURE

29-34

 

PRODUCTION PROCESS

35-48

 

RAW MATERIAL MANAGEMENT

49

CHAPTER 3

OBJECTIVES OF THE STUDY & RESEARCH METHODOLGY

50-53

 

OBJECTIVES

51

 

RESEARCH METHODOLGY

52

 

LIMITATIONS OF THE STUDY

53

CHAPTER 4

DATA PRESENTATION AND INTERPRETATION

54-83

 

WORKING CAPITAL MANAGEMENT

55

 

FINANCIAL POLICIES

55-59

 

SOURCES OF FINANCE

60-61

 

WORKING CAPITAL CYCLE

62-64

 

DATA ANALYSIS AND INTERPRETATION

65-83

 

CASH MANAGEMENT

70-75

 

INVENTORY MANAGEMENT

76-79

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CHAPTER 1 INTRODUCTION TO THE TOPIC
CHAPTER 1
INTRODUCTION TO THE TOPIC

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INTRODUCTION

WORKING CAPITAL MANAGEMENT

MEANING:-

Capital required for business can be classified under two main categories:

Fixed capital Working capital Every business needs funds for two purposes for its establishment and to carry out its day to day operations. Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land &Building, Furniture etc. Funds are also needed for short term purposes for the purchase of raw material, payment of wages and other day to day expenses. These funds are known as working capital. In simple words, working capital refers to that part of the firm capital which is required for financing short term or current assets such as cash, marketable securities, debtors and inventories. Funds thus invested in current assets keep revolving fast and are being constantly converted into cash and this cash flows out again in exchange for others current assets. Hence it is also known as revolving capital.

In the words of SHUBIN, “Working Capital is the amount of funds necessary to cover the cost of operating the enterprise.”

Acc to Genestenberg, “Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another, for example cash to inventories, inventories to receivables, receivables into cash.”

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& ON THE BASIS OF TIME PERMANENT WORKING CAPITAL & WORKING CAPITAL TEMPRORY 9 CONCEPTS OF
&
&
&
&

ON THE BASIS OF TIME

ON THE BASIS OF TIME PERMANENT WORKING CAPITAL & WORKING CAPITAL TEMPRORY 9

PERMANENT WORKING CAPITAL

&

ON THE BASIS OF TIME PERMANENT WORKING CAPITAL & WORKING CAPITAL TEMPRORY 9

WORKING CAPITAL

TEMPRORY

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CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital:- Balance sheet concept Operating cycle or Circular flow Concept. On the basis of balance sheet Working capital may be classified in two ways:

ON THE BASIS OF CONCEPT. ON THE BASIS OF TIME.

WORKING CAPITAL

CONCEPTS OF WORKING CAPITAL There are two concepts of working capital:- Balance sheet concept Operating cycle

ON THE BASIS OF CONCEPT

GROSS WORKING

CAPITAL

NET WORKING

CAPITAL

Gross working capital also referred to as working capital means the firm’s investment in current assets.i.e

Net working capital
Net working capital

Net working capital refers to the difference between current assets and current liabilities. i.e.

CURRENT ASSETS -------
CURRENT ASSETS
-------

CURRENT ASSETS:

CURRENT LIABILITIES
CURRENT LIABILITIES

Current assets are those assets which in the ordinary course of business can be converted into cash or held in the business for the short time only.

Constituents of Current Assets:- STOCK OF RAW MATERIAL WORK IN PROGRESS FINISHED GOODS TRADE DEBOTRS PREPAYMENTS CASH BALANCES

CURRENT LIABILITIES:

Current Liabilities refers to short term debts of the business. It is money owned by a business which will need to be repaid within the next 12 months.

Constituents of Current Liabilities:- TRADE CREDITORS SHORT TERM LOANS BANK OVERDRAFTS DIVIDEND DUE FOR PAYMENT TAX DUE TO PAY WITHIN THE NEXT 12 MONTHS.

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BALANCE SHEET

LIABILITIES

AMOUNT

ASSETS

AMOUNT

Creditors

  • - Debtors

 

-

Loans

  • - Stock

 

-

Bank overdraft

  • - Cash

 

-

Advances

  • - Prepayments

 

-

Total

  • - Total

 

-

The Gross working capital concept is financial or going concern where as Net working capital is the accounting concept of working capital. Both concepts have its own merits. The Gross concept is preferred for the following reasons:- It enables the enterprise to provide correct amount of working capital at the right time. Every management is more interested in the total current assets with which it has to operate than sources from where it is made available. The gross concept takes into consideration the fact that every increase in the funds of the enterprise would increase its working capital. It is also useful in determining the rate of return on investment in working capital…

The net working capital is preferred for following reason:- It is qualitative concept which indicates the firm’s ability to meet its operating expenses & short term liabilities. It indicates the margin of protection available to the short term creditors i.e. excess of Current assets over current liabilities. It is an indicator of the financial soundness of an enterprise. It suggests the need for financing a part of the working capital requirement out of permanent sources of funds

Permanent or Fixed Working Capital It 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. For example, every firm has to maintain a minimum level of raw material, work in process, finished goods and cash balance. This minimum level of current assets is called permanent or fixed working capital as this amount is permanently blocked in current assets. The

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permanent working capital can be further classified as regular working capital and reserve working

Fixed working capital

permanent working capital can be further classified as regular working capital and reserve working Fixed working

Capital required ensuring circulation of current assets from cash to inventories, from inventories to receivables, from receivable to cash and so on. Reserve working capital is the excess amount over the requirement for regular working capital, which may be provided for contingencies, may arise at unstated periods such as strikes, rise in prices, depression etc.

Temporary or Variable working capital It is the amount of working Capital which is required to meet the seasonal demands and some special exigencies. Most of the enterprises have to provide additional working capital to meet the seasonal demands and special needs. This type of capital is called seasonal working capital.

Variable working capital

permanent working capital can be further classified as regular working capital and reserve working Fixed working

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Temporary working capital differs from permanent working capital in sense that it is required for the short periods and cannot be permanently employed gainfully in the business.

Variable working capital
Variable working capital

Fixed working

Capital

Sometimes fixed capital may vary with the expansion, diversification and growth of business and then it is fixed for the long period.

OPERATING WORKING CAPITAL CYCLE: The Circular flow of concept of working capital is based upon this operating or working capital cycle of a firm. The cycle starts with the purchase of raw material & other resources and ends with the realization of cash from the sale of finished goods. “The period of time which elapses between the point at which cash begins to be expended on the production of a product and the collection of cash from the customer” The operating cycle of a manufacturing company involves three phases:

-Acquisition of resources such as raw material, labour, power & fuel etc. -Manufacture of the product which includes conversion of raw material into work in progress into finished goods. -Sales of the product either for cash or credit. Credit sales create book debts for collection. The diagram is concerned with day to day activities; have funds constantly flowing into and out of them.

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The chain starts with the firm buying raw material on credit.

In due course this stock will be used in production, work will be carried out on the stock, and it will become part of the firm’s work in progress (WIP). Work will continue on the WIP until it eventually emerges as the finished product. As production progresses, labour costs and overheads will need to be met. Of course at some stage trade creditors will need to be paid. When the finished goods are sold on credit, debtors are increased. They will eventually pay so that cash will be injected into the firm. Each of the areas stock, trade debtors, cash and trade creditors shown the in and out of the fund. The business will have to make payments to government for taxation. Fixed assets will be purchased and sold. Lessors of fixed assets will be paid their rent. Shareholders (existing or new) may provide new funds in the form of cash. Some shares may be redeemed for cash. Dividends may be paid. Long term loan creditors may provide loan finance, loans will need to be repaid from time to time Interest obligations will have to be met by the business.

WORKING CAPITAL CYCLE

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NEED FOR WORKING CAPITAL 15

NEED FOR WORKING CAPITAL

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The main objective of financial management is to maximize the shareholders wealth. And for this it is important to generate sufficient profits. The extent to which these profits can be earned depends upon the magnitude of sales however do not convert into cash instantly. There is invariable time gap between the sales of good and the receipt of cash. Therefore there is need of working capital in form of current assets to deal with the situation arising of the lack of immediate realization of the cash against goods sold. There is an operating cycle involved in the sales and the realization of cash. During this time lag working capital is required for the following reasons:

Purchase of raw material, components and spares. To pay wages and salaries. To incur day to day expenses and overhead cost such as fuel, power and office expenses. To meet the selling cost like packaging, advertising etc. To provide credit facility to customer… To maintain the inventories of raw material, work in progress, stores and spares and finished goods.

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FACTORS DETERMINING THE WORKING CAPITAL

The working capital requirements of a concern depend upon a large number of factors such as nature and size of business, the character of their operations, the length of production cycle etc. however, the following are important factors generally influencing the working capital requirements:

Nature or character of business: The working capital requirements of a firm basically depend upon the nature of its business. Public utility undertaking like electricity, water supply and railway need very limited working capital because they offer cash sales only and supply services, not products, and as such no funds are tied up in inventories and receivables, and cash; as such they need large amount of working capital.

Size of Business/Scale of Operations: The working capital requirements of a concern are directly influenced by the size of its business which may be measured in terms of scale of operations. Greater the size of a business unit, generally larger will be the requirements of working capital. However in some cases even a smaller concern may need more working capital due to high overhead charges, inefficient use of available Resources and other economic disadvantages of small size. E.g. Retail stores require a variety of goods to satisfy varied and continuous demand of their customers.

Manufacturing Process/Length of Production Cycle: In manufacturing business, the working capital requirements increase in direct proportion to the length of manufacturing process. Longer the process period of manufacturing time, the raw materials and other supplies have to be carried for a longer period manufacturing in the process with progressive increment of labor and services costs before the finished product is finally obtained. Therefore, if there are alternative processes of production, the process with the shortest production period should be chosen.

Production Policy: In certain industries the demand is subject to wide fluctuations due to seasonal variations. The working capital requirements, in such cases, depend upon the production policy. The production could be kept either steady by accumulating inventories during slack periods with a view to meet high demand during the peak season or the production could be curtailed during the slack season

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and increased during the peak season. If the policy is to keep production steady by accumulating inventories it will require higher working capital.

Seasonal

Variations:

In certain industries raw material is not available

throughout the year. They have to buy raw material in bulk during the season to ensure an uninterrupted flow and process them during the entire year. A huge amount is, thus, blocked in the form of material inventories during such season, which give rise to more working capital requirements. Generally, during the busy season, a firm requires larger working capital than in the slack season.

Rate of stock turnover : There is a high degree of inverse co-relationship between the quantum of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover will need lower amount of working capital as compared to a firm having a low rate of turnover. For example, in case of precious stone dealers, the turnover is slow. Thus the working capital requirements of such a dealer shall be higher than that of a provision store.

Working Capital Cycle: In a manufacturing concern, the working capital cycle starts with the purchase of raw material and stores, its conversion into stocks of finished goods through work in progress with progressive increment of labour and service costs, conversion of finished stocks into sales, debtors and receivables and ultimately realization of cash and this cycle continues again from cash to purchase of raw material and so on.

Credit policy: Credit policy of the concern its dealings with creditors and debtors influence the requirement of working capital. Concern that purchases its requirements on credit requires less working capital and vice- versa.

Rate of Growth of Business: The working capital requirements of a concern increase with growth and expansion of its business activities. Although it’s difficult to determine the relationship between growth in the volume of business and the growth of working capital in the business, yet in the fast growing concern, we shall require larger amount of working capital.

Price Level Changes: Changes in working capital also effect the working capital requirements. Generally the rising prices will require the firm to maintain larger

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amount of working capital, as more funds will require maintaining the same current assets .The effect of price changes may be different for different concerns.

Earning Capacity and Dividend Policy: Some firms have more earning capacity than others due to quality of their products, monopoly conditions etc. such firms with high earning capacity may generate cash profits from operations and contribute to their working capital. The dividend policy of a concern also influences the requirements of its working capital. A firm that maintain a high rate of cash dividend irrespective of its generation of profits needs more working capital that retains larger part of its profits and does not pay so high rate of cash dividend.

Other Factors: Certain other factors such as operating efficiency, management ability, irregularities of supply, import policy, asset structure, importance of labor, banking facilities etc, also influence the requirements of working capital.

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METHODS OF WORKING CAPITAL

The following are the methods of the working capital:

MATCHING APPROACH:

The firm can adopt a financial plan which matches the expected life of assets with the expected life of the source of the fund raised to finance assets. Thus a ten year loan may be raised to be financed with an expected life of ten year. Stock of goods to be sold off in 30 days may be financed with the 30 days commercial paper or bank loan.

CONSERVATIVE APPROACH:

A firm in practice may adopt a conservative approach in financing its current as well as fixed assets. Under the conservative plan the firm finances the permanent assets and also a part of the temporary assets with long term financing. In the period when the firm has no need for temporary current assets than the long term fund can be invested in the tangible securities to conserve the liquidity.

AGGRESSIVE APPROACH:

An aggressive policy is to be followed by the firm when it used more short term finances than warranted by matching plan. Under the aggressive approach the firm finances a part of the permanent current assets with the short term finances. Some extremely aggressive firms may even finance a part of their fixed assets with the short term finances. The relative short term finances make the firm more risky.

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REVIEW OF LITERATURE

Impact of Working Capital Management Policies on Corporate Performance—An Empirical Study Sushma Vishnani Bhupesh Kr. Shah It is felt that there is the need to study the role of working capital management policies on profitability of a company. Conventionally, it has been seen that if a company desires to take a greater risk for bigger profits and losses, it reduces the size of its working capital in relation to its sales. If it is interested in improving its liquidity, it increases the level of its working capital. However, this policy is likely to result in a reduction of the sales volume, therefore of profitability. Hence, a company should strike a balance between liquidity and profitability. In this paper an effort has been made to make an empirical study of Indian Consumer Electronics Industry for assessing the impact of working capital policies & practices on profitability during the period 1994–95 to 2004–05. The impact of working capital policies on profitability has been examined by computing coefficient of correlation and regression analysis between profitability ratio and some key working capital policy indicator ratios.

Management of Working Capital

"Management of short term assets and short run sources of finance is described as working capital management. Working capital management is concerned with all decisions and acts that influence the size and effectiveness of working capital. The goal of working capital management is to manage each of the firm's current assets and current liabilities in such a way that an acceptable level of 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 financing mix for raising the current resources. "Proper management of working capital is very important for the success of a concern. It aims at protecting the purchasing power of assets and maximizing the return on investment. The manner of management of working capital to a very large extent determines the success of operations of the concern. Failure of business is undoubtedly due to poor management of working capital. Shortage of working capital is so often advanced as the main cause of failure of an industrial concern.

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An Analysis of Working Capital Management Results Across Industries

Greg

Filbeck,

Schweser

Study Program

Thomas M. Krueger, University of Wisconsin-La Crosse

The importance of efficient working capital management (WCM) is indisputable. Working capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash will soon be required (Current Liabilities). The objective of working capital management is to maintain the optimum balance of each of the working capital components. Business viability relies on the ability to effectively manage receivables, inventory, and payables. Firms are able to reduce financing costs and/or increase the funds available for expansion by minimizing the amount of funds tied up in current assets. Much managerial effort is expended in bringing non-optimal levels of current assets and liabilities back toward optimal levels. An optimal level would be one in which a balance is achieved between risk and efficiency.

A recent example of business attempting to maximize working capital management is the recurrent attention being given to the application of Six Sigma® methodology. Six Sigma® methodologies help companies measure and ensure quality in all areas of the enterprise. When used to identify and rectify discrepancies, inefficiencies and erroneous transactions in the financial supply chain, Six Sigma® reduces Days Sales Outstanding (DSO), accelerates the payment cycle, improves customer satisfaction and reduces the necessary amount and cost of working capital needs. There appear to be many success stories, including Jennifer Towne’s (2002) report of a 15 percent decrease in days that sales are outstanding, resulting in an increased cash flow of approximately $2 million at Thibodaux Regional Medical Center. Furthermore, bad debts declined from $3.4 million to $600,000. However, Waxer’s (2003) study of multiple firms employing Six Sigma® finds that it is really a “get rich slow” technique with a rate of return hovering in the 1.2 – 4.5 percent range.

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FINANCE DEPARTMENT Finance department looks into the cash inflow and outflow of the company finance department headed by assistant vice president who responsible for three main activities like. Banking transaction including day dealing with the banks and updating the books of account.Dealing with financial institution for short term financing of the company. Realization activities including for short term and long term financing of debtors after the sale of goods on credit. General accounts This department maintains all the books of accounts. It maintains the annual accounts that are audited secretly. It also looks into to the government taxes excise duty etc.

MIS-Management INFORMATION SYSTEM MIS fives a periodic report to about the financial matters of the company to the head office and board of direction. MIS also handles the budgeting that is based on the last two year experience and the prediction of the next three year based on that it also works out of the company policy and helps in its implementation The supplier will get the L/C and arrange shipment of the material as per order and negotiates the documents through bank.The same will be delivered to the L/C opening bank. Wool top supply to spinning department for conversion into yarn for making fabric.

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OBJECTIVES & RESEARCH METHODOLOGY CHAPTER 3
OBJECTIVES & RESEARCH METHODOLOGY
CHAPTER 3

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OBJECTIVE OF THE STUDY

Objective setting is the initial stage

or

starting point of

any project

to

be

undertaken. It is essential to know what objectives means from the literally or the study point of view.

The main objectives of the study are:

To study the working capital management of PMP INDIA PVT LTD.

To study the various ratios related to inventory, receivable and payable.

To study the factors affecting the working capital.

To develop a practical approach towards problem solving by applying theoretical knowledge.

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RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the research problem. It may be understood as a science of study how research is done systematically. This research on working capital may be referred to as exploratory research in which problems and findings are generated from the calculations. When some deduction is made from data then a problem is located regarding the same and reasons for the same are also searched for. In the end suggestions and recommendations are made to make research meaningful and worthy to improvise on the same.

DATA COLLECTION

Data is collected in two ways. Primary data Secondary data

The primary data refers to the data which is collected directly. It is collected by observations, interviews, questionnaires etc. it is generally more accurate. It is costly in the terms of time. One needs to be very careful while collecting this form of data. Here primary data is collected from the employees of PMP INDIA PVT LTD. The data related to financial statements and processes is collected from finance department. Some production data is collected from various departments.

Secondary data refers to the data which is already collected by somebody. It is generally collected from websites, magazines, journals etc. here data is collected from annual report of company for financial analysis. Some data was provided by company itself. And rest of the required data is collected from books like prasanna Chandra, im pandey of financial management. Some of the data is also collected from websites.

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LIMITATIONS OF THE STUDY

Although full efforts have been made to complete and comprehensive the study on working capital of PMP INDIA PVT LTD, So that the study could present a true picture, Inspite of all the care efforts there are some limitations such as:

Financial resources are limited.

The time of research was not that much sufficient that could be regarded as opportunity to analyze WCM of such organization.

As data taken is secondary, so it cannot be said to give constant conclusions, as it’s not revised to present situation.

Company planned training schedule, in which long time period was given to see production process of the unit.

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DATA PRESENTATION, ANALYSIS AND INTERPRETATION CHAPTER 4
DATA PRESENTATION, ANALYSIS AND
INTERPRETATION
CHAPTER 4

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WORKING CAPITAL MANAGEMENT

In PMP INDIA PVT TD there are three main types of current assets. stock sundry debtors cash Stock consists of raw material and components stores and spare parts stock in process finished goods Debtors consist of debt over six months other departments Cash includes in hand cash current account fixed account

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FINANCIAL POLICIES OF COMPANY

DEBTORS POLICIES IN OCM Material is supplied to the party when the parties pay the invoices. Invoices are paid by the suppliers by 2 ways. The two ways are as follows:

Through Bank Direct Payment THROUGH BANK: Suppliers can make the payment through Bank. This is a risky way of payment for the company. Through bank payment can be made by two ways that are as follows:

DA (Documents against Acceptance) DP (Documents against Payment) In DA. bank give the documents to the suppliers n supplier accepts the documents. He does not give the money at that time but he make promise to pay the payment. Bank give the documents on the bases of suppliers promise to pay. In DP, direct payment is made by the suppliers. Bank take payment from the supplier and give him the documents. DIRECT PAYMENT: In this mode, payment is made direct'. It can be made by cheque, draft, and at the centers. The

centers of unit are HDFC Bank and Corporation Bank. Payments are received mostly by this method. CREDIT NOTES These are given to the customers. 10% discount is given to the items that have minor defects. And the items having major defects are not sent for sales. Goods are taken back in the later case. SALES POLICY FOI (FREE OF INTEREST POLICY): These are for the suppliers of the company. The policy is different for different suppliers depending upon the parties. A specific time period is given to the suppliers to pay the payment for the goods. Time period given depends upon the amount of payment that he suppliers have to pay. In this time period no interest is charged from the suppliers. Suppliers can make payment:

10lac upto 30Days 10 to 50 lakh upto 45 Days & above 50 lakh a time period of 60 Days.

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INTEREST POLICY The parties that make late payment interest is charged from them. And interest is given to the parties that make early payment. The parties that make early payment interest is given as follows:

If the parties make payment within 15 Days then 18% interest is given to those

suppliers. If the parties make payment after the 15 Days then 15% interest is given to the supplier. The parties that make late payment, interest is charged from them as follows:

If the payment is made within 60 Days after the due date then 15% interest is charged from then If the payment is made after 60 Days then interest charged is 18%. INCENTIVE POLICY To promote the sales, incentives are given to the suppliers depend upon their amount of payment. It is between 1 to 5 %. It is as follows:

Amount (in lakhs)

  • 2.51 1.50

to 3.00

  • 3.01 2.00

to 5.00

  • 5.01 2.50

to 8.00

  • 8.01 3.00

to 10.00

  • 10.00 3.50

to 15.00

  • 15.01 4.00

to 25.00

25.01 to 50.00 & Above'50

4.50

5.00

Incentives (in %)

The suppliers have to pay 12% interest per annum as a security deposit.

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POLICY RELATED TO AGENT’S COMMISSION Agents are the sales reprehensive of the company. Material is sold by these agents to different parties. Parties can not buy material directly from the company. They have to first visit these agents. Booking of material (with Commission starts from 2 to 7 %. it depends upon the quality of the material they will sold, if the agent sell material of high quality they are paid more commission. And if they sell low quality they are paid low commission. Agents are given code. And materials are also given codes. Their commission are calculated automatically by seeing their code and the code of the material they sold. Eg. Pb C, here Pb stands for Punjab and C is for the quality of the material. There's a agent in a state. Agent is responsible to receive the payment from the party. It is duty of the agent to receive the payment from the party. Every party has a ledger account. To check the invoice and payment, balance is checked.

SIGNIFICANT ACCOUNTING POLICIES

  • 1. Basis of preparation of financial statement

The financial statements have been prepared on a going concern basis under the historical cost convention. Accounting policies not referred to otherwise are consistent and in consonance with generally accepted accounting principles. The company follows mercantile system of accounting and recognizes significant items of income and expenditure on accrual basis. Whenever it is not possible to determine the quantum of accrual with reasonable certainty e.g. insurance and other claims, refund of custom/excise duty etc., these continue to be accounted for on settlement basis.

  • 2. Sales

Sales are reported net of turnover/trade discounts, returns and claims. Rebate/discount other than usual allowances accounted for as and when incurred.

  • 3. Fixed assets

Fixed Assets are stated at their original cost (including other expenses related to acquisition and installation) less depreciation.

  • 4. Impairment of assets

An asset is treated as impaired when the carrying cost of the same exceeds its

recoverable amount. An impairment loss recognized in prior is reversed if there has been change in the estimate of the recoverable amount.

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  • 5. Depreciation

Depreciation has been provided on fixed assets (except in case of lease hold land which is being amortized over the period of lease ) on Straight Line Method in accordance with the rates, on pro-rata basis, specified in schedule xiv of the Companies Act, 1956.

  • 6. Foreign currency transaction

Any income or expense on account of exchange difference either on settlement or on transaction is recognized in the Profit & Loss Account except in cases where they relate to the loans and liabilities incurred for acquisition of fixed assets in which case they are adjusted to the carrying cost of such Assets.

  • 7. Treatment of expenditure during construction period

Expenditure during construction/erection period is allocated to the respective assets

on completion of such construction or erection.

  • 8. Investments

Long term investments are stated at cost less provision for diminution in value

other than temporary, if any. Current investments are valued on category basis, at cost or below cost, as the case may be.

  • 9. Valuation of inventories

Inventories are valued at lower of cost and net realizable value, except waste, scrap and by-products valued at net realizable value. Cost is computed on weighted average basis. Finished goods and process stock include cost of conversion and other costs incurred in bringing the inventories to the present location and condition. 10. Borrowing costs Interest cost relating to funds borrowed for acquisition of fixed assets is capitalized up to the date asset put to use, and funds borrowed for other purposes is charged to the Profit & Loss account.

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SOURCES OF FINANCE

Firstly, we will consider different sources of finance from which the company gets its working capital.

TRADE CREDIT: - Trade credit is the credit extended by the supplier in the normal course of business.PMP INDIA PVT LTD has strong financial base it has got very good reputation in the market. It is considered to be one of best paymaster among the suppliers, who in turn do not hesitate in extending normal credit period to the company. In purchase of raw material no credit is allowed, but while purchasing the material in bulk quantity the company tries to obtain maximum discounts offered by suppliers, such as quantity & cash discount.

ADVANCES: - Advances also form a part of working capital at PMP INDIA. An advance from customers against orders is a short term source of finance for PMP INDIA PVT LTD. Parties make the advance payment before receiving the material.

FIXED DEPOSIT: - Fixed deposit is another source of finance for the company. The company has fixed deposits scheme with option for quarterly payment of interest or payment of interest at the time of maturity along with principle amount. However in both the cases maximum rate of interest is 10.5% for a deposit for 3 years and minimum rate of interest is 9.5% for a deposit for 1 year. In cumulative scheme interest is being compounded at monthly basis. Company makes regular payment of interest as well as of principle amount. The entire fixed deposit scheme is computerized.

39

WORKING CAPITAL BORROWINGS FROM BANKS:

Commercial banks are the most important source of short term finance. The major portion of working capital is provided by commercial banks. They provide a wide variety of loans tailored to meet the specific requirements of a concern. The different form in which the banks normally provide loans and advances are as

follows:-

CASH CREDIT PACKING CREDIT IN INDIAN RS. & IN FOREIGN CURRENCY FOREIGN BILLS NEGOTIATION DISCOUNTING OF INLAND BILLS UNDER LETTER OF CREDIT SHORT TERM LOANS

a) Cash Credit: Cash credit is an arrangement by which a bank allows his customers to borrow money up to certain limit against hypothecation of inventories, receivables etc. The company can operate cash credit account within sanctioned credit limits. For this bank charges interest on the last balance of everyday. PMP INDIA has the following banks from which it takes the cash credit.

HDFC BANK CORPORATION BANK UNION BANK OF INDIA BANK OF INDIA STATE BANK OF INDIA PUNJAB NATIONAL BANK

b). Packing Credit: Packing credit is also popularly known as pre shipment credit. It is sanctioned by commercial banks to boost exports. It is available at concessional rate of interest as compared to rates charged by banks on cash credit account. Packing credit is available in Indian Rupees as well as in foreign currency. Packing credit account is nullified against presentation of export documents to the bank.

c).Foreign Bills Negotiation: After submission of export documents to the bank the pre shipment credit is converted into post shipment credit. Usually export documents are drawn at sight, or against acceptance. Tenure of documents depends on factors like country, product exported etc. Company negotiates the export

40

documents and avail post shipment credit from the banks, which gets liquidated after realization of export documents. At the time of negotiation bank charges interest for the unexpired period from the company along with negotiation charges.

d).Discounting of Inland Documents Drawn Under Letter of Credit:

The company supplies goods to the customers against inland letter of credit drawn in favor of OCM by customer. After dispatch of material to the customer the presents the documents to the bank for discounting and receives the amount from

the bank.

e.)Short term loans: Working capital borrowings from banks are secured by the hypothecation of entire present and future tangible assets of the company and also personally guaranteed by the directors of the company.

f). Letter Of Credit: - A Letter Of Credit popularly known as L/C is an under taking by a bank to honor the obligation of its customer up to a specified amount, should the customer failed to do so. In case the customer fails to pay the amount, on the due date, to its supplier the bank assumes the liability of its customers for the purchases made under the L/C Arrangement. OCM also accepts the payment from their customers on behalf of L/C, so it becomes the source of finance for them.

41

WORKING CAPITAL CYCLE IN PMP INDIA PVT LTD

Working Capital Cycle: In a manufacturing concern, the working capital cycle starts with the purchase of raw material and ends with the realization of cash from the sale of finished products. This cycle involves purchase of raw materials and stores, its conversion into stocks of finished goods through work in progress with progressive increment of labor and service costs, conversion of finished stocks into sales, debtors and receivables and ultimately realization of cash and this cycle continues again from cash to purchase of raw material and so on.

WORKING CAPITAL CYCLE IN PMP INDIA PVT LTD Working Capital Cycle: In a manufacturing concern, the

42

APPLICATION OF FUNDS The major portion of company’s working capital consists of inventory, stores, spares, finished goods and work in progress etc. now we will discuss them separately:

1. Raw Material:

The major portion of company’s working capital consists of inventories. Company

purchases machinery, spares, waste paper, chemicals for manufacturing ,raw material takes around 20 to 40 days to reach at unit from domestic as well as international market. Consequently payment is made on the basis of installments decided at the time of deal.

  • 2. Work in process:

When raw material is purchased the next step is the processing of the material. Material purchased has to process also. Working capital is needed for following purposes:

For the payment of direct labor. Power supply .

  • 3. Stores and Spares:

Stores, spares, oils and lubricants, packing material, chemicals are various constituents of inventory of stores and spares. Indent is sent to material department for procurement. They call quotations from various suppliers and place order to the supplier who offers better price, quality, payment terms etc. Goods are received at gate and then gate entry is done. Usually credit period offers by suppliers are 15 days, 30 days, 60 days. Bills duly processed by material department are received in finance department where they are passed for payment. Finance department enters these bills in computer giving indication of due date of payment. Finance department enters these bills on day to day basis. Fortnightly payment to suppliers is made on 10 th and 25 th of every month. List of bills due for payment is obtained from computer. Other than this stock and spares normally account to minimum of 4 crore at anytime, for future needs.

  • 4. Finished goods:-

Finished goods are sold to their customers or debtors. The debtor policy mentioned above shows the time period offered to pay back. This normally in one lot accounts to Rs.25 crore.

43

DATA ANALYSIS AND INTERPRETATION

Calculation of gross working capital

Stock

32494380 35845838 39385321 70624168 25381734 29541657 83170779 275097344 230644319 173344236 103458859 138497501 2008 3036954 331750 549592
32494380
35845838
39385321 70624168
25381734
29541657 83170779
275097344
230644319
173344236
103458859
138497501
2008
3036954
331750
549592
829249
2007
291367657
33284652
2006

RAW

MATERIAL

WORK

IN

PROCESS

FINISHED

STOCK

STORES

END

SPARES

WASTE

AND

SCRAP

PARTICULARS

TOTAL STOCK

32494380 35845838 39385321 70624168 25381734 29541657 83170779 275097344 230644319 173344236 103458859 138497501 2008 3036954 331750 549592
DATA ANALYSIS AND INTERPRETATION Calculation of gross working capital Stock 32494380 35845838 39385321 70624168 25381734 29541657

Debtors

44

  • 131765757 381875624

  • 44008482 41467189

Less : Provision for doubt debtors

Particulars

2006

2007

2008

Over 6 months

47784158

55639817

81444414

Other debtors

165657116

120134422

341898394

131765757 381875624 44008482 41467189 Less : Provision for doubt debtors Particulars 2006 2007 2008 Over 6
131765757 381875624 44008482 41467189 Less : Provision for doubt debtors Particulars 2006 2007 2008 Over 6
35964581
35964581
Total debtors
Total debtors
131765757 381875624 44008482 41467189 Less : Provision for doubt debtors Particulars 2006 2007 2008 Over 6
131765757 381875624 44008482 41467189 Less : Provision for doubt debtors Particulars 2006 2007 2008 Over 6
177476693
177476693
131765757 381875624 44008482 41467189 Less : Provision for doubt debtors Particulars 2006 2007 2008 Over 6

Cash

45

Particulars

2006

2007

2008

Cash in hand

276837

71645

221360

On current account

745530

4555244

2739552

Fixed deposit

22000

64404693

40162000

Total cash

1044367

69031582

43122912

Loans and Advances :

  • 2006 2007

    • 35744752 22907167

Total loans and advances

Particulars
Particulars
2008
2008
33635982
33635982
2006 2007 35744752 22907167 Total loans and advances Particulars 2008 33635982
2006 2007 35744752 22907167 Total loans and advances Particulars 2008 33635982
2006 2007 35744752 22907167 Total loans and advances Particulars 2008 33635982
2006 2007 35744752 22907167 Total loans and advances Particulars 2008 33635982

Gross working Capital :

Particulars

 

2006

2007

2008

GWC

489363156

454348825

750002175

Growth

rate

(base

year

-

-7.15%

53.26%

2006)

46

47

47

Net working capital :

Particulars

2006

2007

2008

Current assets

489363156

  • 454348825 750002175

 

Current liabilities

205166434

  • 188480460 265573692

 

NWC

284196722

  • 265868365 484428483

 

Growth rate

-

-6.64%

70.45%

Net working capital : Particulars 2006 2007 2008 Current assets 489363156 454348825 750002175 Current liabilities 205166434

INTERPRETATION:

In the above calculations it is seen that condition of the company is becoming better in 2008. Company has recovered from his downfall, or it can be said that company is still recovering. It can be clearly seen that stock has gone up for the company in the year 2008 as compared to previous two years. It means company is getting more orders to be placed in future. The debtors of the company have turned up with positive response, which earlier in 2007 gone down because of company was running under losses. Cash is now not left idle in 2008, which again is good for company to effectively use its cash in day to day operations. After a steep fall in gross working capital in year 2007 the company again jumped to good required working capital. recession struck badly in 2007 as company mostly deals in international market. The company witnessed some bad response from his creditors and debtors also .. Company got business opportunities from abroad and 2008 again company had a sound working capital to keep operations running. In all the three years 2008 is proving to be better year in financial terms

48

CASH MANAGEMENT

Cash is the most important current assets needed for the uninterrupted and efficient flow of various operations of a firm. Cash basically is the business at all times. It is also the ultimate output that is expected to be realized by selling of the product or service of a particular firm. In a narrower sense cash is used to cover currency and generally accepted equivalent of a cash. Such as cheques, drafts and demand deposits in banks. However a broader meaning of it includes near cash assets marketable securities and time deposits. In banks that are characterised as being reserve pool of liquidity that can be readily sold and converted into cash. They also provide a short term investment outlet for excess cash has to be invested while the deposit has to be borrowed cash management seeks to accomplish this cycle, at a minimum cost at the same time it also seeks to achieve liquidity and control. In order to cash the uncertainity regarding the cash flow production an efficient cash management should follow following steps.

  • 1. Cash planning

Cash inflows and outflows should be planned to project cash surplus or depict for each part of the planning period. Cash budget should be prepared for this purpose.

  • 2. Managing cash flows

The flow of cash should be so managed. The cash inflows should be accelerated

while, as far as possible, the cash outflows should be decelerated.

  • 3. Optimum cash level

The firm should decide about the appropriate level of cash balances. The cost of

excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balances.

  • 4. Investing surplus cash

The surplus cash balance should be properly invested to earn profits. The firm

should decide about the division of such cash balance between alternative short term investment opportunities such as bank deposits, marketable securities or intercorporate lending.

49

MOTIVES FOR HOLDING CASH

The firm need to hold the cash may be attributed to the following three motives:

Transaction motive Precautionary motive Speculative motive Compensation motive Basic strategies of Compsny to manage the cash 1. Stretching accounts payable This implies that the firm pay its accounts payable as late as possible without damaging its credit standing. However cash discount available on prompt payment should also availed off.

  • 2. Efficient inventory production management

Another strategy is to increase the Inventory turnover rate avoiding stock out for

shortage of stock by increasing the raw material turnover, decreasing the production cycle or increasing the finished goods.

  • 3. Speeding collection of accounts receivable

This refers to the quick collection of receivables without loosing future sales. The average collection period of receivable can be reduced by changes in the credit terms, credit standards and collection policies. . To ensure speedy collection of receivables, firstly the firm grants a free of interest

period to its customers. This is 15 to 20 days depending on the reputation of the customer. During this period, no interest is charged from the customers. Although, in case of delay in payment of the expiry of this period. The following rates are charged

22-45 days

-

18%

45-65 days

-

20%

60-75 days

-

22%

-

75-90 days

24%

90 onwards -

26%

Secondly cash discount is offered to the customers by the firm regularly. Sometimes the company announces some special offers to specify the debt recovery which is bound by a particular condition that the customer would be required to pay particular percentage of the total payment. Initially to be entered

50

for the cash discount. Thirdly, the firm has increased the customer management services network. Earlier 20 banks offering the facility of cash collection, now the number has increased to 27. Calculation of cash position ratio:

Formula:

=

Cash

C.L.

CASH POSITION RATIO

PARTICULARS

2006

2007

2008

CASH

1044367

69031582

43122912

CURRENT

20516643

18848046

 

LIABILITIES

4

0

265573692

CASH

POSITION

     

RATIO

0.005

0.37

0.16

for the cash discount. Thirdly, the firm has increased the customer management services network. Earlier 20

INTERPRETATION:

Cash position ratio in all the three years is not able to reach rule of thumb. It is matter of worry. In the 2007 ratio was 0.37 which has helped PMP INDIA LTD in the time of real need. But as company didn’t ever stored much cash in hand, and has always invested somewhere to prevent cash being idle, which is positive sign for PMP INDIA. PMP INDIA has always returned its loans and other liabilities in time. Because of this it holds good reputation from long time. So it can be concluded that cash reserved with company is generally reserved out of every task that needs to be accomplished in time, but according to rule of thumb firm must have at least ratio of 0.5 where PMP INDIA lacks.

51

OTHER RATIOS:

Current ratio :

Year

C.A.

C.L.

Ratios

2006

489363456

205166434

2.38

:1

2007

454348825

188480460

2.41

:1

2008

750002175

265573692

2.82

:1

Quick ratio :

Year

Quick Assets

C.L.

Ratios

2006

214265812

205166434

1.04

:1

2007

223704506

188480460

1.18

:1

2008

458634518

265573692

1.17

:1

INTERPRETATION:

Both the above ratios are speaking for good financial health. The current ratio in all the three years is above rule of thumb i.e. 2:1, which is considered to be satisfactory for the firm. Quick ratio is also above the rule of thumb, i.e. 1:1 which again is satisfactory far the company. This also covers the shortcomings of the cash ratio. These all ratios show that liquidity is sound and tells that company is fully able to meet any current obligations.

52

INVENTORY MANAGEMENT

Inventory contribution the most significant part of the current assets of PMP INDIA for effective management of inventory and therefore the whole procedure of inventory management is carried on in a systematic manner. Decision relating to the procurement of inventory are primarily by the executive of the production purchase and marketing department In case of contingencies following policies are obtained. Whenever raw material is purchased transit insurance is done. For insuring the building, furniture, fixtures etc. the following policies are there. Fire insurance Flood risk policy Earthquake policy

53

INVENTORY PROCUREMENT IN PMP INDIA PVT LIMITED

In order to forecast the future requirement of inventory ,it follow a very systematic procedure. The raw material is procured twice or thrice a day in case of a stores and spares and other miscellaneous items. Firstly a sales conference is held twice a year where dealers from country and

abroad are invited for bookings or order or the finished items for each season, summer and winter once the booking are done . Then on the basis of demand of a particular variety feed back from the market future trends as well as the suppliers of last season. A sales plan is prepared by the production planning and control

department

headed

by

the

deputy

general

manager.

This

These

order are

communicated to the purchase department of arrangement are done to set the finance from the banks. For this purpose banks issue letter of credit in favour of PMP INDIA. These 73 days of operating cycle will takes place when raw material is already available. But in case the company has to purchase outside the whole operating cycle will take almost 140 days.

Material procurement Operation

=

73 days

=

Days given to debtors = 21 days

139 days

45 days

Hence the company maintains its inventory level keeping in view the operating

cycle and lead time and accordingly maintains its buffer stock and sets its reorder point. CALCULATION OF INVENTORY TURNOVER RATIO INVENTORY TURNOVER RATIO:

Inventory Turnover Ratio = Cost of Sales Average Inventory

Conversion period =

365

Inventory Turnover Ratio Inventory turnover ratio (ITR) establishes the relationship between the sales during a period and the average amount of inventory carried during that period.

54

Particulars

2006

2007

2008

Sales

436858856

522133945

966065240

Opening stock

1444170

173344236

138497501

 

1649795254

138497501

103458859

Closing stock Average

87394203

151738513

120978180

inventory ITR

4.99 times

3.44 times

7.99 times

Particulars 2006 2007 2008 Sales 436858856 522133945 966065240 Opening stock 1444170 173344236 138497501 1649795254 138497501 103458859

INTERPRETATION:

Inventory turnover ratio has improved as compared to previous two years. Inventory conversion period seems to be reduced in the year 2008. It is good for the company. Here it is definitely beneficial as sales made were high and stock was also high in 2008. So company is getting good response from market for its products and it is more efficient in converting raw material to finished good.

55

RECEIVABLE MANAGEMENT

Receivables are defined as debt owned to the firm by the customers arising from the sales of goods or services in the ordinary course of business. In other words receivables represent an extension of credit to customers allowing them a reasonable period of time in which to pay for the goods they have received. The sale of goods on credit is an essential part of the modern competitive economic system credit sales are of ten treated as a marketing tool aid the sale of goods. It is also variable to the customers as it arguments their resources it is particularly appearing to those customers who cannot borrow from other sources or find it expensive or cumbersome to do so. Thus the objective of receivable management is to promote sales and profit until that point is reached where the return on investment in further funding of receivables is less than the cost of funds raised to finance to that additional credit however extension of credit involves risk also sold on credit. Cost benefit involved The major categories of cost associated with the extension of credit and accounts receivables are:

1. Collection cost This involves the administration cost incurred in collecting the accounts

receivable such as maintaining the staff, postage, etc. and also expenses involved in acquiring credit information from outside parties.

  • 2. Capital cost

This is the cost that a firm has to incur due to the time lag between making sales

and receiving payment meanwhile meeting its own obligation like payments of wages, procuring raw material etc.

  • 3. Delinquency cost

These are the costs that arise when the firm makes extra effects on collecting

receivables when they become due for payments.

  • 4. Default cost

This involves the bad debts that have to be written off as they cannot be realized.

Key decision areas in management of receivables Credit policy The first decision area is the determination of the credit policy. It has two broad dimensions Credit standards Credit standards are the criteria which a firm follows in selecting customers for the purpose of credit extension. The firm may have tight credit standards or loose credit standards.

56

Credit analysis Credit standards influence the quality of the firm's customers. There are two aspects of the quality of customers, the time taken by customers to repay credit obligations and the default rate. Credit terms The stipulations under the firm sells to customers are called credit terms. These stipulations include Credit period The length of time which is extended to customers is called the credit period. It is generally stated in terms of a net date. Cash discount A cash discount is a reduction in payment offered to customers induce them to repay credit obligations within a specified period of time, which will be less than the normal credit period. It is usually expressed as a percentage of sales.

Collection policy A collection policy is needed because all customers do not pay the firm's bills in time. The collection efforts aim at accelerating collections from slow payers and reducing bad debt looses. The collection policy should ensure prompt and regular collections.

CALCULATION OF DEBTOR TURNOVER RATIO:

DEBTORS TURNOVER RATIO

Debtors turnover ratio=

Collection Period =

Sales

Average debtors

365

Debtor’s turnover ratio Percentage of debtors turnover in NWC

 

Particulars

2006

2007

2008

Debtors

177476693

  • 131765757 381875624

 

NWC

284196722

  • 265868365 484428483

 

percentage

62.4

49.5

78.8

57

Particulars

2006

2007

2008

Debtors

177476693

131765757

381875624

Sales

436858856

52133945

966065240

DTR (Times)

2.46

0.397

2.53

Particulars 2006 2007 2008 Debtors 177476693 131765757 381875624 Sales 436858856 52133945 966065240 DTR (Times) 2.46 0.397

PARTICULARS

2006

2007

2008

DTR

2.46

3.96

2.53

AVERRAGE

148 DAYS

92 DAYS

144 DAYS

COLLECTION

PERIOD

INTERPRETATION:

DTR ratio is best in year 2007. But it is not that it was profitable for the firm. In the year 2007 company didn’t had much to collect from outside because of lack of business. So leaving 2007, 2008 seems to be better than other good busuiness year that is 2006. More of the collection is to be made from foreign. This is another reason for long collection time. Overall it is not good for company.

58

CHAPTER 5 SUMMARY CONCLUSION AND SUGGESTIONS
CHAPTER 5
SUMMARY CONCLUSION
AND SUGGESTIONS

SUMMARY

59

The main purpose of this project undertaken was to study the working capital management of PMP INDIA PVT LTD. Firstly, the basics of the working capital management are explained in detail. It covers meaning, need, importance of working capital management. Afterwards types of working capital are explained i.e. fixed and variable working capital. Then the factors determining working capital and working capital cycle are explained. Research methodology and scope of the study is given in chapter no. 3. The study had various limitations. Very less tools were used in analysis of the company. Time was another constraint,as other objectives of training were also to be kept in mind. Research was more of an exploratory research which showed valuable results. Working capital management at PMP INDIA PVT LTD is having strong base. The different financial policies adopted by the company are really supporting the company. Working capital cycle which starts from the purchase of raw material to the realization of cash involves a long time span. This is because of nature of business. Then every single aspect of working capial management was covered. In cash management company was having different policies for speeding cash recovery. In inventory and receivables management both turnover ratios were good as per nature of business and requirement of business. Overall the crux of the study says company had sound financial base and is recovering from recession good. Analysis were made on the basis of the data of year 2006, 2007, 2008. The data and ratios went more supportive in the year 2008 as compared to previous two years.

CONCLUSION

60

After studying the components of working capital management system .It is found that the company has a sound and effective policy and its performance is very good, even in this bad recession situation.Company has managed to pose good profit.Company is competing well ar the domestic as well as at international level. Company has shown increase in current ratio, growth rate in gross working capital,net working capital in the year 2008.sales of company and debtors have also increased in 2008 as compared to 2006-2007.So we can say that the position of company is good. All the ratios were speaking for strong financial output brought to the company in the year 2008. The company is matured one and it has contributed well in the countries growth and development and will continue to perform and contribute to the whole nation In conclusion we can say that the companies management is effective one and knows well the management of finance. That’s why it’s working capital management system is very good .

SUGGESTION

61

For cash management the company largely upon the short term sources of funds. Instead there should be a more systematic procedure of investing in the short term securities. So far such decisions are centralized and lie in the hands of the head office. There needs to be more decentralized in this respect so that more could be invested in short term securities, which can be realized at any time to pay time to pay the short term liabilities The company's ratio analysis shows too much of surplus liquidity in the hands of the company. This cash should not be left idle and should be invested . The company should make disbursement from a centralized account , so that a smaller cash balance would be needed at each branch and secondly , the company would be able to control the schedule tightly and it would be easier to make disbursement on the right day .in order to speed up accounts receivable, the company can adopt the lock box system. The would ensure quick recovery of receivables. The main advantage of lock box system would be:

The banks of PMP INDIA can handle the remittances prior to deposits at lower cost. The processing time of such remittances is reduced since their collection process faster than if PMP INDIA would have processed them for internal accounting purpose prior to their deposits in the box. This job could still be banks without delaying the collection. The major advantage of accelerating the collection is reduce the firm's total financing requirements. And by transferring the clerical function to the bank, the firm may reduce its cost.

SWOT ANALYSIS

62

STRENGTH The biggest strength of PMP INDIA is its latest technology and imported machinery. Moreover, versatility is synonymous to PMP INDIAIn North India, the brand is perceived to be a premium and reliable brand because of its presence in the market for over eight decades. WEAKNESSES The main weakness of PMP INDIA is a conventional distribution channel. The company relies mainly on the agents for sales promotion. The company spends less money on advertisement. The company's capacity is too high thus the fixed cost remains the same at any amount of production. OPPORTUNITIES in today's phase of recession, small units are rather lacking back. And thus PMP INDIA can take advantage of this situation.

THREATS

BIBLIOGRAPHY

63

BOOKS

I.M.Pandey, “Financial Management” vikas publications.

Prasanna Chandra, “Financial Management Theory and Practice”.

S.K. Gupta and R.K. Sharma, “Financial Management”, kalyani publishers.

C.R. KOTHARI, “Research methodology”.

64