Capital Management

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EXECUTIVE SUMMARY
Working Capital Management is significant in financial management due to the fact

that it plays a vital role in keeping the wheel of the business running. Every business
requires capital, without which it cannot be promoted. It holds exceptional
importance in the case of a manufacturing company. It also covers various concepts
like inventory management, cash management, credit policy etc. This study is
undertaken to find out the efficiency and effectiveness of the working capital
management in the company and to provide useful feedbacks.
Apollo Tyres Ltd is one of the largest tyre manufacturing companies across the
world. The company started its production of tyres way back in the year 1977. It
holds 2nd position in India and 14th position in the world. The company currently has
9 plants in India, South Africa and Zimbabwe. Apollo Tyres exports its products to
Africa, the Middle East, South America, Asia-Pacific and Europe.
This project titled ‘A STUDY ON WORKING CAPITAL MANAGEMENT AT APOLLO

TYRES LTD’ is a deliberate and systematic endeavour to study the working capital
management system in the Indian tyre giant.
Under this study analysis has been done for the last five years from 2003-2004 to
2007-2008. Various secondary sources like annual report of the company, journals,
theoretical texts, publications in the web, financial inputs from the management staff
etc. were utilised to undertake the study. The study is mostly made from the financial
analysis tools like ratio analysis, cash conversion cycle, schedule of changes in
working capital position etc. The limitation of these tools may reflect in the results of
this study also.
The study tries to compare the working capital management in the company and
other competitors in Indian market to know the efficiency and shortcomings of the
system. Analysis has been done by comparing the industrial ratios with the ratios
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recorded by the company. This project also tries to study about the components in
the current asset to know the level of consistency over the years.
From the study it is found that the overall working capital management system is
very efficient paring few drawbacks. The company showed high consistency in most
of the areas of working capital and also met the industrial average and even
surpassed them in some cases. It is found that the company’s performance in some
areas is commendable and a few areas require more attention.
It is suggested that the company should reinforce some aspects like cash
management to consolidate its liquidity position. Minor adjustments in the inventory
management system are needed for the more efficient utilisation of the inventory.
The company’s Debtors management is found to be highly efficient. This can be
understood by seeing the average collection period which is twice faster than the
industrial average.
The company should rectify the shortcomings in its working capital management
system with utmost care to achieve global standards and thereby becoming
Benchmark Company in this particular sector.
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COMPANY PROFILE
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INDUSTRY PROFILE
The origin of tyre industry in India dated back to 1926 when Dunlop Rubber Ltd set
up the first tyre factory in West Bengal. MRF followed the suit in 1946. Since then the
Indian tyre industry has grown rapidly. Transportation industry and tyre industry go
hand in hand as the two are inter-dependent. Transportation industry has
experienced 10% growth rate year after year with an absolute level of 870 billion
tonne freight with an extensive road accounts for over 85% of all freight movement in
India.
Tyre industry consumes over 60% of the total rubber production with respect to
Indian economy. But in actuality only just around 52% of the tyre is natural rubber.
Remaining 48% consist of synthetic rubber, carbon, chemicals, etc.
The Indian Tyre Industry produced 736 lakh units of tyres (11 lakh tonnes) garnering
Rs. 19,000 crores in FY 07. MRF Ltd. was the market leader (22% market share)
followed closely by Apollo Tyres Ltd. (21%). The other major players were JK Tyre &
Industries Ltd (18%) and Ceat Ltd. (13%). The industry tonnage production
registered a 5 year CAGR of 9.69% between FY 02-07
.
The tyre industry in India is classified under 4 categories based on the year of
commencement of production namely
1. 1st Generation Companies:-which included Dunlop and FireStone.

2. 2nd Generation Companies:-which included MRF, CEAT, GoodYear, and
Premier.
3. 3rd Generation Companies:-which included Apollo, Vibrant, Modi Rubber, and
J.K.Tyres.
4. 4th Generation Companies:-includes the companies started after 1970 and
also which are yet to start production.
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RANKING OF TYRE COMPANIES (In India)
RANK COMPANIES
1 MRF TYRES LTD
2 APOLLO TYRES LTD
3 J.K. TYRES LTD
4 CEAT TYRES LTD
5 MODI RUBBERS LTD
6 BIRLA TYRES LTD
7 GOODYEAR INDIA LTD
8 VIKRANT TYRES LTD
MARKET
RKET SHARE OF VARIOUS COMPANIES
COMPANY TRUCK CAR FARM LCV

APOLLO 28 10 21 19
MRF 16 25 24 20
JK 17 18 15 19
CEAT 12 14 8 15
VIKRANT 11 1 7 2
GOODYEAR 5 12 23 2
OTHERS 11 20 2 23
Market Share
10% MRF
5% 22%
Apollo
11% JK Tyres
CEAT
Goodyear
13% 21%
Vikrant
18% Others
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COMPANY PROFILE
Corporate Overview
Apollo Tyres Limited (Apollo Tyres) is a tyre manufacturing company, incorporated in

1975. In 1977, the first
irst plant was commissioned at Perambra,
Perambra Thrissur, Kerala. In
2006, it acquired Dunlop Tyres International, South Africa and Zimbabwe. It
manufactures tyres, tubes and flaps for commercial and passenger vehicles. Apollo
tyres Ltd is the first Indian multinational tyre corporation. It is India’s largest and
ranked 17th*in the world. It is the first Indian tyre company to cross the US$ 1 billion
revenue mark in 2006-07.
07. Three decades of manufacturing expertise and marketing
innovation. It is the market leader in heavy commercial and light commercial tyres in
India and fastest growing
wing in passenger vehicle tyres.
tyres Apollo tyres ltd is the biggest
exporter of passenger vehicle tyres from India.
Vision
“A significant player in the global tyre industry and a brand of choice,

providing customer delight and continuously enhancing stakeholder value”
Values
 C –Care
Care For Customers
 R – Respect For Associates
 E – Excellence Through Teamwork
 A – Always Learn
 T – Trust Mutually
 E – Ethical Practices
Corporate Objectives
 Employee Satisfaction
Satisfactio
 Customer Delight
 Revenue Growth
 Operating Margin Improvements
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1.2 Key Facts
 Apollo Tyres Ltd has been pioneer in the implementation of ‘Six Sigma’
among all the tyre companies in India
 7th fastest growing tyre manufacturing company in the world
 1st tyre company to obtain ISO 9001 Certification for all its operations
 Apollo Tyres Ltd is in the list of top 15 tyre manufacturing companies in the
world in terms of revenue(14th rank)
 Has about 2400 exclusive dealers
 The R&D centre is functioning at Baroda plant in Gujarat
 Tube manufacturing is done on the Pune plant, Maharastra. Tubes for the
entire requirement of all plants are produced here and balance requirement is
met from outside. Flaps are also purchased from outside.
1.3 Corporate Timeline
 1975 Inception
 1976 Registered as a company
 1977 First plant commissioned in Perambra (Cochin, Kerala)
 1991 Second plant commissioned in Limda (Baroda, Gujarat )
 1995 Acquired Premier Tyres in Kalamassery (Cochin, Kerala)
 1996 Exclusive tubes plant commissioned in Ranjangaon (Pune,
Maharashtra)
 2000 Exclusive radial capacity established in Limda
 2000 Established Apollo Tyres Health Care Clinic for HIV-AIDS awareness
and prevention in Sanjay Gandhi Transport Nagar, Delhi
 2003 Expansion of passenger car radial capacity to 6,600 tyres/day
 2004 Production of India 's first H-speed rated tubeless passenger car radial
tyres
 2004 Support in setting up India 's first Emergency Medical Service in Baroda,
Gujarat
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 2005 Apollo Tyres Health Care Clinics in Udaipur in Rajasthan and Kanpur in
Uttar Pradesh
 2006 Expansion of passenger car radial capacity to 10,000 tyres/day
 2006 Expansion of passenger car range to include 4x4 and all-terrain tyres
 2006 Acquired Dunlop Tyres International in South Africa and Zimbabwe
 2006 Opening of Apollo Tyres Health Care Clinic in Ukkadam, Tamil Nadu
 2006 Launch of DuraTread, treading material and solutions
 2006 Launch of India's first range of ultra-high performance V and W-speed
rated tyres
 2007 Launch of Regal truck and bus radial tyres
 2007 Launch of DuraTyre, retreaded tyres from Apollo
 2007 Launch of the Apollo Tennis Initiative and Mission 2018
 2009 Apollo Tyres completes 100 per cent acquisition of Vredestein Banden
BV
Business Focus
Major Segments:
The Group's principal activities are to manufacture and sell automobiles tyres .Apollo
Tyres product range includes truck and bus tyres; light truck tyres; farm tyres;
passenger car tyres, off-the-road, earthmover and industrial radials. The company
has five manufacturing plants in India, two in Kerala, one in Gujarat, one in Haryana
and one in Tamil Nadu. It also has two manufacturing facilities in South Africa and
two in Zimbabwe. The Group exports its products to South America, Pakistan,
South-East Asia, Middle East Countries and Africa.
Products and Services:
 Key product brands of the company include Apollo, Dunlop, India Tyres,
Kaizen, Regal Tyres, Novex, Master Steel, Milestone, Tyfoon, Velocity etc.
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 The company has a strong R&D centre at Vadodara that develops and
promotes the evolution of new technologies.
 In FY07, the company launched some new products, including the Acelere
Sportz and Aspire brands.
 In FY07, Apollo Tyres passenger car radial tyre manufacturing capacity
increased from 210,000 tyres per month to 300,000 tyres per month.
 The company has a network of over 4,000 dealerships in India, of which over
2,500 are exclusive outlets. In South Africa, it has over 900 dealerships, of
which 190 are Dunlop Zones.
 Apollo Tyres exports to Africa, the Middle East, South America, Asia-Pacific,
and Europe.
Competitors
Sl No. COMPANIES
1 MRF TYRES LTD
2 J.K. TYRES LTD
3 CEAT TYRES LTD
4 MODI RUBBERS LTD
5 BIRLA TYRES LTD
6 GOODYEAR INDIA LTD
7 VIKRANT TYRES LTD
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Capital Structure
Period Instrument Authorised Issued Paid Up

Capital Capital Share Face Capital
Rs. Crs Rs. Crs Nos. value
2007-2008 Equity Share 73 48.84 488444770 1 48.84
2006-2007 Equity Share 73 46.40 46402477 10 46.40
2005-2006 Equity Share 48 38.34 38337977 10 38.34
2004-2005 Equity Share 48 38.34 38337977 10 38.34
2003-2004 Equity Share 48 38.34 38337977 10 38.34
During the year 2007- 2008, the company has allotted 24.42 million equity shares of
Re.1/- each at a premium of Rs.28.30 to Promoters on conversion of 2.442 million
warrants. The Company's share capital as on 31st March, 2008 has increased from
Rs.464.02 million to Rs.488.44 million after the said allotment. Subsequently,
promoters have exercised last tranch of their option for conversion of 1.558 million
warrants into 15.58 million shares on 18th April, 2008, thereby, increasing share
capital to Rs.504.02 million.
The face value of equity shares of the Company has been split from 1 equity share
of Rs.10/- each into 10 equity shares of Re.1/- each w.e.f. 27th August, 2007, in
pursuance of the resolution passed in the Annual General Meeting held on 26 July,
2007.
Ownership Structure
Stake holding Pattern Percentage

Promoters 39.35%
Public 26.38%
FII/ NRI/Foreign Body Corporate 14.76%
Government of Kerala/Travancore/Titanium Products Ltd. 1.98%
Financial Institutions/Banks/Mutual Funds 17.53%
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Financial Performance
Rs. Crores
2007-2008 2006-2007 2005-2006 2004-2005 2003-2004

Sales & other Income 4,256.21 3,777.31 3003.30 2,676.62 2319.87
Net Profit 219.30 113.42 78.17 67.63 70.42
Dividend 25.20 20.88 17.25 17.25 17.25
Manufacturing Facilities
Plants in India
Sl.No. LOCATION PRODUCTS & FACILITIES

1 APOLLO TYRES LTD, PERAMBRA, KERALA BIAS
2 APOLLO TYRES LTD, KALAMASSERY, KERALA BIAS
3 APOLLO TYRES LTD, BARODA, GUJARAT RADIALS & BIAS, R & D
4 APOLLO TYRES LTD, KUNDLI, HARYANA RETREADING
5 APOLLO TYRES LTD, CHENNAI, TAMIL NADU RADIALS
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Plants Abroad
Sl No. LOCATION PRODUCTS & FACILITIES

1 APOLLO TYRES, LADYSMITH,SOUTH AFRICA RADIAL CAR
2 APOLLO TYRES, DURBAN,SOUTH AFRICA RADIAL S &BIAS
3 APOLLO TYRES, BULAWAYO,ZIMBABWE RADIALS & BIAS
4 APOLLO TYRES, HARARE,ZIMBABWE RETREADING
Subsidiaries
SL No. Subsidiaries
1 Apollo (Mauritius) Holding Pvt. Ltd. (AMHPL)
2 Apollo (South Africa) Holding Pty. Ltd. (ASHPL)(Subsidiary through AMHPL)
3 Dunlop Tyres International Pty. Ltd. (DTIPL)(Subsidiary through AMHPL)
4 Dunlop Africa Marketing (UK) Ltd.(DAMUK)(Subsidiary through DTIPL)
5 Dunlop Zimbabwe Ltd. (DZL)(Subsidiary through DAMUK)
6 Radun Investment (Pvt.) Ltd.(Subsidiary through DAMUK)
7 AFS Mining (Pvt.) Ltd.(Subsidiary through DZL)
8 Apollo Tyres AG, Switzerland (AT AG)
9 Apollo Tyres GmbH , Germany (AT GmbH)(Subsidiary through AT AG)
10 Apollo Tyres Kft., Hungary (AT Kft)(Subsidiary through AT AG)
11 Apollo Tyres Pte Ltd, Singapore ( AT PL)(Subsidiary through AMHPL)
Research, Design & Development
 Global R&D centre in Limda [Baroda]

 Dedicated FEA [Finite Element Analysis] cell
 Tie-ups with premier institutes in India [IIT Mumbai and IIT Kharagpur] and
leading international universities in Germany [Leipzig and Leibniz].
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 Panel o f international tyre technologists working on compounding and tyre

design.
 Partners in the best raw material sources from across the world –Lanxess,
Bekaert, Degussa to name a few –have development agreements with each
 Rigorous testing of UHP & 4x4 passenger vehicle tyres in world-class testing
facilities.
Key Partnerships
 Apollo tyres relationship with the automakers have both expanded as well as
improved over the year. It added General Motors India to the list of customers.
 All the major automakers in India now actively look at Apollo Tyres Ltd. as a
partner in their journeys. The last financial year has been a watershed year in
ATL's march towards being a significant global player.
 Apollo Tyres strategic acquisition of Dunlop South Africa made it the first
Indian tyre company to have a transnational footprint.
 A very important milestone was the initiation of direct exports by Apollo tyres
to its International customers across Europe.
Distribution Network
 Aiming to make the most of ongoing growth in the promising world tyre
market, Apollo Tyres is expanding its operations by fortifying local production
capacity, product line ups and depth into the market.
 With over 120 sales & service stock points, 5 zonal offices, 18 state offices
and 11 redistribution centres, Apollo Tyres is poised to penetrate its presence
to the farthest corners of the country.
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 A 4,032 strong dealership network along with 2138 Apollo Tyre Worlds, 194
Apollo Radial Worlds and 61 Apollo Pragati Kendras, ensures that Apollo
Tyres is never very far from its consumers.
 The over 3000 exclusive Apollo Tyre World and Apollo Tyre Radial outlets
have initiated a quick response mechanism by enabling prompt product
delivery and after sales service to customers throughout the country.
SWOT Analysis
Strengths
 Apollo Tyres has continued to maintain its lead in the market within the
dominant segment of truck and bus tyres within the Indian tyre industry.
 The Company has established a state-of-the-art plant in Baroda.
 Quick response to changes in market conditions and product profiles has
resulted in superior product innovation and technical expertise.
 The Company's marketing initiatives have resulted in a strong brand recall,
even in the price sensitive tyre market. Aiding these efforts is an extensive
distribution network.
 The sourcing of raw materials to a global presence through the acquisition of
Dunlop Tyres International (Pty) Ltd in South Africa.
 Economies of transportation cost are a constant benefit to the company on
account of proximity to the natural rubber growing belt.
 With a move into the international arena, Apollo Tyres can also follow and
maintain global quality standards and international process and system
certifications.
Weakness
 Apollo Tyres has no presence in the two and three wheeler segments.
 The capital intensive nature of the business in this segment also has its
drawbacks.
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Opportunities
 The national thrust in road infrastructure and construction of expressways and
national highways presents a range of opportunities for the tyre industry.
 Creation of road infrastructure has given, and will increasingly give, a
tremendous fillip to surface transportation in the coming years.
 The tyre industry will continue to play an important role in this dynamic and
evolving situation.
 Apollo's leadership position in the commercial vehicle segment will enable the
company to leverage new and related business opportunities.
 The company have already started leveraging these opportunities to its
benefit with its new product segments like Truck/Bus Radial (TBR), Off-The-
Road (OTR) tyres, retreading and allied automotive services.
 Growth within India also supports the Company's aim to be a leader in the
global industry and partake in overseas markets like Europe.
Threats
 There is a need to prepare for imports from neighbouring countries at
competitive prices, which have been rising in the recent past.
 The ever present challenge of raw material price volatility
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ORGANISATION PROFILE
Apollo Tyres Ltd., Perambra, Thrissur
Organisational Details
Name APOLLO TYRES LTD

Place Perambra, Thrissur District (50km north of Kochi, Kerala)
Year of Inception 1976
Land Area 97 acres
Building Area 69500 Sq. Mt
Head Office New Delhi
Registered Office Kochi, Kerala
Present Capacity 309 MT per day
Product Range TRUCK, LCV, REAR TRACTORS, FARM RADIALS,
PASSENGER & ADV TYRES
No of Staffs 2790
Employee Pattern
Management Staffs 270

Permanent Staffs 1819
Workmen Trainees 248
Contract Workmen 453
Total 2790
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Milestones of Apollo tyres, Perambra
YEAR DESCRIPTIONS
1972 Company licence was obtained by Mr. Mathew T. Marattakalam,
Jacob Thomas and Associates
1974 Company was taken over by Dr. Raunaq Singh and his associates
1975 April 13th ,foundation stone of Perambra plant was laid
1976 Apollo tyres was registered with registered office at Kochi
1977 Plant was commissioned with 49 tons per day capacity
1982 Started manufacturing of passenger car radial tyres
2005 The plant completed 30 years on April 13th
Highlights
 Single largest truck tyre plant in India

 Fastest growing plant in Apollo family
 Known as the mother plant
 Continuous expansion
 Total employee involvement
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DESIGN OF THE STUDY

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Design of the study
Objectives of the study:
Primary Objectives
To analyse the firm’s working capital management and to gauge its effect on cash
flow and value
Secondary Objectives
 Ascertain the liquidity of Apollo Tyres Ltd

 Ascertain the efficiency of Apollo Tyres Ltd
 Ascertain the creditworthiness of Apollo Tyres Ltd
 Ascertain the profitability of Apollo Tyres Ltd
Scope of the study
This study assess the working capital investments, evaluates working capital
investments and working capital components of Apollo Tyres Ltd.
Methodology
This research assesses the overall working capital management of the company
taking into account the financial data for the accounting period of last 5 years. Ratio
analysis, Cash Conversion Cycle, Schedule of Changes in working capital is used for
this purpose.
Formulation of research problem
The research problem in this project is to study the investment of the firm in the
working capital, whether they are reasonable, in other words, is the firm over or
underinvested in working capital.
Period of study
The period covered for the completion of the project is 8 weeks.

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Source of data
1. Primary Data:
It has been obtained through interviews with the officials of the company.
2. Secondary Data
Secondary data which is used in this study are:
o Annual Report.
o Published documents.
o Various Journals.
o Websites.
Research design
Research design used for the study was descriptive analysis type and it involves
observation of ideas from the standard texts and journals, websites and other related
materials to get a hold on the theories.
Tools of data analysis
The tools used for the study are Ratio analysis, Cash Conversion Cycle, and
Schedule of changes in working capital.
Limitations of the study
The study is based on secondary data drawn from the secondary sources connected
to the topic. So errors are possible. And the study only covers the accounting
period of last five years and current year was excluded on account of non availability
of data. So the current position of the firm was not taken into consideration.
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FINANCIAL ANALYSIS
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Working capital management
Introduction
In a perfect world, there would be no necessity for current assets and liabilities
because there would be no uncertainty, no transaction costs, information search
costs, scheduling costs, or production and technology constraints. The unit cost of
production would not vary with the quantity produced. Borrowing and lending rates
shall be same. Capital, labour, and product market shall be perfectly competitive and
would reflect all available information, thus in such an environment, there would be
no advantage for investing in short term assets.
However the world we live is not perfect. It is characterized by considerable amount

of uncertainty regarding the demand, market price, quality and availability of own
products and those of suppliers. There are transaction costs for purchasing or selling
goods or securities. Information is costly to obtain and is not equally distributed.
There are spreads between the borrowings and lending rates for investments and
financings of equal risks. Similarly each organization is faced with its own limits on
the production capacity and technology. It can employ there are fixed as well as
variable costs associated with production goods. In other words, the markets in
which real firm operated are not perfectly competitive.
These real world circumstances introduce problem’s which require the necessity of
maintaining working capital. For example, an organization may be faced with an
uncertainty regarding availability of sufficient quantity of crucial imputes in future at
reasonable price. This may necessitate the holding of inventory, current assets.
Similarly an organization may be faced with an uncertainty regarding the level of its
future cash flows and insufficient amount of cash may incur substantial costs. This
may necessitate the holding of reserve of short term marketable securities, again a
short term capital asset. In corporate financial management, the term Working
capital management” (net) represents the excess of current assets over current
liabilities.
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Working Capital
In simple words working capital is the excess of current Assets over current
liabilities. Working capital has ordinarily been defined as the excess of current assets
over current liabilities. Working capital is the heart of the business. If it is weak
business cannot proper and survives. It is therefore said the fate of large scale
investment in fixed assets is often determined by a relatively small amount of current
assets. As the working capital is important to the company is important to keep
adequate working capital with the company. Cash is the lifeline of company. If this
lifeline deteriorates so the company’s ability to fund operation, reinvest do meet
capital requirements and payment. Understanding Company’s cash flow health is
essential to making investment decision. A good way to judge a company’s cash flow
prospects is to look at its working capital management. The company must have
adequate working capital as much as needed by the company. It should neither be
excessive or nor inadequate. Excessive working capital cuisses for idle funds laying
with the firm without earning any profit, where as inadequate working capital shows
the company doesn’t have sufficient funds for financing its daily needs working
capital management involves study of the relationship between firm’s current assets
and current liabilities. The goal of working capital management is to ensure that a
firm is able to continue its operation. And that is has sufficient ability to satisfy both
maturing short term debt and upcoming operational expenses. The better a company
managers its working capital, the less the company needs to borrow. Even
companies with cash surpluses need to manage working capital to ensure that those
surpluses are invested in ways that will generate suitable returns for investors.
The primary objective of working capital management is to ensure that

sufficient cash is available to:
 Meet day to day cash flow needs.

 Pay wages and salaries when they fall due
 Pay creditors to ensure continued supplies of goods and services.
 Pay government taxation and provider of capital – dividends and
 Ensure the long term survival of the business entity
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Need for working capital
The prime objective of the company is to obtain maximum profit thought the
business. The amount of profit largely depends upon the magnitude of sales.
However the sale does not convert into cash instantaneously. There is always a time
gap between sale of goods and receipt of cash. The time gap between the sales and
their actual realization in cash is technically termed as operating cycle. Additional
capital required to have uninterrupted business operations, and the amount will be
locked up in the current assets. Regular availability of adequate working capital is
inevitable for sustained business operations. If the proper fund is not provided for the
purpose, the business operations will be effected and hence this part of finance to be
managed well.
Working Capital Cycle (Graph)
Equity & loan
CASH
PAYABLES
OVERHEADS
Etc.
receivables
INVENTORY
SALES
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Each component of working capital (namely inventory, receivables and payables)

has two dimensions Time and Money. When they come to managing working capital,
Time is Money. If you can get money to move faster around the cycle (collect monies
due from debtors more quickly) or reduce the amount of money tied up (i.e., reduce
inventory level relative to sales). The business will generate more cash or it will need
to borrow less money to fund working capital. As a consequence, you could reduce
the cost of bank interest or you will have additional free money available to support
addition sales growth or investment. Similarly, if you can negotiate improved terms
with suppliers e.g. get longer credit or an increased credit limits, you festively create
freed finance to help fund future sales
A perusal of operational cycle reveals that the cash invested in operations are
recycled back in to cash. However it takes time to reconvert the cash. Cash flows in
cycle into around and out of a business it the business’s lifeblood and every
manager’s primary task to help keep it flowing and to use the cash flow to generate
profits. The shorter the period of operating cycle, the larger will be the turnover of the
funds invested in various purposes.
Determinants of working capital
Working capital requirements of a concern depends on a number of factors, each of

which should be considered carefully for determining the proper amount of working
capital. It may be however be added that these factors affect differently to the
different units and these keeps varying from time to time. In general, the
determinants of working capital which re common to all organization’s can be
summarized as under:
Nature of business
Need for working capital is highly depends on what type of business, the firm in.
there are trading firms, which needs to invest a lot in stocks, ills receivables, liquid
cash etc. public utilities like railways, electricity, etc., need much less inventories and
cash. Manufacturing concerns stands in between these two extends. Working capital
requirement for manufacturing concerns depends on various factor like the products,
technologies, marketing policies.
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Production policies
Production policy of the organization effects the working capital requirements very
much. Seasonal industries, which produces only in specific season requires more
working capital. Some industries which produces round the year but sale mainly
done in some special seasons are also need to keep more working capital.
Size of business
Size of business is another factor to determines the need for working capital
Length of operating cycle
Operating cycle of the firm also influence the working capital . longer the orating
cycle, the higher will be the working capital requirement of the organization.
Credit policy
Companies; follows liberal credit policy needs to keep more working capital with
them. Efficiency of debt collecting machinery is also relevant in this matter. Credit
availability form suppliers also effects the company’s working capital requirements. A
company doesn’t enjoy a liberal credit from its suppliers will have to keep more
working capital
Business fluctuation
Cyclical changes in the economy also influence the level of working capital. During
boom period, the tendency of management is to pile up inventories of raw materials
and finished goods to avail the advantage of rising prices. This creates demand for
more capital. Similarly, during depression when the prices and demand for
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manufactured goods. Constantly reduce the industrial and trading activities show a
downward termed. Hence the demand for working capital is low.
Current Asset Policies
The quantum of working capital of a company is significantly determined by its

current assets policies. A company with conservative assets policy may operate with
relatively high level of working capital than its sales volume. A company pursuing an
aggressive amount assets policy operates with a relatively lower level of working
capital.
Fluctuations of supply and seasonal variations
Some companies need to keep large amount of working capital due to their irregular
sales and intermittent supply. Similarly companies using bulky materials also
maintain large reserves of raw material inventories, this increase the need for
working capital. Some companies manufacture and sell goods only during certain
seasons. Working capital requirements of such industries will be higher during
certain season of such industries period.
Other factors
Effective co ordination between production and distribution can reduce the need for
working capital. Development in transportation and communication means helps to
reduce the working capital requirement.
Working Capital Concepts
There are two thoughts that currently accepted about working capital. They are
Gross working capital concept & Net working capital concept.
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Gross working capital concept
This thought says that total investment in current assets is the working capital of the
company. This concept does not consider current liabilities at all. Reasons given for
this concept:
1) When we consider fixed capital as the amount invested in fixed assets. Then
the amount invested in current assets should be considered as working
capital.
2) Current asset whatever may be the sources of acquisition, are used in

activities related to day to day operations and their forms keep on changing.
Therefore they should be considered as working capital.
Net working capital
It is narrow concept of working capital and according to this, current assets minus
current liabilities forms working capital. The excess of current assets over current
liabilities is called as working capital. This concept lays emphasis on qualitative
aspect which indicates the liquidity position of the concern/enterprise. The reasons
for the net working capital method are:
1) The material thing in the long fun is the surplus of current assets over current
liability
2) Financial health can easily be judged by with this concept particularly from the
view point of creditors and investors.
3) Excess of current assets over current liabilities represents’ the amount which
is not liable to be returned and which can be relied upon to meet any
contingency.
4) Inter-company comparison of financial position may be correctly done
particularly when both the companies have the same amount of current
assets.
29
If the current assets are higher than current liability it is considered the financial
position of the company is sound. If both current assets and liabilities are equal, the
company has resorted to short term funds for financing the working capital and long
term sources of funds have been used to finance the acquisition of fixed assets. It
does not indicate the financial soundness for the company. If the current assets are
lesser than current liabilities there is negative working capital which indicates
financial crisis.
Net working capital concept is more reasonable than the gross working capital
concepts. The balance sheet of the company includes group of liabilities such as
bank overdraft, creditors, bills payables, outstanding expenses etc. if it is not deduct
from current assets , the concern may consider itself quite secured: while the reality
is may be that the concern has very little working capital or has no working capital.
Therefore it is reasonable to define working capital as the excess of current assets
over current liabilities.
Kinds of working capital
Working capital can be put in two categories:
1) fixed or permanent working capital

2) fluctuating or temporary working capital
Fixed or permanent working capital
The volume of investment in current assets an change over a period of time. But
always there is minimum level of current assets that must be kept in order to carry on
the business. This is the irreducible minimum amount needed for maintaining the
operating cycle. It is the investment in current assets. This is permanently locked up
in the business and therefore known as permanent working capital.
30
Variable/temporary working capital
It is the volume of working capital which is needed over and above the fixed working
capital in order to meet the unforced market changes and contingencies. In other
words any amount over and about the permanent level of working capital is variable
or fluctuating working capital. This type of working capital is generally financed from
shorter source of finance such as bank credit because this amount is not
permanently required and is usually paid back during off season or after the
contingency.
Sources of working capital
The company can choose to finance its current assets by
1. Long term sources

2. Short term sources
3. A combination of the two
Long term sources
Long term sources of permanent working capital include equity and preference
shares, retained earnings, debentures and other long term debts from public
deposits and financial institution. The long term working capital needs should meet
through long term means of financing. Financing through long term means provides
stability, reduces risk or payment and increases liquidity of the business concern.
Various types of long term sources of working capital are summarized as follow
Issue of shares
It is the primary and most important sources of regular or permanent working capital.
Issuing equity shares as it does not create and burden on the income of the concern.
Nor the concern is obliged to refund capital should preferably raise permanent
working capital.
31
Retained earnings
Retain earning accumulated profits are a permanent sources of regular working

capital. It is regular and cheapest. It creates not charge on future profits of the
enterprises.
Issue of debentures
It creates a fixed charge on future earnings of the company and the company is
obliged to pay interest. Management should make wise choice in procuring funds by
issue of debentures.
Long term debt
Company can raise fund from accepting public deposits, debts from financial
institution like banks, corporations etc. the cost is higher than the other financial
tools.
Other sources consist of the sale of idle fixed assets, securities received from
employees and customers are examples of other sources of finance.
Short term sources of temporary working capital
Temporary working capital is required to meet the day to day business expenditures.
The variable working capital would finance from short term sources of funds and only
for the period needed. It has the benefits of low cost and establishes closer
relationships with banker.
32
Some sources of temporary working capital:
Commercial bank
A commercial bank constitutes a significant source for short term or temporary

working capital. This will be in the form of short term loans, cash credit, and overdraft
and though discounting the bills of exchanges.
Public deposits
Most of the companies in recent years depend on these sources to meet their short
term working capital requirements ranging from six month to three years.
Various credits
Trade credit, business credit papers and customer credit are other sources of short
term working capital. Credit from suppliers, advances from customers, bills of
exchanges, promissory notes, etc helps to raise temporary working capital
Reserves and other funds
Various funds of the company like depreciation fund. Provision for tax and other
provisions kept with the company can be used as temporary working capital.
The company should meet its working capital needs through both long term and
short term funds. It will be appropriate to meet at least 2/3 of the permanent working
capital equipments form long term sources, whereas the variables working capital
should be financed from short term sources. The working capital financing mix
should be designed in such a way that the overall cost of working capital is the
33
lowest, and the funds are available on time and for the period they are really
required.
Sources of Additional Working Capital
Sources of additional working capital include the following:
1. Existing cash reserves

2. Profits(when you secure it as cash)
3. Payables(credit from suppliers)
4. New equity or loans from shareholder
5. Bank overdrafts line of credit
6. Long term loans
If the firm have insufficient working capital and try to increase sales, it can easily
over stretch the financial resources of the business. This is called overtrading. Early
warning signs include
1. Pressure on existing cash

2. Exceptional cash generating activities. offering high discounts for clear
cash payment
3. Bank overdraft exceeds authorized limit
4. Seeking greater overdrafts or lines of credit
5. Partly paying suppliers or other creditor
6. Management pre occupying with surviving rather than managing.
Adequate Working Capital
As stated about keeping adequate working capital is the mantas towards the
success of financial management. The term adequate working capital refuters to the
amount of working capital to be kept with the organization to met its daily operations.
Large investment in fixed assets is not sufficient to run a business successfully. But
34
adequate working capital is equally important. Without working capital fixed assets
are like a gun, which cannot shoot, as there are no cartridges.
It is said that “Inadequate working capital is a disastrous: where as redundant

working capital is a criminal waste.” It is clear that the company can’t invest all its
funds in current assets to increase working capital and at the same time it requires to
keep sufficient funds with it. So a proper leverage between both ends is needed to
assure proper running of the business. It needs to keep adequate working capital
with it, neither less nor more than needed.
(a) advantages of adequate working capital
Adequate working capital provides certain benefits to the company they are:
Increase in debt capacity and goodwill
Adequate working capital represents the financial soundness of the company. If one
company is financially sound it would be able to pay its creditors timely and properly.
It will increase company’s goodwill. It crests confidence among investors and
creditors. Thus a firm with adequate working capital can raise requisite funds from
market, borrow short term credit form banks, and purchases inventories of raw
material etc., for the smooth operations of its business.
Increase in production inefficiency
With adequate working capital the firm can smoothly carryout research and
development actives and thus adds to its production efficiency.
35
Exploitation of favourable opportunities
In the presence of adequate working capital, a company can avail the benefits of
favourable opportunities. Adequate working capital will help the company to have
bulk purchases, seasonal storage of raw material etc., which would reduce the cost
of production, thus adds to its profit.
Meeting contingencies adverse changes
A company can easily face certain business and economic crises a company having
adequate working capital can successfully meet contingencies such as business
oscillations, financial crisis arising from heavy losses etc.,
Available cash discount
Maintenance of adequate working capital enables a company to avail the advantage

of cash discount by making cash payment for to the suppliers of raw materials and
merchandise. Obviously it will reduce the cost of production and increase the profit of
the company.
Solvency and efficiency fixed assets.
It helps to maintain the solvency of the company. So that payments could be made in
time as and when they fall due. Likewise, adequate working capital also increases
the efficiency for fixed assets insofar as their proper maintenance depends upon the
availability of funds.
Attractive dividend to shareholders
It enables the company to offer attractive dividend to the shareholders so that sense
of security and confidence will increase among them. It also increases the market
values of its shares.
36
(b) Dangers of Inadequate Working Capital
Having inadequate working capital les to so many of dangers as it doesn’t fulfil its
purpose. Some are given below:
Loss of goodwill and creditworthiness
As the firm fails to on or its current liabilities it loses it goodwill and creditworthiness
among its creditors. Consequently, the firm finds it difficult to procure the requisite
funds for its business operations on easy terms, which ultimately results in reduced
profitability as well as production interruption.
Firm can’t make use of favourable opportunities
The firm fails to undertake the profitable projects, which not only prevent the firm
from availing the benefits of favourable opportunities but also stagnate it’s growth.
Adverse effects of credit opportunities
The firm also fails to avail the attractive credit opportunities but also stagnate its
growth
Operational inefficiencies
It leads the company to operating inefficiencies, as day to day commitments cannot

be met.
37
Effects on financial capacity
Inadequacy of working capital also weakness the shock absorbing capacity of the
firm because it cannot meet the contingencies arising from business oscillations,
financial losses, due to shortage of working capital.
Non achievement of profit target
The firm cannot implement operational plans due to unavailability of fund which will
lead to non achievement of profit margin.
Dangers of redundant working capital
As the inadequate working capital is dangerous to the firm, redundant working

capital also brings hazardous condition in to the company. Let us discuss the
dangers of redundant working capital to the company.
Low rate of return on capital
Excessive or redundant working capital implies the presence of idle funds that earn
no profit to the firm. So it cannot earn a proper rate of return on its total investments,
whereas profits are distributed on its total investment, whereas profits are distributed
on the whole of its capital.
Decline in capital and efficiency
Since the rate of return on capital is low the company tempts to make some
adjustment to inflate profit to increase the dividend. Sometimes this unearned
dividend paid out of the company’s capital to keep up the show of prosperity by
window dressing of accounts. Certain provision, such as provision for depreciation,
repairs and renewals are into made. This leads to decline in operating efficiency of
the firm.
38
Loss of goodwill and confidence
Lower rate of return leads to lower dividend available to share holder. This leads to
down fall in market value of the company’s share and markets the shareholder lose
their confident in company.
Evils of over capitalization
Excessive working capital is often responsible for giving birth to the situation of
overcapitalization in the company with all its evils. Over capitalizations is not only
disastrous to the smooth survival of the company but also interests of those
associated with the company.
Destruction of turnover ratio
It destructs the control over turnover ratio which is commonly used in the conduct of
an efficient business.
It is evident from the foregoing discussion that a company must have adequate
working capital pursuant to its requirements. It should neither be excessive not
inadequate. Both situations are dangerous. While inadequate working capital
adversely affects the business operations and profitability, excessive working capital
remains idle and earns no profits for the company. So company must assure its
working capital is adequate for its operations.
39
Blueprint for a good working capital management policy
General Action
Set the planning standards for stock days, debtor days and creditor days. Having set
planning standards and keep to them. Impress on staff that these targets are just
important operating budgets and standards cost. Instil an understanding amongst the
staff that working capital management produces profits.
Action on Stocks
Keep stock levels as low as possible, consistent with not running out of stock and not
ordering stock in uneconomically small quantities. “Just In Time” stock management
is fine, as long as it is “Just In Time” and never fails to deliver on time. Consider
keeping stock in supplier’s warehouses drawing on its as needed and saving
warehousing cost.
Action on Debtors /customers
Assess all significant new customers for their ability to pay. Take references,
examine accounts and ask around. Try not to take on new customers who would be
poor payers. Re assess all significant customers periodically. Stop supplying existing
customers who are poor payers, you may lose sales, but you are after quality of
business rather than quantity of business. Sometimes poor paying customers
suddenly (and magically!!) find cash to settle invoices if their supplies are being cut
off. If customers can’t pay/won’t pay let your competitor have them and give the
competitor a few more problems.
Consider factoring sales invoices the extra cost may be worth it in terms of quick
payment of sales revenue, less debtor administration and more time to carry out your
business (rather than spend time chasing debts).
40
Consider offering discounts for prompt settlement of invoices, but only if the
discounts are lower than the costs of borrowing the money owed from other sources.
Action on creditors
Do not pay invoices too early take advantage of credit offered by suppliers, it’s free!!
Only pay early if the supplier is offering a discount. Even then, consider this to be an
investment.
Establish a register of creditors to ensure that creditors are paid on the correct date
not earlier and not later.
THE CONCEPT OF ZERO WORKING CAPITAL
In today’s world of intense global competition, working capital management is

receiving increasing attention from managers striving for peak efficiency the goal of
many leading companies today, is zero working capital. Proponent of the zero
working capital concept claims that a movement toward this goal not only generates
cash but also speeds up production and helps business make more timely deliveries
and operate more efficiently. The concept has its own definition of working capital:
inventories+ receivables- payables. The rational here is (I) that inventories and
receivables are the keys to making sales, but (II) that inventories can be financed by
suppliers through account payables.
Companies use about 20% of working capital for each sales. So, on average,
working capital is turned over five times per year. Reducing working capital and thus
increasing turnover has two major financial benefits. First, money freed up by
reducing inventories or receivables, by increasing payables, results in a onetime
contribution to cash flow. Second, a movement toward zero working capital
permanently raises a company’s earnings.
41
The most important factor in moving toward zero working capital is increased speed.
If the production process is fast enough, companies can produce items as they are
ordered rather than having to forecast demand and build up large inventories that
are managed by bureaucracies. The best companies delivery requirements. This
system is known as demand flow or demand based management. And it builds on
the just in time method of inventory control.
Clearly it is not possible for most firms to achieve zero working capital and infinitely
efficient production. Still, a focus on minimizing receivables and inventories while
maximizing payables will help a firm lower its investment in working capital and
achieve financial and production economies.
Estimation of Working Capital
As discussed above a number of factors are responsible for determining the amount
of working capital required by affirm let us know discuss the various methods/
technique used in assessment of firm’s working capital requirements. These
methods are.
Estimation of components of working capital method

This method is based on the basic definition of working capitalizes, excess of current
assets over the current liabilities, in other worked the amount of different constituent
of the working capital such as debtors, cash inventories , creditors etc are estimated
separately and the total amount of working capital requirement is worked out
accordingly.
Percent sales method
This is the most simple and widely used method in combination with other scientific
methods. According to this method a ratio is determined for estimating the future
working capital requirement this is the generally based on the past experience of
management as the ratio varies from industry to industry. For example if the past
42
experience shows that the amount of working capital has been 20% of sales and
projected amount of sales for the next year is Rs. 10 Lakhs, the required amount of
working capital shall be Rs. Two Lakhs.
As seen from above the above method is merely an estimation based on past
experience. Their fore a lot depends on the efficiency of decision maker, which may
not be correct in all circumstances. Moreover the basic assumptions regarding linear
relationship between sales and the working capital may not hold well in all the cases.
Therefore this method is not dependable and not universally acceptable. At best, this
method gives a rough idea about the working capital.
Operating Cycle Approach
The need of working capital arises mainly because of them gap between the
production of goods and their actual realization after sales. This gap is technically
referred as the “operating cycle” or the “cash cycle” of the business. If it were
possible to complete the entire job instantaneously, there would be no need for
current asset (working capital). But since it is not possible, every business
organization is forced to have current asset and hence operating cycle. It may be
divided into four stages.
1. Raw materials and stores storage space.

2. Work in process stage.
3. Finished goods inventory stage.
4. Debtor’s collection stage.
43
Purchase of Sale of Goods Collection of
Raw Materials on credit Accounting
On Credit Receivables
Average Age of Accounts Receivables
Inventory (AAI) Period (ARP)
Accounts
Payable Period
(APP)
Receipt of Payments to
Invoice Suppliers
Operating Cycle (OC)
Cash Conversion cycle (CCC)
Operating Cycle and Cash Cycle
There is an invisible time lag between the sale of goods and receipt of cash. There
is, therefore, a need for working capital. In other words, sufficient working capital is
necessary to sustain sales activity. The operating cycle concept penetrates to the
heart of working capital management in a more dynamic form. The time that elapses
to convert raw materials into cash is known as operating cycle. In other words the
time that elapses between the purchase of raw materials and the collection of cash
for sale is referred to as the operating cycle.
The operating cycle involves the following procedure:
a) Conversion cash into raw materials

b) Conversion of raw materials into work-in-process
c) Conversion of work-in-process into finished goods
d) Conversion of finished goods into sales(Debtors and Cash)
44
e) Conversion of debtors into cash
Cash Conversion Cycle
The amounts of time a firm’s resources are tied up calculate by subtracting the
average payment period from the operating cycle.
CCC = OC – APP
OC = Operating Cycle
APP= Accounts Payable Period
OC = AAI + ARP
AAI = Average Age of Inventory
ARP = Average Collection Period
AAI = Average Inventory
Cost of Goods Sold / 365
ARP= Average Accounts Receivables
Annual Sales/ 365
APP = Average Accounts Payable
Cost of Goods Sold / 365

45
ANALYSIS OF DATA
46
Operating Cycle
In days
PERIOD AAI ARP OC

2007-2008 46.57 15.39 61.96
2006-2007 45.89 18.29 64.18
2005-2006 49.22 20.16 69.38
2004-2005 43.41 19.02 62.43
2003-2004 40.63 15.36 55.99
The time that elapsed to convert raw materials into cash is known as operating cycle.
Operating Cycle (OC) = AAI + ARP
During the year 2005-2006, the operating cycle period increased by a great extend
to 69.38 days from the previous year’s figure of 62.43 days. But now the operating
cycle period has decreased in the last two years which is a good sign for the
company. This means that the time elapsed to convert raw materials into cash
becoming lesser.
Both the Average Age of Inventory and the Average Collection period should be
reduced to improve the Operating cycle period.
47
60.00
AVERAGE AGE OF INVENTORY
50.00
40.00
30.00
DAYS
20.00
10.00
0.00
2007-2008 2006-2007 2005-2006 2004-2005 2003-2004
25.00
AVERAGE RECEIVABLES PERIOD
20.00
15.00
DAYS
10.00
5.00
0.00
2007-2008 2006-2007 2005-2006 2004-2005 2003-2004
50.00
45.00
ACCOUNTS PAYABLE PERIOD
40.00
35.00
30.00
25.00
DAYS
20.00
15.00
10.00
5.00
0.00
2007-2008 2006-2007 2005-2006 2004-2005 2003-2004
48
Cash Conversion Cycle

In days
PERIOD AAI ARP APP CCC

2007-2008 46.57 15.39 42.92 19.04
2006-2007 45.89 18.29 37.72 26.46
2005-2006 49.22 20.16 42.12 27.26
2004-2005 43.41 19.02 46.08 16.35
2003-2004 40.63 15.36 43.58 12.40
Cash Conversion Cycle (CCC) is the time length between the payment for suppliers
of the raw materials and collection of cash for sales.
CCC = AAI + ARP – APP
As the operating cycle period increased by a great extend to 69.38 days from the
previous year’s figure of 62.43 days during the year 2005-2006, likewise the CCC
increased from 16.35 days to 27.26 days during that year. But now the Operating
Cycle period as well as CCC has shown a decreasing trend in the last two years
which is a good sign for the company.
Both the Average Age of Inventory and the Average Collection Period should be
reduced to improve the CCC period. Average Collection Period should be minimised
by implementing attractive credit policy that allows prompt payment by the debtors.
Also the Accounts Payable Period should be maximised by utilising the credit period
allowed by creditors to the maximum extend.
49
Statement of Working Capital

Capita
Particulars 2003
2003-04 2004-05 2005-06 2006
2006-07 2007-08
Current Assets
Inventories 262.66 330.12 419.42 451.95 513.29
Sundry Debtors 120.41 156.52 175.14 203.06 155.13
Cash and Bank 106.35 110.43 231.36 172.00 265.85
Balances
Other Current Assets 0.05 0.02 0.21 13.914 12.84
Loans and Advances 157.89 146.46 184.39 193.71 178.68
Total 647.36 743.55 1,010.53 1,034.63 1125.80
Current Liabilities
Current Liabilities 310.59 380.14 388.63 542.20 565.83
Provisions 28.32 28.83 52.05 55.38 93.09
Total 338.91 408.97 440.67 597.58 658.91
Working Capital(A-B) 308.45 334.58 569.86 437.05 466.89
WORKING CAPITAL
600
500
400
300
200
100
0
2003 -2004 2004 -2005 2005 -2006 2006 -2007 2007 -2008
The graph mainly shows an increasing trend in the amount of working capital, expec
expect
for the year 2006-2007
2007 when it fell sharply by 132.81 crores.
50
COMPONENTS OF TOTAL CURRENT ASSETS
Interpretation:
Important facts can be drawn about the company’s current asset from the above
figure:
 The current assets consists of 42-44% of inventory in almost all years under
study
 There has been a steep decrease in the debtors to 14% during the year 2007-
2008, which was otherwise hovering around 18-20% in the past years.
 Cash and Bank balances showed high fluctuations during the years, lowest
being 15% and the highest being 24%
 Other current assets are less than 1% in almost all the years
 There has been a steady decrease in the loans and advances which was 24%
in the 2003- 2004 now down to 16%
51
RATIO ANALYSIS
INDUSTRIAL AVERAGE OF SOME IMPORTANT RATIOS*
RATIOS Yearly Average 5 Years

Average
2003 -2004 2004 -2005 2005 -2006 2006 -2007 2007 -2008
CURRENT RATIO 1.91 1.86 1.68 1.59 1.61 1.73
QUICK RATIO 1.25 1.19 1.03 0.93 0.86 1.05
AVG COLLECT 47.47 46.19 43.73 38.05 36.17 42.32

PERIOD
INV HOLDING 41.89 40.69 39.77 39.14 46.05 41.51
PERIOD
WC TURNOVER 6.54 8.75 8.03 9.89 9.70 8.58
RATIO
*source: zen money
*The ratios of 4 major players namely MRF Tyres, Apollo Tyres, Ceat and JK tyres are taken for calculating the industrial
average. These companies altogether holds around 74% share of Indian Market.
52
CURRENT RATIO
CURRENT RATIO
YEAR CURRENT ASSETS CURRENT LIABS RATIO
2003 -2004 647.36 338.91 1.91
2004 -2005 743.55 408.97 1.82
2005 -2006 1010.51 440.67 2.29
2006 -2007 1,034.63 597.58 1.73
2007 -2008 1,125.80 658.91 1.71
2.50
CURRENT RATIO
2.00
1.50
RATIO
1.00
0.50
0.00
2003 -2004 2004 -2005 2005 -2006 2006 -2007 2007 -2008
This ratio measures the solvency of the company in the short-term.

short term. Current assets
are those assets which can be converted into cash within a year. Current liabilities
and provisions are those liabilities that are payable within a year.
Current Assets, Loans

Lo and Advances
Current Liabilities and Provisions
A current ratio 2:1 indicates a highly solvent position. A current ratio of 1.33:1 is
considered by banks as the minimum acceptable level for providing working capital
finance. The constituents of the current
current assets are as important as the current assets
themselves for evaluation of a company’s solvency position. A very high current ratio
will have adverse impact on the profitability of the organisation. A high current ratio
53
may be due to the piling up of inventory, inefficiency in the collection of debtors, high
balances in cash and bank accounts without proper investment etc.
Interpretation:
The current ratio in the year 2005-2006 is more than 2:1 which may not be
favourable due to various reasons like 1) there may be slow moving stocks or the 2)
cash lying idle because of insufficient investment. Even though the Company is now
maintaining a healthy current ratio average it is showing a decreasing trend except
for the year 2005 -2006. This indicates that there has been deterioration in the
liquidity position of the firm.
Industry Comparison:
Apollo tyres maintain a healthy current ratio when compared to the industrial average
ratio which is 1.91, 1.86, 1.68, 1.59, 1.61 for the respective years. Some years it is
almost the same and in one year the ratio is better than the industrial average ratio.
54
QUICK RATIO
QUICK RATIO
YEAR QUICK ASSETS QUICK LIABS RATIO
2003 -2004 384.70 338.91 1.14
2004 -2005 413.43 408.97 1.01
2005 -2006 591.10 440.67 1.34
2006 -2007 582.68 597.58 0.98
2007 -2008 612.51 658.91 0.93
1.60 QUICK RATIO

1.40
1.20
1.00
0.80
RATIO
0.60
0.40
0.20
0.00
2003 -2004 2004 -2005 2005 -2006 2006 -2007 2007 -2008
This ratio is used as the measure of the company’s ability to meet its current
obligation since bank overdraft is secured by the inventories, the other current assets
must be sufficient to meet other current liabilities.
Current Assets, Loans and Advances

Advance - Inventories
Current Liabilities and Provisions – Bank overdraft
A quick ratio of 1:1 indicates a highly solvent position. The ratio serves as
supplement to the current ratio in analysing liquidity.
Interpretation:
55
The Quick ratio in the year 2005-2006 is 1.34:1 which is very higher than the
standard quick ratio which is 1:1. Even though the company is now maintaining a
healthy quick ratio average, it is showing a decreasing trend except for the year 2005
-2006. The company must take necessary steps to step up the ratio to 1:1 which
indicates highly solvent position. The quick ratio of the company in the last year
2007-08 is 0.93:1, this indicates that the concern may be able to meet its short-term
obligations.
The quick ratio of the company, when compared to industrial average ratio which is
1.25, 1.19, 1.03, 0.93, 0.86 for the respective years, shows that, in last three years
the company have surpassed the industrial average ratio. This is a highly
commendable performance.
56
ABSOLUTE LIQUIDITY RATIO

YEAR CASH CURRENT LIABS RATIO
2003 -2004 106.35 338.91 0.31
2004 -2005 110.43 408.97 0.27
2005 -2006 231.36 440.67 0.53
2006 -2007 172.00 597.58 0.29
2007 -2008 265.85 658.91 0.40
0.60
0.50
0.40
0.30
RATIO
0.20
0.10
0.00
2003 -2004 2004 -2005 2005 -2006 2006 -2007 2007 -2008
This is the ratio of absolute liquid assets to quick liabilities. However, for calculation
purposes, it is taken as ratio of absolute liquid assets to current liabilities. Absolute
liquid assets include cash in hand, cash at bank and short-term
term or tempora
temporary
investments.
Absolute Liquid Assets
Current Liabilities
The acceptable norm for this ratio is 50% or 0.5:1 or 1:2.

1:2. i.e. Re. 1 worth absolute
liquid assets are considered adequate to pay Rs.2 worth current liabilities.
57
Interpretation:
The absolute liquidity ratio in the year 2005-2006 is very healthy .53:1 which is
higher than the standard. But the years 2003-04, 2004-2005, 2006-07 shows a very
poor ratios of .31,.27,.29 respectively. The absolute liquidity ratio of 2007-2008
shows an increasing trend in the absolute liquidity ratio which is a good sign. The
company should improve its absolute liquidity ratio.
58
DEBTORS TURNOVER RATIO

YEAR SALES AVG. ACC REC TIMES
2003 -2004 2,314.31 81.07 28.55
2004 -2005 2,656.81 138.46 19.19
2005 -2006 3,002.12 165.83 18.10
2006 -2007 3,774.34 189.10 19.96
2007 -2008 4,246.98 179.09 23.71
30.00
25.00
20.00
15.00
TIMES
10.00
5.00
0.00
2003 -2004 2004 -2005 2005 -2006 2006 -2007 2007 -2008
Debtors turnover which measures whether the amount or resources tied up in

debtors is reasonable and whether the company has been efficient in converting
debtors into cash. The higher the ratio, the better the position
Credit Sales
Average Debtors
Debtors velocityy indicates the number of times the debtors are turned over during a
year. Generally the higher the value of debtors turnover the more efficient is the
management of debtors / sales or more liquid are the debtors. Similarly, low debtors
turnover implies inefficient
efficient management of debtors or sales and less liquid debtors.
But a precaution is needed while interpreting a very high debtors turnover ratio
59
because a very high ratio may imply a firm’s inability due to lack of resources to sell
on credit there by losing sales and profits.
Interpretation:
Even though the company could not repeat the debtors turnover ratio of the year
2003-2004 which is 28.55 times, it is showing an increasing trend in the debtors
turnover ratio from the year 2005 -2006 to 2007- 2008. Which is 18.10, 9.96, 23.71
respectively. This indicates that management of debtors is becoming more and more
efficient / more liquid are the debtors.
60
AVERAGE COLLECTION PERIOD
AVG COLLECTION PERIOD

YEAR DAYS DTR DAYS
2003 -2004 365 28.55 12.78
2004 -2005 365 19.19 19.02
2005 -2006 365 18.10 20.17
2006 -2007 365 19.96 18.29
2007 -2008 365 23.71 15.39
25.00
AVERAGE COLLECTION PERIOD
20.00
15.00
DAYS
10.00
5.00
0.00
2003 -2004 2004 -2005 2005 -2006 2006 -2007 2007 -2008
Average Collection Period measures how long it will take to collect amounts from the
debtors.
No of Working days
Debtors Turnover Ratio
The actual collection period can be compared with the stated credit terms of the
company. If it is longer than those terms, then this indicates inefficiency in collecting
debts.
The average collection period ratio represents the average number of days for which
a firm has to wait before its receivables are converted into cash. It measures the
61
quality of debtors. Generally, the shorter the average collection period the better is
the quality of debtors as a short collection period implies quick payment by debtors.
Similarly, a higher collection period implies as inefficient collection performance
which in turn adversely affect the liquidity or short term paying capacity of a firm out
of its current liabilities. Moreover, longer the average collection period the larger are
the chances of bad debt.
Interpretation:
Even though the company could not repeat the average collection period of the year
2003-2004 which is 12.78 days, it is showing an decreasing trend in the average
collection period from the year 2005 -2006 to 2007- 2008. Which is 20.17, 18.29,
15.39 days respectively. This indicates that the credit policies of the company is
good or prompt payment from the side of debtors.
One important fact found when compared with the industrial average period which is
47.47, 46.19, 43.73, 38.05, 36.17 days for the respective years, is that the
company’s average collection period is lesser than 50% of industrial average in
almost all years. Even though lesser time taken for collection of debt is a desirable
because the company get quick payments from its debtors, the company should
reassess its credit policy because it may lose its customers owing to the attractive
credit period offered by its competitors.
62
INVENTORY TURNOVER RATIO

YEAR SALES AVG. INVENTORY TIMES
2003 -2004 2,314.31 239.57 9.66
2004 -2005 2,656.81 296.39 8.96
2005 -2006 3,002.12 374.77 8.01
2006 -2007 3,774.34 435.68 8.66
2007 -2008 4,246.98 482.63 8.80
12.00
10.00
8.00
6.00
TIMES
4.00
2.00
0.00
2003 -2004 2004 -2005 2005 -2006 2006 -2007 2007 -2008
A considerable amount of a company’s capital may be tied up in the financing of raw

materials, work in progress and finished goods. It is important to ensure that the level
of stocks is kept as low as possible, consistent with the need to fulfil customer orders
in time.
Sales
Average Inventory
Average Inventory = (opening stock + closing stock) / 2

63
The inventory turnover ratio measures how many times a company’s inventory has
been sold during the year. If the inventory turnover ratio has decreased from past it
means that either inventory is growing or sales are dropping.
In addition to that, if a firm has a turnover that is slower than for its industry, then
there may be obsolete goods on hand, or inventory stocks may be high. Low
inventory turnover has impact on the liquidity of the business.
Interpretation:
The company is maintaining a consistent inventory turnover ratio in almost all the
years under study. This indicates efficient management of inventory because more
frequently the stocks are sold and the lesser amount of money is required to finance
the inventory.
64
INVENTORY HOLDING RATIO

YEAR DAYS AVG. INVENTORY DAYS
2003 -2004 365 9.66 37.78
2004 -2005 365 8.96 40.74
2005 -2006 365 8.01 45.57
2006 -2007 365 8.66 42.15
2007 -2008 365 8.80 41.48
50.00
45.00
40.00
35.00
30.00
25.00
DAYS
20.00
15.00
10.00
5.00
0.00
2003 -2004 2004 -2005 2005 -2006 2006 -2007 2007 -2008
It is the average time taken for clearing the stocks. This period is calculated by
dividing the number of days by inventory turnover.
Days in a year
Inventory Turnover Ratio
Interpretation:
The company is maintaining a consistent inventory holding ratio in almost all the
years under study, which is averaging around 42.5 days. This indicates efficient
management of inventory because more frequently stocks are disposed off or sold.
65
From the comparison with industrial average period which is 41.89, 40.69, 39.77,
39.14, 46.05 days for the respective years, it is found that the company is having
higher inventory holding period in some years. But in the last year the bettered its
inventory holding period and was lesser than the industrial average.
66
INVENTORY RATIO
INVENTORY RATIO
YEAR AVG. INVENTORY CURRENT ASSETS RATIO
2003 -2004 239.57 647.36 0.37
2004 -2005 296.39 743.55 0.40
2005 -2006 374.77 1010.51 0.37
2006 -2007 435.68 1,034.63 0.42
2007 -2008 482.63 1,125.80 0.43
0.44
0.43
INVENTORY RATIO
0.42
0.41
0.40
0.39
RATIO
0.38
0.37
0.36
0.35
0.34
2003 -2004 2004 -2005 2005 -2006 2006 -2007 2007 -2008
The level of inventory in a company may be assessed by the use of inventory ratio,
which measures how much has been tied up in inventory. This ratio shows the ratio
of inventory to the current asset.
Inventory x 100
Current Assets
Interpretation:
The company is maintaining a consistent

nt inventory ratio under almost all the period
under study.. This indicates that the company’s wealth is not unnecessarily tied up in
the inventory.
67
WORKING CAPITAL TURNOVER RATIO
WORKING CAPITAL TURNOVER RATIO

YEAR SALES NET W C TIMES
2003 -2004 2,314.31 308.45 7.50
2004 -2005 2,656.81 334.58 7.94
2005 -2006 3,002.12 569.85 5.27
2006 -2007 3,774.34 437.05 8.64
2007 -2008 4,246.98 466.89 9.10
10.00
9.00
WORKING CAPITAL TURNOVER
8.00
7.00
6.00
5.00
TIMES
4.00
3.00
2.00
1.00
0.00
2003 -2004 2004 -2005 2005 -2006 2006 -2007 2007 -2008
Working capital turnover ratio indicates the velocity of the utilisation of net working
capital. This ratio indicates the number of times the working capital is turned over in
the course of a year. This ratio measures the efficiency with which the working
capital is being used by a firm. A higher ratio indicates efficient utilisation
utilisation of working
capital. And a low ratio indicates otherwise. But a very high working capital turnover
ratio is not a good situation for any firm and hence care must be taken while
interpreting the ratio. This ratio can at best be used by making of comp
comparative and
trend analysis for different firms in the same industry and for various periods. This
ratio can be calculated as:
68
Sales
Net Working Capital
Interpretation:
The graph shows an increasing trend in the working capital turnover ratio except for
the year 2005- 2006 where it recorded the lowest of 5.27. It indicates the efficient
utilisation of working capital by the firm.
The comparison of industrial average which is 6.54, 8.75, 8.03, 9.89, 9.70 times for
the respective years, shows that the industrial average showed a steep increase in
the ratio during the year 2004-2005, but the company showed a steady ratio during
this year. In the year 2005-2006 the company’s working capital turnover ratio was
below par. And in the last two years both the industry as well as the company
improved their performance.
69
CREDITORS TURNOVER RATIO

YEAR CREDIT PURCHASES AVG. ACC PAYABLE RATIO
2003 -2004 1,193.16 257.00 4.64
2004 -2005 1,425.37 314.61 4.53
2005 -2006 1,844.16 320.73 5.75
2006 -2007 2,258.03 358.12 6.31
2007 -2008 2,384.96 444.79 5.36
7.00
6.00
5.00
4.00
3.00 TIMES
2.00
1.00
0.00
2003 -2004 2004 -2005 2005 -2006 2006 -2007 2007 -2008
Creditors’ turnover ratio indicates the number of times the accounts payable rotate in
a year. It signifies the credit period enjoyed by the firm in paying its creditors.
Accounts payable include trade creditors and bills payable. This ratio shows the
relationship between net credit purchases for the whole year and accounts payable.
Net Credit Purchase
Average Trade Creditors

70
Interpretation:
The Creditors turnover ratio indicates the promptness in making payment of credit
purchases. The ratio signifies that the creditors are being paid promptly, thus
enhancing the credit worthiness of the company.
The creditors turnover ratio of cycle of the company shows that company utilises the
credit period given by the suppliers to the maximum extend.
71
SCHEDULE OF CHANGES IN WORKING CAPITAL POSITION
It is prepared in order to measure the increase / decrease in the working capital over
a period of time. It is necessary to prepare this schedule. This schedule is prepared
with the help of only current assets and current liabilities.
Compare each current asset in previous year, with that in current year. Similarly,
compare each current liability in the previous year with that in the current year. The
difference is recorded for each individual current asset and current liability. This
process will be repeated till all accounts relating to all current assets and current
liabilities in two Balance Sheets are gone through and differences are properly
recorded. The two columns showing the changes in current assets and current
liabilities are balanced. The balancing figure represents either an increase or
decrease in working capital. It must be remembered that schedule of changes in
working capital is prepared only from accounts appearing in the Balance Sheet.
Increase in Current Assets and Decrease in Current Liabilities:
The acquisition of current assets and repayment of current liabilities will result in
funds out flow. The funds may be applied to finance an increase in stock, debtors
etc. or to reduce trade creditors, bank over draft, bills payable etc.
Decrease in Current Assets and Increase in Current Liabilities:
The reduction in current assets e.g. stock or debtors balance will result in release of
funds to be applied elsewhere. Short term funds raised during the period by any
increase in the current liabilities like trade creditors, bank over draft and tax dues,
means that these sources have more at the end of the year than at the beginning.
72
Schedule of changes in working capital position(02-03 to 03-04)
Particulars 2002-03 2003-04 Increase Decrease

(+) (-)
Current Assets
Inventories 216.48 262.66 46.18
Sundry Debtors 74.37 120.41 46.04
Cash and Bank 97.61 106.35 8.74
Balances
Other Current Assets 0.75 0.05 0.70
Loans and Advances 117.76 157.89 40.13
Total 506.97 647.36
Current Liabilities
Current Liabilities 221.44 310.59 89.15
Provisions 20.78 28.32 7.54
Total 242.22 338.91
(A-B) 264.75 308.45 141.09 97.39

Increase/ Decrease 43.70 43.70
308.45 308.45 141.09 141.09
The statement shows that there is a net increase in working capital in the year 2003-
2004 of Rs.43.70 Crores.
73
Schedule of changes in working capital position (03-04 to 04-05)

(+) (-)
Current Assets
Inventories 262.66 330.12 67.46
Sundry Debtors 120.41 156.52 36.11
Cash and Bank 106.35 110.43 4.08
Balances
Total 647.36 743.55
Current Liabilities
Provisions 28.32 28.83 0.51
Total 338.91 408.97
(A-B) 308.45 334.58 107.65 81.52

334.58 334.58 107.65 107.65
74

(+) (-)
Current Assets
Inventories 330.12 419.42 89.30
Sundry Debtors 156.52 175.14 18.62
Cash and Bank 110.43 231.36 120.93
Balances
Total 743.55 1,010.53
Current Liabilities
Provisions 28.83 52.05 23.22
Total 408.97 440.67
(A-B) 334.58 569.86 266.98 31.70

569.86 569.86 266.98 266.98
75

(+) (-)
Current Assets
Inventories 419.42 451.95 32.53
Sundry Debtors 175.14 203.06 27.91
Cash and Bank 231.36 172.00 59.36
Balances
Total 1,010.53 1,034.63
Current Liabilities
Provisions 52.05 55.38 3.33
Total 440.67 597.58
(A-B) 569.86 437.05 83.46 216.26

569.86 569.86 216.26 216.26
The statement shows that there is a net decrease in working capital in the year
2006-2007 of Rs.132.80 Crores. This year showed a rare case of net decrease in the
working capital.
76

(+) (-)
Current Assets
Inventories 451.95 513.29 61.34
Sundry Debtors 203.06 155.13 47.92
Cash and Bank 172.00 265.85 93.85
Balances
Total 1,034.63 1125.80
Current Liabilities
Provisions 55.38 93.09 37.71
Total 597.58 658.91
(A-B) 437.05 466.89 155.19 125.36

466.89 466.89 155.19 155.19
77
FINDINGS, SUGGESTIONS AND

CONCLUSIONS
78
FINDINGS
1. In the last two years the Operating Cycle period as well as Cash Conversion
Cycle has shown a decreasing trend, which is a good sign for the company. It
indicates that the time taken for the conversion of cash is becoming less and
less.
2. When compared with the various industrial average ratios, the company is
showing a very healthy trend over the last five years. Also the quick ratio of
the company showed an admirable consistency and was higher than the
industrial average over the last three years.
3. Company is maintaining a healthy current ratio which is at par with industrial

ratio. But it is showing a decreasing trend except for the year 2005 -2006.
This indicates that there has been deterioration in the overall liquidity position
of the firm.
4. The quick ratio in the year 2005-2006 was much higher than the standard
quick ratio which is 1:1. The quick ratio of the company in the last year 2007-
08 is 0.93:1, this indicates that the concern may be able to meet its short-term
obligations.
5. The absolute liquidity ratio in the year 2005-2006 was very healthy and higher
than the standard ratio. But during other years it recorded very poor ratios.
The absolute liquidity ratio of 2007-2008 shows an increasing trend, which is
a good sign.
6. It is found that the cash and bank balances of the company are fluctuating
highly over the period of study. The company should improve its cash
management to avoid these fluctuations.
79
7. The company could not repeat the Debtors turnover ratio of the year 2003-
2004 which is 28.55 times. But it is showing an increasing trend during the
last three years. This indicates that management of debtors is becoming more
and more efficient / more liquid are the debtors.
8. The company’s the average collection period is much lower when compared
to the industrial average, which is below 50% of the industrial average. This
indicates that the credit policies of the company is good or prompt
paymentfrom the side of debtors.
9. The company is maintaining a consistent inventory turnover ratio, inventory

holding ratio and inventory ratio in almost all the years under study. This
indicates efficient management of inventory because more frequently the
stocks are sold and the lesser amount of money is required to finance the
inventory.
10. The working capital turnover ratio shows an increasing trend in the last two
years. It also meets the industrial average. The overall trend indicates the
efficient utilisation of working capital by the firm.
11. The statement shows that there is a net increase in working capital in almost
all years except 2006-2007, where it recorded a net decrease. This year
showed a rare case of net decrease in the working capital.
12. From the overall analysis of working capital for the last five years, it is found
that, even though the company has failed to attain the standard ratios in some
years, it is managing its working capital effectively.
80
SUGGESTIONS
1. The Average Age of Inventory of the company should be reduced to improve
the CCC period. Average Age Inventory can be minimised by using various
inventory management techniques like ‘Just In Time’ method.
2. The Accounts Payable Period can be maximised by utilising the credit period
allowed by creditors to the maximum extend.
3. The company must take necessary steps to step up the quick ratio to 1:1
which indicates highly solvent position.
4. The company should give more emphasis on the cash management as the
absolute liquidity ratios of almost all years are below standards. Cash budgets
are very useful for cash management.
5. Set the planning standards for stock days, debtor days and creditor days.
Having set planning standards, keep to them.
6. Impress on staff that these targets are just important operating budgets and
standards cost. Instil an understanding amongst the staff that working capital
management produces profits.
7. Keep stock levels as low as possible, consistent with not running out of stock
and not ordering stock in uneconomically small quantities.
8. “Just in Time” stock management is good, as long as it is “Just in Time” and

never fails to deliver on time. Consider keeping stock in supplier’s
warehouses drawing on its as needed and saving warehousing cost.
9. Assess all significant new customers for their ability to pay. Take references,
examine accounts. Try not to take on new customers who would be poor
payers. Re assess all significant customers periodically.
81
10. Stop supplying existing customers who are poor payers, the company may
lose sales, but after all it is the quality of business rather than quantity of
business that matters.
11. Consider offering discounts for prompt settlement of invoices, but only if the
discounts are lower than the costs of borrowing the money owed from other
sources.
12. Take advantage of credit offered by suppliers and do not pay invoices too
early. Only pay early if the supplier is offering a discount.
82
CONCLUSION
Apollo tyres ltd is one of the major players in tyre manufacturing sector in India. It
has captured almost 21% of share in the Indian market behind the market leader
who holds 22% of market share.
From the overall analysis, it can be seen that the company’s working capital
management is highly efficient and has met the industrial average and the standard
ratios. The comparison with the industrial average helped in understanding the
efficiency of the working capital management. It also helped to know the
shortcomings of the company in some areas. The company should take necessary
actions to overcome these drawbacks and should further strengthen the working
capital management.
The company should aim at creating a ‘benchmark’ in the working capital

management along with other aspects under the financial management to attain
higher position.
83
Bibliography & Webliography
Author Title of the book Other Details

nd
Sudhindra Bhat Financial Management 2 Edition, Excel Books, ISBN -
Principles and Practice 978-81-7446-586-3
Aswath Corporate Finance 2nd Edition, Wiley India (P) Ltd.,
Damodaran Theory and Practice New Delhi, 2008
Shashi K. Gupta, Accounting Kalyani Publishers, Noida, 2003
R.K. Sharma And
Financial Management
Company documents
Apollo Tyres Ltd. Annual Reports 07- 08, 06-07, 05-06,
04-05, 03-04
Websites
www.apollotyres.com
www.zenmoney.com

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1

Working Capital Management is significant in financial management due to the fact

This project titled ‘A STUDY ON WORKING CAPITAL MANAGEMENT AT APOLLO

1. 1st Generation Companies:-which included Dunlop and FireStone.

RANKING OF TYRE COMPANIES (In India)

COMPANY TRUCK CAR FARM LCV

Apollo Tyres Limited (Apollo Tyres) is a tyre manufacturing company, incorporated in

“A significant player in the global tyre industry and a brand of choice,

1.2 Key Facts

1.3 Corporate Timeline

Products and Services:

Period Instrument Authorised Issued Paid Up

Stake holding Pattern Percentage

2007-2008 2006-2007 2005-2006 2004-2005 2003-2004

Sl.No. LOCATION PRODUCTS & FACILITIES

Sl No. LOCATION PRODUCTS & FACILITIES

Research, Design & Development

 Global R&D centre in Limda [Baroda]

 Panel o f international tyre technologists working on compounding and tyre

Apollo Tyres Ltd., Perambra, Thrissur

Name APOLLO TYRES LTD

Management Staffs 270

Milestones of Apollo tyres, Perambra

 Single largest truck tyre plant in India

DESIGN OF THE STUDY

Design of the study

Objectives of the study:

 Ascertain the liquidity of Apollo Tyres Ltd

Scope of the study

Formulation of research problem

The period covered for the completion of the project is 8 weeks.

Tools of data analysis

Limitations of the study

Working capital management

However the world we live is not perfect. It is characterized by considerable amount

The primary objective of working capital management is to ensure that

 Meet day to day cash flow needs.

Need for working capital

Working Capital Cycle (Graph)

Equity & loan

Each component of working capital (namely inventory, receivables and payables)

Determinants of working capital

Working capital requirements of a concern depends on a number of factors, each of

Length of operating cycle

Current Asset Policies

The quantum of working capital of a company is significantly determined by its

Fluctuations of supply and seasonal variations

Working Capital Concepts

Gross working capital concept

2) Current asset whatever may be the sources of acquisition, are used in

Net working capital

Kinds of working capital

Working capital can be put in two categories:

1) fixed or permanent working capital

Fixed or permanent working capital

Variable/temporary working capital

Sources of working capital

The company can choose to finance its current assets by

1. Long term sources

Long term sources

Retain earning accumulated profits are a permanent sources of regular working

Long term debt

Short term sources of temporary working capital

Some sources of temporary working capital: